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19 November
2011
AEC and Thai Steel Industry
1
Contents• Current Steel Industry Situation• Consequences from the ASEAN Economic
Community• Implications on Thailand and
recommendation• Implications to the ASEAN Steel Industry
2
The apparent steel use has increased on average 7.6 percent per year. It has a strong positive correlation with the economic growth
3
8,031
3,837
5,9606,762
7,607
10,049
10,967
12,661
13,876
12,15412,716
13,581
10,758
14,012
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Production Import Export Apparent Use
Thailand apparent steel use (‘000 Tonnes)CAGR 10/00 (%)
7.6 %
5.3 %
7.6 %
-0.1 %
Economic recovery & growth
Construction boom
Economic slowdown
Construction contracted
Manufacturing growth
Economic growth Construction recovery Manufacturing boom
Economic contracted
Source: Iron and Steel Institute of Thailand
Shortage of the supply. The local production is only 30 percent of the demand. Relying on import
4
3,837
13,877
10,758
14,012
1,814
5,161 5,5654,145
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2010E
Steel Demand Crude Steel Production
Source: Iron and Steel Institute of Thailand
Thailand crude steel production and steel demand (‘000 Tonnes)
5
Thailand Steel Industry StructureIronmaking Steelmaking Finishing & Coating End Users
Scrap recycle
Hot-Rolling
Hot-Rolling Cold-Rolling Coating
Construction54%
Automobiles and parts
16%
Machinery and Industrial Products
13%
Electrical Appliances
12%
Packaging5%
Cold-Drawing
Forming
16 Mills• TATA• G Steel• GJS• SYS• TRIUMP• Etc.
Production:4.2 m TImport:3.7 m TExport:0.2 mTDemand:7.7 m T
ImportRussia, Ukraine,
Turkey, Brazil
ExportVietnam,
Philippines, India, Taiwan
Long Product
Flat Products
3 Mills• SUS• TCRSS• Bluescope
Production: 1.7 m TImport:0.7 m TExport: 0.1 m TDemand: 1.6 m T
ImportJapan, S. Korea,
Taiwan, China
ExportChina, India, Italy,
Indonesia
~ 50 Mills• TATA• Sahaviriya• Tycoon• Etc.
Production: 3.7 m TImport: 1.7 m TExport: 0.8 m TDemand: 4.7 m T
~ 100 Mills
1,000 Mills
Machining
Bending
Cutting
Welding
Forging
Heat
Treatment
Etc.
1 Mill• TATA
(Mini-Blast Furnace)
Source: Iron and Steel Institute of Thailand
5 Mills• G Steel• GJ Steel• Sahaviriya• LPN
Production: 3.9 m TImport: 3 m TExport :0.3m TDemand : 4.2 m T
ImportJapan, S. Korea,
Australia, China
ExportVietnam,
Malaysia, Laos
~ 15 Mills• Bluescope• Thai Tin Plate
Production: 0.8 m TImport: 2.2 m TExport: 0.1m TDemand: 2.9 m T
ImportJapan, S. Korea, Taiwan, China
ExportVietnam, Laos,
Myanmar, Hong Kong
Thailand relies on the Non-ASEAN countries on its import (2009)
6
Thailand Export Thailand Import
HS 72 (iron and
steel)HS 73 (articles of I
and S)HS 72 HS 73
Value % Value % Value % Value %
Brunei 6.38 0.00 793.48 0.02 2,714.25 0.04 14.21 0.00
Cambodia 40,399.62 3.85 30,512.50 0.76 6,616.79 0.10 184.91 0.00
Indonesia 73,718.75 7.02 129,143.29 3.22 11,496.90 0.17 53,212.92 1.37
Lao PDR 68,424.95 6.51 47,662.68 1.19 318.27 0.00 214.28 0.01
Malaysia 87,708.63 8.35 125,268.99 3.12 109,273.05 1.59 255,214.58 6.58
Myanmar 53,406.88 5.08 24,843.72 0.62 78.29 0.00 466.12 0.01
Philippines 26,680.29 2.54 58,046.00 1.45 18,101.81 0.26 29,539.82 0.76
Singapore 55,928.44 5.32 160,714.90 4.00 71,967.47 1.05 254,174.64 6.56
Vietnam 180,535.93 17.19 109,145.29 2.72 19,962.32 0.29 17,486.65 0.45
ASEAN 586,809.85 55.86 686,130.85 17.09 240,529.14 3.50 610,508.12 15.75
Non ASEAN
463,637.42 44.143,329,296.3
782.91
6,638,215.77
96.503,265,939.8
184.25
World1,050,447.2
8100.0
04,015,427.2
1100.0
06,878,744.9
1100.0
03,876,447.9
3100.0
0
Thailand steel trade in 2009 (Million USD)
Source: WITS
Thailand is capable of producing commercial grade, but needs to import quality grade!
7
Thailand steel import in 2010 (Tonnes)
Volume in 2010 (Tonnes) Main countries
Rebar x Very low -
Bar Few amount 523,128 Japan, China, S. Korea, Taiwan
Cold Drawn Bar x 69,272 Japan, S Korea, India, Italy
Wire Rod & Wire x 916,232 China, Japan, Taiwan, S. Korea, Brazil
Hot-Rolled Section x 12,607 Japan, China, UK, S. Korea
Seamless Pipe 196,623 China, Japan, Italy
HRC & HRP x 1,923,815 Japan, S. Korea, China, Austraila, Taiwan
HRC P&O Few amount 1,056,009 Japan, S. Korea
CR Carbon Steel x 684,055 Japan, S. Korea, China, Taiwan
CR Stainless Steel x 327,916 Japan, S. Korea, China, Taiwan
Galvanized & Pre-Painted x 1,515,500 Japan, China, S. Korea, Taiwan
Zn-Al & Pre-Painted x 123,948 China, Taiwan, S. Korea, Japan
TP & TF x 253,177 China, S. Korea, Taiwan, Belgium, Netherlands
Cold-Formed Steel Section & Pipe x 147,552 Italy, Japan, China, Taiwan, S. Korea
Flat products
ImportCapability to produce
Products
Long products
Some Evidences • The demand for steel is positively related to the
economic performance. Obvious! Construction shares more than half of total demand while automobiles, machineries, and electrical appliances share over ten percent
• Due to the shortage of supply, imports are mostly from non-ASEAN countries; China, Japan, Korea, Australia, Taiwan, Russia, and eastern European countries.
• Local production for commercial grade, not quality grade
• Exporting some HS 72 (iron and steel) to ASEAN members
• Exports to non-ASEAN countries with different destinations from one year to another
8
Contents• Current Steel Industry Situation• Consequences from the ASEAN Economic
Community• Implications on Thailand and
recommendation• Implications to the ASEAN Steel Industry
9
1967 1997
Milestones of ASEAN
1984 1995
1999
Declaration of ASEAN Concord II
Bali Indonesia
2003 2007
40th Anniversary of ASEAN Cebu The Philippines
MYANMARBRUNEI DARUSSALAM
2015
ASEAN Community
AFTA
1992
Bangkok Declaratio
n
10LAOS
INDONESIA
MALAYSIA
PHILIPPINES
SINGAPORE
THAILAND
VIETNAM
CAMBODIA
AEC• Single market and production base (goods,
services, capital, skilled workers, and investment)
• Competitive economic region (Competition policy, IPRs, tax harmonization, e-commerce, and basic infrastructure)
• Equitable economic development (CLMV)• Integration with the global economy (ASEAN
plus and plus plus and global production networking)
11
12
AECSingle Market andProduction base
To create a stable, prosperous and highly competitive ASEAN
economic regionFreer flow of capital
Free flow of goods services, investment,
and skilled labor
characteristic
objective
Overview of the ASEAN Economic Community
13
Single market and production base
14
ATIGA (ASEAN Trade in Goods
Agreement)
Tariff Measures
ASEAN 6
2003 zero tariff for 60% of IL2007 zero tariff for 80% of IL
2010zero tariff for 100% of
ILCLMV
2003VN with 0-5% for substantial items
2007LS and MYR with 0-5%
for substantial items
2010CAM with 0-5% for substantial items
2015zero tariff for 100% of
IL
IL = Inclusion list
15
ATIGA (ASEAN Trade in Goods Agreement)
Non-Tariff Issues
o Elimination of non tariff barriers • Technical Barriers to Trade (Standard,
testing procedure, … )• Custom valuation • ….
oRule of Origino Trade Facilitation
Automotive
& Parts*Electrical & Electronics*
Food Production Hub (packing*)
Tourism HubManufacturing
& Assembly Hub*
Machinery and Metalworking
Production Base*
16
AEC and Potential sectors for Thailand
Source: Thai Federation Industry
5/6 potential sectors involve steel industry
Comparison Thailand and its ASEAN Partners in
steel industry
• Thailando the largest steel market in regiono capable of producing various steel products as compared to ASEAN partners
due to the FDI and joint venture steel mills (Korea/Japan/india)
• Malaysiao strong in rebar, wire rod, wire, galvanized steel and steel pipe market
• Indonesia o strong in rebar, wire rod, hot-rolled coil and hot-rolled plate marketo attract new investment from global steel players as huge market potential and
its prosperous economy
• Singapore o strong in rebar and wire rod and strong steel trader in heavy section, seamless
pipe and galvanized steel
• Vietnam o strong in rebar, cold-rolled coil and zincalume marketo Booming steel market in Vietnam is expected after it survives the volatile
economic period
• Philippines steel production serves local market, no role in export
17
Recalling the AEC: growth driven within ASEAN and attracted Non-
ASEAN • Single market and production base (goods,
services, capital, skilled workers, and investment)• Competitive economic region (Competition policy,
IPRs, tax harmonization, e-commerce, and basic infrastructure)
• Equitable economic development (CLMV)• Integration with the global economy (ASEAN plus
and plus plus and global production networking)
18
Methodology• Constructing the value chain from upstream to
downstream of Thai Steel Industry base on HS 72 and 73 at 4-6 digits
• Scope of study on the Five Selected industries • Policy gap analysis
o AEC factors affecting the supply and demand conditions o Non-AEC factors (other than ASEAN) affecting demand and supply conditions
• Integrated five selected industries to evaluate the opportunity and threat of the Thai steel industry for each product item
• Grouping the iron and steel products and indicate the National strategies towards the AEC
• Identifying policy implications or what to be done at the ASEAN level
19
20
Ironmaking Steelmaking Finishing Downstream Industry
Crank shaft
Fastener, Tire Cord
Chassis, Wheel rim, Wheel rib
Bumper, Seat
Exhaust Pipe, Decorative Item
Outer Body
Shock absorber
Bar – Carbon, Alloy Cold Drawn Bar – Carbon, Alloy
Wire Products -Carbon, Alloy
Steel Wire -Carbon, Alloy
Wire Rod –Carbon, Alloy
Mini-Blast Furnace
Scrap
Billet production by EAF process
Slab production by EAF process
HRC for Direct Use –Carbon, Alloy
HRC P&O)– Carbon, Alloy
CRCHRC for Cold Rolling
Cold-Rolled Stainless Steel SheetHot-Rolled Stainless Steel
Sheet
Galvanneal
Welded Pipe – Carbon, Alloy
Layer 1: Supply Chain
Figure 1: Supply chain of steel and automotive industry
21
°» µ®¦¦¤¥µ¥ r� � � � �
- Tax level in each country is the main non-tariff measures
Bar – Carbon, AlloyASEAN producers can’t do this product, need to import from outside ASEAN
Wire Products -Carbon, Alloy
Steel Wire - Carbon, Alloy
Wire Rod –Carbon, AlloyASEAN producers can’t do this product, need to import from outside ASEAN
HRC for Direct Use –Carbon, AlloyASEAN producers can’t do this product, need to import from outside ASEAN
HRC P&O - CarbonASEAN producers can’t do this product, need to import from outside ASEAN
CRCThai producers are so strong, but more treats from Vietnam in the near future
HRC for Cold RollingASEAN producers can’t do this product, need to import from outside ASEAN
Hot-Rolled Stainless Steel SheetASEAN producers can’t do this product, need to import from outside ASEAN
Galvannised Steel SheetASEAN producers can’t do this product, need to import from outside ASEAN
Welded Pipe - Carbon
Layer 2: AEC Factors
Supply Factors Demand Factor
+ Trade Facilitation for import and export automobile and parts will cut more costs
+ Each country in ASEAN will buy more automobile after AEC that induce more production and trade level
Impact for each company depends heavily on policy from headquarter (outside ASEAN)
Cold Drawn Bar –Carbon, AlloyLocal producer capable to produce this product (most are Japan JV company)
Cold-Rolled Stainless Steel SheetThai producers capable in popular grades. Vietnam and Malaysia will come out in the near future
Process which Thai producer can not produce or capable with limited grade and very small amount
Process whichThai producer capable to do
Ironmaking Steelmaking Finishing Downstream Industry
Mini-Blast Furnace
Scrap
Billet production by EAF process
Slab production by EAF process
Figure 2: Factors from AEC to auto-related steel industry
22
Figure 3: Factors from AEC Plus to auto-related steel industry
Impact from AJCEP
Layer 3: External Factors
Supply Factor Demand Factor
Japan is still major investor in this region by focusing on Thai, Indonesia and Philippines and will expand more in the future, especially after Tsunami.
Car and truck import will expand continually from ASEAN Plus FTAs
Japan set Thai for their be production base in automotive sector for export, especially under FTAs e.g. Thai and ASEAN, and with India, Australia
Wire Products -Carbon, AlloyLocal producer capable to produce this product (most are Japan JV company)
Steel Wire - Carbon, AlloyLocal producer capable to produce this product (most are Japan JV company)
Wire Rod –Carbon, AlloyImport from Japan and Korea
HRC for Direct Use –Carbon, AlloyImport from Japan, Korea, Taiw an
HRC P&O – Carbon, AlloyImport from Japan, Korea, Taiw an
CRCKorean and Taiw anese steel company invests in Vietnam
HRC for Cold RollingImport from Japan, Korea, Taiwan
Cold-Rolled Stainless Steel SheetKorean steel company has
invested in Vietnam and JV between Japan and EU companies wil l go to Malaysia
Hot-Rolled Stainless Steel SheetImport from Korea, Japan, S. Africa and Europe
Galvannised Steel SheetImport from Japan and Korea. More investment project will ask for approve. Now there are new investment from Japan to Thai
Welded Pipe - CarbonLocal producer capable to produce this product (most are Japan JV company)
Bar – Carbon, AlloyImport from Japan, Korea, Taiwan. Gradually increase of import from China and India
Cold Drawn Bar – Carbon, AlloyLocal producer capable to produce this product (most are Japan JV company)
Process which Thai producer can not produce or capable with limited grade and very small amount
Process which Thai producer capable to do
Ironmaking Steelmaking Finishing Downstream Industry
Mini-Blast Furnace
Scrap
Billet production by EAF process
Slab production by EAF process
Contents• Current Steel Industry Situation• Consequences from the ASEAN Economic
Community• Implications on Thailand and
recommendation• Implications to the ASEAN Steel Industry
23
24
Implications on the selected downstream industries: Thailand
Automobiles
ASEAN countries demand more automobiles as the AEC that induces more production and trade level
Thailand is center of ASEAN production hub for automobiles New investment from big auto assembly companies also eye on
Thailand and Indonesia (even with the flooded situation) Most of steel products are imported mainly from Japan and
South Korea (quality and security of supply chain)
Electrical Appliances
Thailand is center of ASEAN production hub in Air-conditioner, Refrigerator, Washing machine and HHD (60% of global production, but gone with the flood for the time-being)
Malaysia is center of ASEAN production hub in LCD, and LED South Korea has invested significantly in ASEAN in the past few
years while Japan has been investing since 1980s ASEAN steel producers can serve in some products, while
imported quality steel products mainly come from Japan and South Korea
25
Implications on the selected downstream industries: Thailand
Machinery
Fossil and renewable energy boom have driven new investment in oil & gas and petrochemical plants
New regulation for double hull ship will drive steel plate demand A lot of new investments from global construction and
agricultural machinery assembly companies will allow Thailand to be the hub
Most of steel quality grades are imported
Canned food
Thailand is center of world food factory
Canned food output has been grown up slightly but limited by seasonal factor of materials such as fruits and seafoods
Mechanization of agricultural process will increase more output in canned food
All ASEAN tin-plate and tin-free steel producers are Japan-joint venture firms
26
Implications on the selected downstream industries Thailand
Construction
Largest steel consuming sector in every ASEAN country
Great opportunity from the ASEAN connectivity project
Still to be liberalize to foreign investment except Singapore
Most of steel usage can supply by local producers
Every country set its own mandatory standard in steel for
construction
27
AEC: Opportunity and threat for Thai steel industry
Opportunity
Potential of steel demand growth from new investment in construction and manufacturing sectors
Rising steel demand in Cambodia, Laos and Myanmar which nearby Thailand
Relocation of Japan automotive to Thailand Potential to produce higher value steel to replace
imports with JV of non-ASEAN countries
Threat
Non-Tariff measures among ASEAN members (standard) Higher cost from new regulations in environment and
energy usage Rising of steel and steel products import from China
(commercial grades)
28
Strategies for Thai Iron and Steel Industry under the ASEAN Economic Community
Strategy 1: Improve the Potential of High-Grade Production that are
currently imported (import substitution)
Strategy 2: Strengthen Potential Producers
Strategy 3: Fulfill the Missing Gap in the Supply Chain
Strategy 4: Establish “an immunity” for Domestic Producers
Strategy 1: Improve the Potential of High-Grade Production that are currently imported (import substitution)
29
Product group
All downstream steel products which have not yet produced in Thailand as a result of an inadequate technology
Product type
Long product: Seamless Pipe
Flat product: Electrical Steel Sheet, Hot-Dip Galvanized Steel Sheet – Zero Spangle, Hot-Dip Galvanized Steel Sheet – Galvanneal, Hot-Dip Galvanized Steel Sheet – Galfan, and Hot-Dip Galvanized Steel Sheet – HRC Based and Color & Plastic Coated Steel Sheet
Strategy
Government should not only allow an import but also lower barriers as well as facilitate the import from ASEAN members.
To encourage domestic investment in the Iron and Steel Industry and establish a production network among ASEAN members
Strategy 2: Strengthen Potential Producers
30
Product group
Potential products which are currently exporting to ASEAN market.
Product type
Long product: include Rebar, Hot-Rolled Small Steel Section, Hot-Rolled Heavy Steel Section, Cold Drawn Bar, Steel Wire
Flat product: Hot-Rolled Steel Sheet for Direct Use, Cold-Rolled Steel Sheet – GIS, Hot-Dip Galvanized – Normal Spangle & Pre - Painted, Galvalume Steel Sheet & Pre – Painted and Welded Carbon Steel Pipe
Strategy
Facilitating aforementioned products to export and fully utilize benefit from the ASEAN Economic Community.
Encouraging a creation of trade and distribution network and supporting joint venture. As a result, we could better expand and access the ASEAN market.
Strategy 3: Fulfill the Missing Gap in the Supply Chain
31
Product group
Steel products at the upstream of the long supply chain; these products could not produce domestically or we could produce only a limit amount of commercial-grade products as we could not secure enough supply of high quality raw materials
Product type
Long product: Bar, Wire Rod
Flat product: Hot-Rolled Steel Sheet – P&O, Hot-Rolled Steel Sheet for Subseqence Cold Rolling, Hot-Rolled Steel Plate and Hot-Rolled Stainless Steel Sheet & Plate
Strategy
The government should promote an investment in the upstream industry (Ironmaking) in Thailand.
Establishment of raw material network, trade and distribution network, and cooperation mechanism among steel producers and related industries
Strategy 4: Establish “an immunity” for Domestic
Producers
32
Product group
Products which suffered from the loss of competitiveness due to high costs or import competing products
Most of these products have been imported from ASEAN major dialogue partners especially the People’s Republic of China which is the major producer who is suffering from overcapacity problem.
ASEAN members are currently involving in new investment projects; consequently, these countries are likely to be our competitors in the year to come especially when we will be fully integrated in 2015.
Product type
Long product: Rebar, Steel Wire, Wire Product
Flat product: Hot-Rolled Steel Sheet for Direct Use, Hot-Dip Galvanized – Normal Spangle & Pre - Painted, Galvalume Steel Sheet & Pre – Painted, Electro-Galvanized Steel Sheet, Tin – Plated Steel Sheet, Tin-Free Steel Sheet, Cold – Rolled Stainless Steel Sheet and Welded Stainless Steel Pipe
Strategy
Strengthening producers in this group of products so that they could lower their costs and improve their production processes which would eventually help them compete and export to the ASEAN market.
Contents• Current Steel Industry Situation• Consequences from the ASEAN Economic
Community• Implications on Thailand and
recommendation• Implications to the ASEAN Steel Industry
33
34
ASEAN-Korea FTA
ASEAN-Japan CEP
ASEAN-EU
ASEAN-India FTA
ASEAN-China FTA
ASEAN-Australia- New Zealand FTA
ASEAN external economics relations
AEC
35
Implications to the ASEAN Steel Industry
Steel trade center/network
ASEAN Joint Venture Firm
ASEAN Holding Firm
Private sector roles
Rule of Origin (ROO)
Mutual Recognition Agreement
Trade Facilitation
New investment in high grade steel product
Preparation for new trade regulations
Government roles
Cooperation with private sector and government to create solid and fast action
Data center in trade statistics, trade regulations, and insightful market information
Steel association/institute can play roles in
36
Implications to the ASEAN Steel Industry
ASEAN plus three and ASEAN plus six
ASEAN is a channel to access to high potential markets like
China and India
ASEAN centrality for the East Asia
Enhancement cooperation of ASEAN members is the key to sustain
the ASEAN steel industry under competition from global steel
companies
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