SE Asia ferrous scrap demand to rise 50% despite spike in iron ore-based steelmaking: MRAI Bangkok

With the ferrous scrap industry converging on the Thai capital of Bangkok for the Material Recycling Association of India’s (MRAI) first Southeast Asian business summit on August 21-22, eager eyes are being cast toward the future growth potential of the region’s ferrous scrap markets

Unlike many other parts of Asia such as China and Japan, Southeast Asia is set for a massive shift toward iron ore and coal-based blast furnace (BF) and basic oxygen furnace (BOF) capacity in the coming decade, partly due to significant Chinese-backed investments.

This means the region will not only see a jump in iron ore demand, but Fastmarkets senior analyst Alexender Kershaw said he also forecasts the region’s scrap demand to rise by 50% over the next ten years.

The latest installment of the MRAI’s scrap event, at which more than 800 delegates are expected over the two days, comes amid a huge rise in steelmaking capacity construction underway in Southeast Asia. This includes 30 million tonnes per year in Malaysia, of which 21 million tpy is expected to start production in 2024, according to the Southeast Asian Iron and Steel Institute (Seaisi).

Indonesia is to add 3 million tpy in 2023 and 5.2 million tpy in 2026, with another 17 million tpy with no confirmed completion date, while new China-led investments into BOFs are under construction in countries like the Philippines and Cambodia.

If all planned integrated mill capacities come onstream, the average compound growth rate of BOF technology will increase by 25% in 2020-2026 in the region, while the expansion of the scrap-intensive EAF technology will be just 1% from 2020 to 2026, Seaisi estimated in 2022.

Iron ore-based steelmaking will make up 57% of Southeast Asian capacity in 2026, compared with just 5% in 2011, Seaisi estimated, while the share of scrap-dominant steelmaking will drop to 36% of capacity in 2026 from 95% in 2011.

Scrap demand expected to still grow despite shift to BFs

While consumption of iron ore will spike in the region over the coming years, “demand for scrap would not change much,” according Seaisi secretary general Yeoh Wee Jin.

But Kershaw disagrees and points out that this sharp growth in BOF demand will also benefit scrap demand. This is because BOFs also require scrap for their operations, and imports will likely be required because some nations will continue to have insufficient stocks of material, he said.

Examples of BOF-based steelmakers already importing scrap in Asia include Vietnam’s Hoa Phat and South Korea’s POSCO.

“With most crude steel production increases in the Asean (Association of Southeast Asian Nations) region being BF-BOF based, iron ore demand is expected to rise sharply in the region. But it should be noted that scrap demand is likely to pick up as well, with scrap demand from BF-BOFs expected to rise by around 50% over the next decade, based on the assumption that around 15% of BF-BOF’s raw material demand is scrap based,” Kershaw said.

With Southeast Asian scrap imports at around 7 million tonnes in 2022, according to data provided by the Iron and Steel Institute of Thailand, that would put imports to the region at around 10.50 million tonnes by 2032, assuming local collection volumes in the region do not keep up with the rise in capacity.

“The question, though, is where will steel mills source scrap from, given that supplies from leading regional supplier, Japan, are expected to tighten due to increased domestic scrap consumption. In turn, Asean-based mills will have to turn to other sources such as increased volumes from the US West Coast,” Kershaw added.

Although big jumps in demand are expected in the future, this year has seen weaker demand for the secondary raw material in Southeast Asia, with major importers Vietnam and Indonesia both reducing imports of scrap amid poor steel demand and lower steel output in much of the region.

Vietnam’s scrap imports under code 7204 were at 2.34 million tonnes in January-June 2023, according to the country’s customs department, down by 7.6% year on year from 2.54 million tonnes.

Indonesian imports under code 7204 were 425,459 tonnes in January-May 2023, according to customs statistics, down by 19.5% year on year from 528,430 tonnes.

Fastmarkets’ price assessment for steel scrap HMS 1&2 (80:20), cfr Vietnam, has averaged $387.50 per tonne so far in August, down by 3.7% from the average of $402.50 per tonne in August 2022.

Import performance has been much stronger in the MRAI’s home market of India, with steel scrap imports to India reaching around 5.25 million tonnes in the first half of 2023, according to industry statistics, up by more than 150% year on year, which has helped to hoover up a great deal of the tonnage not purchased by Southeast Asian buyers.

Sales from the United States and the United Kingdom to India rose sharply, while those from the United Arab Emirates (UAE) fell amid greater difficulty in purchasing UAE scrap metal this year amid a ban which is being policed more strictly by Indian authorities.

Capacity increases in SE Asia

Of the ten largest existing steelmaking companies by current and future capacity in Southeast Asia, the current capacity of the firms stands at 44.7 million tonnes, but if all planned announced capacity additions take place in the coming years at these companies, these mills alone could reach a combined capacity of 89.78 million tonnes, Fastmarkets estimates.

The largest steelmaker by current capacity in Southeast Asia is Vietnam’s Formosa Ha Tinh, a BOF steelmaker with current capacity for 7.5 million tonnes and with a planned increase of 14 million additional tonnes over the coming years, according to US-based non-governmental organization Global Energy Monitor (GEM). But the major hot-rolled coil producer has not provided further details on these plans.

Vietnam’s Hoa Phat is the current second-largest mill in the region, and operates BOFs in its Dung Quat and Hai Duong complexes at a total combined capacity of around 7.1 million tpy, according to GEM. Abysmal steel demand in Vietnam led to the mill closing some of its BOFs in late 2022, although production rose again in early 2023. Hoa Phat is a regular entrant into the import ferrous scrap market, buying cargoes from Japan, Australia and the US.

Indonesia’s Krakatau Steel and Krakatau Steel POSCO currently have a combined 6.08 million tpy of steelmaking capacity in Cilegon, according to GEM, with 3.075 million tonnes from the electric-arc furnace (EAF) route and 3 million tpy from the BF route. A further 7 million tonnes of BOF capacity is planned at the site over the coming years.

Chinese-owned PT Dexin Steel, also based in Indonesia, is another of the steelmakers planning to engineer a massive increase in its BOF production capacity. A regular supplier of steel billets, slabs and wire rods to the Asian market, it has also become a fixture in European import markets when arbitrages exist. It currently operates from a capacity of 6 million tpy, but has plans to raise this by another 14 million tonnes in the coming years, according to GEM.

Malaysia’s Lion Corp is the largest current Southeast Asian steelmaker operating from an EAF method, with capacities at its Amsteel Klang plant of 750,000 tpy, Amsteel Banting at 1.25 million tpy and its idled Megasteel plant at 3.2 million tpy, for a total capacity of 5.15 million tpy. Lion Corp has plans to boost its capacity from a new BOF complex by another 1.6 million tpy in the coming years, according to GEM.

Malaysia-based, Chinese-owned Alliance Steel has been another major supplier of semi-finished and finished steel products to Asian markets in recent years, with currently 3.5 million tpy of steel capacity from the BOF method in its Kuantan plant, GEM data shows.

Vietnam’s VAS Steel is another regular entrant into the ferrous scrap import market and operates three scrap-based plants with total capacity of 4.15 million tpy but has no plans for further increases.

Indonesia’s PT Gunung Steel currently operates 2.8 million tpy of capacity, but is planning to add a further 4.2 million tonnes of capacity in the coming years from both BOFs and EAFs.

Another EAF-based producer is Thailand’s G Steel, which was recently acquired by Japanese giant Nippon Steel. It operates a 1.7 million-tpy capacity EAF. G Steel has been known to pick up full-shredded scrap cargoes from origins such as the US when demand is strong enough.

The tenth company of note already producing steel is Malaysia’s Eastern Steel Sdn Bhd, a regular exporter of slab and billet. The mill currently has production capacity of 700,000 tpy from a BOF complex, but will add a second blast furnace in September, taking its capacity to 2.7 million tpy, according to the company. In total, and including this second BF, the company will add 4.3 million tpy of capacity in the coming years, according to GEM.

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