Japanese steelmakers increasingly reliant on Thailand

Thailand became Japan's biggest market for special steel products and its second-biggest overall export market in October, according to the Japan Iron & Steel Federation.

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In the first seven months of the fiscal year, Japanese iron and steel exports to Thailand rose by 14% to 3.35 million tonnes. This compares with a total rise in exports of just 5.4%.

The figures place the country ahead of China and underscore the increasing importance Japan’s steel producers are attaching to the Southeast Asian economic powerhouse.

Special steel shipments to the country have risen by almost 30% in the period, while those of carbon steel products are up by over 11%.

By contrast, total Japanese exports of the two are up by 8.1% and a mere 2.8%, respectively.

“Thailand is one of the few markets that not only has a lot of long-term potential for growth but also still has strong demand even now despite the global economic crisis. That makes it more and more important for us because we are struggling with exports to many of our traditional markets such as Korea and China,” one industry official told Steel First.

“It has quite a well developed steel industry and a very strong manufacturing base, which gives it a lot of advantages over other growth markets in the region such as Indonesia,” another official added.

Thailand is working on becoming the strongest industrial base in Southeast Asia, especially as an auto exporter.

Its vehicle production capacity is projected to grow to 3 million units in 2015, from 2.2 million in 2011, according to the Iron and Steel Institute of Thailand (Isit)

And with Japan struggling with the appreciation of the yen, Japanese automakers are increasingly becomming a large part of that expansion.

Toyota recently announced plans to boost annual production in Thailand to 1 million vehicles from this year’s estimate of 880,000 units.

Honda said it aims to increase production capacity by 20% at its Ayutthaya plant in response to the rapid growth of the Southeast Asian auto market.

The plant closed after suffering serious flooding damage in October of last year. Operations resumed this spring, but production has not kept up with robust demand, according to the company.

With Thailand increasingly important as an export base for automobiles and parts shipped to neighbouring countries, Honda intends to have a new plant in operation in a different region of Thailand by 2015.

In March Suzuki announced the launch of operations at a new plant in Thailand, where it produces its popular Swift hatchback for sale in several other Asian markets, including Indonesia.

Nissan meanwhile, said it is set to build a new plant to boost exports from the country which will have an annual capacity of 150,000 units.

The company’s annual production capacity in the country stands at 220,000 units.

All this makes the country a prime target for investment, steelmakers said.

“Thailand is a country with still a lot of growth in steel demand, especially in the auto sector”, noted one official.

In the last two years, both JFE Steel and Nippon Steel have announced plans to set up major high end hot-dip galvanized sheet production units, with raw steel requirements being sourced from home.

But it isn’t just the auto sector that is providing Japan’s steelmakers with demand. The country is spending more than 2 trillion baht ($65 billion) to construct roads, bridges, drainage systems and flood barriers to spur growth that economists predict at almost 15% this quarter. This compares with a 9% contraction in the year-earlier period.

Thailand is also already attracting foreign investors who see it as a gateway to Myanmar, where democratic reforms have led to an easing of economic and political sanctions.

“One of the big advantages of Thailand is its strategic location next to a lot of growth markets with poor industrial infrastructure such as Myanmar, Vietnam, Cambodia and Indonesia,” one of the officials pointed out.

“Thailand is a priority market for us, both for potential investment opportunities and as an export market,” the other official said.