ASIA STEEL FOCUS: New Philippine long steel capacity to disrupt trade flows

New long steel capacity in the pipeline in the Philippines may well disrupt trade flows in Asia once they come on stream, market sources told Metal Bulletin this week.

This is because the Philippines could reduce its reliance on imports, which would result in seaborne cargoes being diverted elsewhere in the region.

Major Philippine rebar producer SteelAsia Manufacturing Corp plans to increase its capacity to 6 million tonnes per year within six years, sources with knowledge of the matter said.

It plans to sink 80 billion pesos ($1.5 billion) into three greenfield plants to produce steel products that the country is not self-sufficient in, including wire rod, steel bar and section.

They consist of a 1.2-million-tpy wire rod and rebar mill in Concepcion, Tarlac, an 800,000-tpy wire rod and rebar mill in Compostela, Cebu, and a 500,000-tpy mill in Lemery, Batangas, which will produce beam, sheet pile and angle.

“The company’s aim is to ensure the Philippine steel market is self-sufficient for long steel and replace the imports that have been coming in all these years,” a source close to the matter said.

SteelAsia expects the three new plants to come on stream by 2020.

The Philippines is a major importer of wire rod, with China-origin products being shipped there regularly. It imported 821,789 tonnes of wire rod in 2016, having increased steadily from 336,923 tonnes in 2012, according to statistics from the South East Asia Iron & Steel Institute (Seaisi).

Anfeng Iron & Steel, Beitai Iron & Steel and Yingkou Iron & Steel are among the major Chinese suppliers of wire rod to the Philippines. There, the product is used to produce construction materials such as wire mesh and nails, as well as welding rods and wire screens.

“The trading of wire rod export cargoes will be more difficult to do in the future if the new mills really start up. Export volumes from China may drop by a large percentage,” a Chinese export trader said.

The Philippines imported 769,509 tonnes of wire rod from China in 2016 and 698,690 tonnes in 2017, according to data from Metal Bulletin Research.

More supply will be diverted to other buyers in Asia and beyond once the Philippines is no longer a major importer.

“Cargoes will have to be sent to South Korea, Myanmar and Vietnam, or even South Africa,” a second Chinese trader said.

Increased billet demand
The start-up of SteelAsia’s new facilities could lead to an increase in billet imports to the Philippines, traders in Southeast Asia said.

SteelAsia is already a regular importer of billet, since it has re-rolling facilities throughout the Philippines. Among them are a 550,000-tpy rebar rolling mill in Meycauayan, a 500,000-tpy integrated rebar mill in Calaca, a 500,000-tpy rebar mill in Davao, a 250,000-tpy rebar mill in Villanueva and a 300,000-tpy rebar mill in Carcar.

Any increase in billet demand in the Philippines will depend on whether SteelAsia’s new mills are integrated with electric-arc furnaces, and if so, how much additional meltshop capacity is set to come online, a trader in the archipelago said.

“These new investments seem to be incorporating their own meltshops. SteelAsia currently has one EAF at their plant in Batangas, but it has very limited capacity of only 300,000 tpy,” the trader said.

A trader in Singapore expects billet demand to remain stable or even increase until SteelAsia starts up its integrated meltshops at its new wire rod facilities.

‘Build, build, build’
Whether the Philippines can consume all of the new long steel it produces will depend heavily on the growth in the country’s infrastructure, building and construction sectors.

Steel demand in the Philippines increased by 9.8% in the first half of 2017 in comparison with a year earlier even as domestic steel production dropped 7% year on year. Imports increased by 26.8% on the year in the meantime, according to Seaisi data.

“Infrastructural demand from government spending makes up only a small part of steel consumption. Most of the demand will come from private-sector housing, retail malls, high-rise apartments and office buildings,” an industry source in the Philippines said.

Philippine President Rodrigo Duterte has unveiled an ambitious $180-billion “Build, build, build” program to drive the country’s economy in the medium, which is expected to boost demand for steel and construction materials between now and 2022.

Projects associated with the program include 2,567 km of roads in the Mindanao Logistics Infrastructure Network, up to 42 bridges in the Metro Manila Logistics Improvement Project, as well as up to 1,040 km of highways in the Luzon Spine Expressway Network.

Meet Metal Bulletin’s Asia steel editor, Paul Lim, and China steel analysts Jessica Zong and Gladdy Chu at the 16th International Steel Market & Trade Conference in Xi'an, China, on March 29-30. Paul will be presenting on “Increasing trading margins and reducing spot price risks in volatile global markets” at the conference. Connect with us on WeChat using the ID: metalbulletin.

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