Southeast Asia’s blast furnace capacity set for 25% growth

Blast furnace (BF)-based steelmaking capacity in Southeast Asia could balloon by 25% over the next few years with the emergence of new projects, the South East Asia Iron & Steel Institute (Seaisi) said recently

The steel thinktank listed out new proposed capacity in Southeast Asia, including 30 million tonnes per year in Malaysia, of which 21 million tpy are expected to start production in 2024. Major investors involved in these include domestic steelmaker Lion Steel, Chinese mill Wen’an Steel, as well as Alliance Steel and Eastern Steel, both of which are controlled by Chinese companies.

It also expects Indonesia to add 4 million tpy of capacity in 2022, 3 million tpy in 2023 and 5.2 million tpy in 2026, with another 17 million tpy with no confirmed completion date. Major investors for these include Indonesian state-owned steel producer Krakatau Steel/Krakatau Posco (an Indonesia-South Korea joint venture), Indonesia’s largest privately owned mill Gunung Group, Chinese company Fuhai Indonesia, Chinese steelmaker Hebei Bishi Group and Dexin Steel, an Indonesia-China joint venture.

In the Philippines, Seaisi expects two projects - with a total capacity of 12 million tpy - funded by local steel producer SteelAsia Group and China’s Panhua Group to be completed over the next few years.

Vietnam is also expected to increase its capacity by 20 million tpy by the end of 2023, including 6 million tpy by local steelmakers Pomina Steel and Hoa Phat Group, and Taiwan-backed Vietnamese steelmaking group Formosa Ha Tinh Steel Corp. Seaisi did not have any confirmation on a 14-million-tpy capacity expansion put forth by Formosa Ha Tinh previously.

Impact on ferrous markets

The new capacity could lead to a shakeup in the region’s supply-demand balance for steel as well as that for steelmaking raw materials, sources told Fastmarkets.

“Southeast Asian markets will be flooded with more steel. Consumption will be increasing too, of course, because Southeast Asia is a developing region,” a South Asian trading source told Fastmarkets on Thursday August 19.

“But we will see an oversupplied market if consumption does not match these capacity increases,” he added.

“This could also alter the trade flows of iron ore into Southeast Asia, while demand for ferrous scrap may not change that much. There will be more demand for iron ore, on top of existing trade flows to Malaysia, Vietnam and Indonesia,” Seaisi chairman Yeoh Wee Jin said.

An iron ore industry source in Singapore said that Southeast Asia would likely see increased distribution of iron ore from within the region, especially with a major distribution center in Malaysia that is well-placed to provide supply in smaller vessels to regional buyers.

But whether or not it would see more inflows from other parts of the world would still depend on global supply and demand.

BOF-EAF split

The average compound growth rate for basic oxygen furnace (BOF) technology in Southeast Asia was 32% over 2011-2020, Seaisi said. It forecasts a 25% rate over 2020-2026.

But for electric-arc furnace (EAF) technology, the growth rate was 5% over 2011-2020, and is expected to be 1% from 2020-2026.

“As a result, there will be a significant structural shift from a 95% scrap-based industry in [Southeast Asia’s major economic centers of Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam] in 2011 to a 36% scrap-based industry in 2026. The share of BOF technology will shift from 5% in 2011 to 57% in 2026,” Seaisi said.

Southeast Asian steel production will, unsurprisingly, rise, and “should be a bright spark for the global steel sector over the next few years,” Alexander Kershaw, a senior analyst at Fastmarkets, said.

“It is likely to be the case that if BOF prevalence increases, it will still lead to an increase in scrap arrivals into the region, we believe. Indeed, we have already seen scrap imports into the region rise over recent years, so even though a lot of the capacity increases are BOFs, the consumption of scrap by the Southeast Asian countries is still benefiting from this,” he added.

Vietnam imported 5.4 million tonnes of steel scrap in 2021, according to Seaisi.

But some market participants polled by Fastmarkets are not sure all the listed projects will start construction or even ever start up.

“Some of these projects do not have stable financing, or they are a small player in China’s domestic market. It will depend on whether they really start construction, as they have been discussed for the past few years with no progress since then,” a Chinese trader familiar with the Southeast Asian market said.

A second South Asian steel trading source said that he felt that although most projects would likely be successful, some will be slow to start up, with the first phases in some cases being around five or 10 years away from “seeing the light of day.”

One example is the Wen’an steel project in Malaysia, which was first publicly discussed in 2020 and has been vociferously opposed by the Malaysian industry due to concerns over overcapacity in the country.

But the mill’s construction site is being prepared with a view to starting steelmaking by late 2024, a local newspaper reported in June 2021.

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