September 2017 Niratsai Toomwongsa

Transcription

1 THAILAND INDUSTRY OUTLOOK STEEL INDUSTRY September 217 Niratsai Toomwongsa ext. 122 For 217, expects that domestic Thai demand for steel (both flat and long products) would expand at the relatively low rate of 1-3 to a total of In 218 and 219, however, demand for steel will grow considerably, up 8-12% and annually for these years, respectively. This expansion will be driven by progress on the government s infrastructure projects, which by then will be reaching the stage requiring the input of construction steel. Demand for steel from the real estate and industrial sectors will also strengthen gradually as these sectors recover. Despite this, though, growth in the output of Thai steel producers over the period tend to be limited to a total of 7-8 per year since, although demand will rise, problems with existing over-supply will be compounded by competition from imported goods and the trend to increasing of steel mills in Thailand. These factors will tend to erode the market share of Thai producers somewhat. Prices for steel bar and rolled steel products on the Thai market in 217 are forecast to rise 4-7 to THB 19,5-2, per tonne, partly as a result of improving world prices. During the period , prices for steel in Thailand should stabilize thanks to the still-high levels of steel supplied to world markets. Overview Steel is a metal used as a crucial input into the production of many goods which are important to the growth and health of the economy, including electrical appliances, vehicles, plant and machinery, and in construction sector. In general terms, the steel sector can be split into three parts. Upstream Steel Production The first stage of the iron and steel supply chain involves the production of raw steel and at this step, iron ore is dressed to improve its purity by being crushed, processed and smelted. Countries which have high-quality seams of iron ore can smelt these ores to produce smelted iron to be used as an input for high-quality midstream and downstream steel production. This smelted iron is classified into two types; pig iron is processed in a liquid form, whereas sponge iron is processed as a solid. Countries which do not have a domestic source of sufficiently high-quality iron ore may instead use scrap as an input in their steel production. In the case of steel-melting mill in Thailand, due to a combination of worries about the potential impacts on the environment and the health of nearby communities, and the high costs of investment which make breaking-even difficult, there is no domestic upstream production of steel. Instead, iron is imported in the form of pig iron or billet for further processing. Figure 1: Supply Chain Structure of Steel Industry in Thailand Source: Compiled by 1

2 Thailand Industry Outlook Steel Industry Mid-Stream Steel Production Midstream production involves melting iron (pig iron, sponge iron, or scrap) at temperatures of around 1, C and mixing this with a variety of other additives such as carbon or chromium. This alters the chemical properties of the final steel and thus makes it suitable for a particular end-use. These additives also help to oxidize impurities, which are then removed from the smelted product as a waste product known as slag, leaving behind steel. These semi-finished steel products will be in one of the three forms of bloom beam, billet, and slab, which differ in their shape and density. Generally, steel is produced as billet or as slab since bloom beam is similar in form to billet. Thai manufacturers tend to import billet for use in producing a wide range of finished products, although to reduce costs, some producers prefer to manufacture billet by smelting domestically sourced scrap rather than importing. The steel bars produced at the intermediate stage are then further transformed to produce finished products, which can be split into two main groups. 1) Long products: Producers of long products (such as rebar and wire) may be divided into those which have access to a furnace and those which do not, with the latter group having to face higher costs since they will need to import steel bars as raw materials for processing. 2) Flat products: Flat steels are produced from slab or from scrap. These include both hot and cold rolled steel products such as plates and coils. Downstream Steel Production Downstream processing involves taking intermediate products and transforming them into finished steel products. This entails the use of processes such as hot rolling, cold rolling, coating, forming, and molding to produce hot and cold rolled sheet steel, coated steel sheets, rods and rebar, and structural steel. These products are used by related industries in the construction, vehicle manufacture, electrical goods, and packaging sectors. Table 1: Top 1 Steel Producers by Sales Table 2: Top 1 Steel Traders by Sales Rank Company Share Products 1 Sahaviriya (SSI).2% Slab, HRC 2 Tata Steel (Tata).2% MC Metal Service ASIA UNITED COIL CENTER TMT-Thai Metal Trade NS Bluescope (Thailand) 7 Millcon Steel 3.2% Billet, high carbon wire rod 5.5% Steel sheet in coil 3.4% Vehicle steels 3.4% Structure steels 3.3% Coated steel sheets Steel bar & structure 8 G Steel 3.1% HRC 9 The Siam Industrial Wire 1.% Prestressed concrete wire 1 Chow Steel 1.2% Billet Rank Company Share Products 1 Toyota Tsusho (Thailand) 22.2% Vehicle & parts 2 Honda Trading ASIA 9.4% Vehicle & parts 3 Treemit Marketing 2.% Steel bar 4 Metal One (Thailand) 2.4% HRC, CRC 5 G J Steel 2.% HRC Hanwa Thailand Group 2.1% Scraps, Steels 7 CS. Metal 1.% Steel sheets 8 Insight Steel 1.5% Steel bar 9 Posco (Thailand) 1.3% Steel sheets 1 M R T Steel 1.3% Steels Source: Business Online (BOL), TSIC: C2419, compiled by (as of 215) Source: Business Online (BOL), TSIC: G422, compiled by (as of 215) 2

3 Thailand Industry Outlook Steel Industry Demand for steel 1/ in Thailand during the period averaged 17 per year. Overall, demand for steel is dominated by the construction sector, which takes 53% of all output. Steel products used by the sector include items such as rebar, structural steel, and hardware (nails, screws, bolts, etc.). In terms of consumption, the construction sector is followed in importance by the manufacture of machinery and plant (18%), motor vehicles (15%), electrical appliances (7%), packaging (4%), and other uses (3%). In view of steel types, flat and long products are at a ratio of 5:35. Flat products are used in both industry and in construction, although towards the end of the period in question, the use of flat products in construction rose significantly with metal walling and roofing increasing in popularity. Long products are overwhelmingly consumed by the construction sector, which is responsible for 8% of demand. In terms of output, at a ratio of :4, Thailand produces more long steel products than flat ones. Thai manufacturers typically have the skills, experience and technology suitable for producing long products (e.g. reinforcement steel and structural steel) which go to the construction sector, and which, to keep costs low, may be made from scrap metal. Flat products, on the other hand, tend to be used in sectors which are dominated by foreign-owned companies that have established production facilities in Thailand. This includes sectors such as motor vehicle and electrical appliance manufacturing. Players in these industries often use high-tech manufacturing processes which require special-grade sheet metal produced from pig iron and so for use in their Thai factories, steel slab and related products (such as hot and cold rolled steel or coated panels) need to be imported. Players in the Thai steel sector are mostly small- and medium-sized enterprises (% of the total). To reduce risk and to benefit from economies of scale, large producers typically combine steel production and the selling of billet and slab, along with related intermediate products. Operators in the steel sector can be divided into two main groups: Figure 2: Demand Breakdown by Steel Consuming Sector (21) Appliances 7.3% Packaging 3.5% Machinery 18.4% Automotive 15.% Source: Iron and Steel Institute of Thailand (ISIT) Figure 3: Production Cost Structure Raw materials % Others 2.7% Construction 53.1% Energy 13% Labor 7% Others 14% Source: NESDB, calculated by from I O Table (21) Steel manufacturers may produce a wide variety of different products but they tend to specialize in an area where they have skills and experience. Operators therefore usually be one of: (i) manufacturers of slab or billet, most of which are large-sized operators which will also produce finished goods; (ii) manufacturers of rebar and structural steel; (iii) manufacturers of hot or cold rolled steel; or (iv) manufacturers of steel piping. Overall, though, the output of most Thai producers is of long products. Manufactures which have their own furnace are able to use scrap metal as an input. This helps to reduce expenditure on raw materials, which for those producers equipped with a furnace average 47.1% of all costs. Those who lack a furnace must instead purchase their raw materials and this leads to significantly higher raw material costs (81.3% on average) 2/. More recently, manufacturers have also faced problems with competition from cheap imports and the result of this has been that some domestic businesses have ceased trading or have moved to other areas of operation. 1/ This is an estimate of the quantities of intermediate products (both domestically produced and imported) which has been made to avoid double-counting upstream and downstream production. This also includes imports of downstream products which are not produced domestically. 2/ Department of Trade Negotiations, 2 quoted from The Iron and Steel Institute of Thailand. 3

4 Thailand Industry Outlook Steel Industry Steel traders and importers may be divided into three subgroups: (i) traders in scrap metal and ore (iron and other metals); (ii) traders in finished steels, such as rebar and hot and cold rolled steel; and (iii) traders in steel products such as construction hardware, the largest of these groups. Thai importers of steel usually source goods in China, particularly for steel products used in construction, which, because of China s huge output and the consequent economies of scale, are cheaper than Thai goods, though they are also of inferior quality. As for steel products which Thai producers have difficulty in manufacturing, such as the high-strength steel panels used in vehicle manufacturing, these are often imported from Japan. The cost structure of the sector is such that raw materials (whether this is scrap or steel bar) account for % of total costs 3/. Energy and fuel costs take another 13%, wages 7%, and the remaining 14% go to other costs (Figure 3). As regards international trade, Thailand is a net importer of steel, while investments by Thai operators in factories overseas are not significant. Imports and exports of steel are described in detail below. Figure 4: Thailand Steel Import and Export Value THB, bn Import (LHS) Export (LHS) Import growth (RHS) Export growth (RHS) Source: MOC (HS code: 72 and 73) Imports of steel...are mostly of intermediate products bound for Thai factories for further processing. The five most important categories of imports are billet and slab, hot and cold rolled steel, coated steel, rebar and structural steel, and scrap. These are typically imported for use as inputs into the production of other intermediate and finished products. China and Japan are the leading exporters of steel products to Thailand, with Chinese goods usually being long products, including a variety of types of steel bars and rebar. This is because Chinese imports are cheaper than their Thai competitors; in 21, Chinese rebar and steel sheet was around 3% cheaper than Thai alternatives. Unlike long products, flat steel products such as hot and cold rolled steel are usually imported from Japan, since consumers of these products (e.g. vehicle and parts manufacturers) are themselves usually owned by Japanese companies who specify that only high-grade steel be used and most Thai manufacturers of flat steel products are unable to meet these standards. Exports of steel are expanding in the CLM region as investment in infrastructure picks up. The five most important categories of steel exports are rebar and structural steel, scrap, steel piping, pre-engineered structures and parts, and hot and cold rolled steel. The largest export area is the CLM zone, which consumes Thai rebar and structural steel in its infrastructure and property sectors. In addition, due to favorable costs and the quality of installation, both Australia and Japan purchase steel piping and pre-engineered structures (including, for example, buildings and bridges) from Thailand. 3/ This is because pig iron is not produced in Thailand and although slab and billet can be manufactured in Thailand from scrap, some industries require high-quality steel which is made from pig iron. This steel must therefore be sourced abroad and imported into Thailand. 4

5 Thailand Industry Outlook Steel Industry Figure 5: Major Steel Import Products (21) Figure : Major Steel Export Products (21) Billet & slab Steel bar & section HRC & CRC Scrap Coated steel Pipe Steel bar & section Structure and parts Scrap & iron ore HRC & CRC Source: Trademap Table 3: Top 5 Steel Import Countries by Product (21) Table 4: Top 5 Steel Export Countries by Product (21) Billet & slab HRC & CRC Steel bar & section Coated steel Scrap & iron ore Steel bar & section Scrap Structure and parts Pipe HRC & CRC China (48%) Japan (53%) China (3%) China (41%) US (33%) Malaysia (22%) India (42%) Australia (29%) US (17%) Italy (19%) Japan (12%) Korea (17%) Japan (25%) Japan (25%) Australia (15%) Lao PDR (1%) Indonesia (12%) Japan (28%) Australia (5%) Korea (14%) Russia (11%) China (13%) Korea (5%) Korea (18%) New Zealand (%) Singapore (12%) China (11%) Malaysia (1%) Malaysia (5%) Vietnam (13%) Iran (1%) Taiwan (%) Taiwan (4%) Taiwan (7%) Japan (%) Myanmar (8%) Korea (7%) Lao PDR (8%) Lao PDR (4%) Malaysia (11%) Taiwan (1%) Malaysia (1%) India (2%) Vietnam (5%) Philippines (5%) Cambodia (5%) Lao PDR (7%) New Zealand (4%) Japan (3%) India (8%) Source: Trademap 5

6 Thailand Industry Outlook Steel Industry Situation The world steel industry...a supply glut weighs on prices. For a number of years now, the world steel industry has faced a problem with over-supply to global markets, principally caused by Chinese producers, which combined account for half of world output. This problem has been brought about by the fact that following 212, the Chinese real estate sector slowed and this has caused a continuing fall in demand for steel for use in construction, which prior to the slowdown had been at very high levels. At the same time, Chinese producers have been unable to balance their ongoing high levels of output with contracting domestic demand and they have resolved this situation by sending a flood of cheap exports onto world markets, and this has included the Thai market for steel products. In terms of total world exports, flat products are the largest single category, accounting for 49% of all exports, followed by long products (28%), semi-finished products (11%), steel piping (8%), and stainless steel (4%). Imports match these proportions, with 51% being of flat products, 24% long products, 13% semi-finished products, 8% piping, and 4% stainless steel 4/. Over the past five years, annual global demand for steel has averaged 1.5 billion, growing at the relatively slow rate of 1.2% YoY. Production has risen at the faster rate of 1.7 and output has averaged 1. billion per year, the gap being explained partly by a contraction in demand of 1.2 in the years The difference between growth in supply and demand means that stocks have been accumulating, although in 21, market conditions improved and global demand recovered. This was driven by an improving Chinese real estate sector, and, especially in the ASEAN zone, increasing investment in infrastructure and a strengthening property market but despite these improvements, imbalances still exist in the market and over-supply of steel is still at high levels. The price of steel has fallen since 212 and hit a low in 215, when it reached its lowest price in a decade. In that year, the average price of billet was USD 35.7/tonne, a fall of 3.7, while that for slab was USD 289.2/tonne, a fall of 4.7. Declining investment and production in a variety of industries caused by a slowing global economy were to blame for the fall, to which was added the additional pressure of high and increasing stock levels. In 21, the situation turned around, and world prices began to show signs of recovery, underpinned by more general improvements in the world economy; last year, the price of billet rose 8., while the price of slab rose 13 (Table ). In addition, stock levels began to decline (Table 5). The Thai steel industry...slowing under Chinese stock dumping During , the world price for steel fell back and this helped to pull down prices for steel on the domestic market, too. In addition, local factors, mainly falling demand from the construction and manufacturing sectors, helped to depress prices and this shrinking demand and the import of large quantities of low-cost steel from China forced domestic producers to cut back on output, particularly for steel for the construction sector that are mostly produced in Thailand. Over the same period, flat steel, which is used in industries which specify the use of higher qualities, continued to be imported from Japan, would be affected slightly. 2, 1,5 1, Figure 7: Global Steel Apparent Use Movement 5 Source: Bloomberg Note: ROW = rest of the world. 2, 1,5 1, 5 Source: Bloomberg Source: Bloomberg Source: Bloomberg ROW USA Japan China India Figure 8: Global Steel Production Table 5: Global Steel Inventory Table : Global Steel Prices Global growth Quantity ( ) Growth ROW USA Japan USD/tonne China India Global growth Steel Billet Slab / Global Trade Atlas, 215

7 Thailand Industry Outlook Steel Industry In 21, demand for steel rebounded and rose 15.3 to 19.3 (Figure 9). Increasing demand from the construction sector explains some of this, as does stock-holding prompted by speculation on rising prices. Domestic output for the year, which was largely of long products, was some 8, up 22.8%, but consumption of flat steel was significantly in excess of this so the majority had to be imported. This rise in output followed 3 years of contraction and was caused by producers banking on increasing demand from the public sector, spurred by the advance of the government s infrastructure building plans. Exports of steel from Thailand were worth THB 183 bn and THB 185 bn in 215 and 21 respectively. These figures represent growth of 5.7 and 1.1 (Figure 4), an improvement over the fall in exports witnessed during the previous two years. This rise can be attributed to increasing spending on infrastructure in neighboring countries, which as a result have been importing significantly greater quantities of construction steel (long products) from Thailand. As regards imports, in 21, these grew slightly by 1.3 to THB bn as both the volume and cost of imports rose. Imports of raw materials and of intermediate products both increased, in part because the expectations were that prices would rise higher still and this helped to push up stock levels. The situation with long and flat products for 21 is described below. Long products...growth helped by an improving real estate sector Market conditions and production in Thailand: In 21, consumption of long products increased 23.3 to 7. (Figure 1). 7% of this consumption was of rebar and structural steel, which saw a rise in demand of 33.2% YoY, supported by increased government funding for infrastructure development. This includes spending on, for example, expanding the mass transit and road networks. Domestic production ran to a total of 5.3, up 3.8. This growth is partly explained by speculative purchases being made on the expectation that prices would rise in the future and partly explained by progress on infrastructure construction, which pushed up demand for construction products such as rebar and reinforced concrete columns. International trade: In 21, the volume of exports of long products shrank by 1.3 to.82, the third year of decline, as Chinese products continued to undercut Thai exports. 5/ However, looking at individual product groups, one sees that seamless steel piping, pre-engineered structures and parts, and construction hardware (nails, screws, etc.) saw ongoing growth (Figure 12). This is what one would expect, given that neighboring countries are investing in their infrastructure and so need to import greater quantities of construction-related steel products from Thailand. 9 3 Figure 9: Thailand Steel Production and Apparent Use Source: Iron and Steel Institute of Thailand (ISIT) Figure 1: Production and Apparent Use of Long Products Source: ISIT Source: ISIT Production (LHS) Apparent use (LHS) Production growth (RHS) Apparent use growth (RHS) Apparent use (LHS) Production (LHS) Apparent use growth (RHS) Production growth (RHS) Figure 11: Production and Apparent Use of Flat Products Apparent use (LHS) Production (LHS) Apparent use growth (RHS) Production growth (RHS) / Iron and Steel Institute of Thailand (ISIT) 7

8 214 May Sep 215 Thailand Industry Outlook Steel Industry May Sep 21 May Sep Dec Imports of long products in 21 totaled 3.1, up.2 (Figure 13). Stock accumulation, on the expectation that prices would continue to rise helped to drive this increase. This followed a decline in imports of long products in 215 caused by rising tariffs which the government introduced to counter stock dumping, especially by Chinese exporters, and a sluggish economy, which was held back by investors waiting for clarity over the government s policies on infrastructure investment. Flat products...waiting for recovery in the industrial sector Market conditions and production in Thailand: Domestic demand for flat steel in 21 came to 11.7, growth of 1.7 (Figure 11). Although some sections of the flat products sector saw strong demand (for example steel sheeting for use in roofing and ready-made walls), around 7% of the demand for flat steel / is from industry, including for the manufacture of electrical appliances, packaging, and plant and machinery, and these sectors have shown only weak signs of recovery. 2.7 of flat steel were produced in 21, which, following 2 years of decline, represents growth of 9.9. This expansion was helped by increasing demand for hot and cold rolled steel, again partly being ordered to cut costs/generate profits on anticipated future price rises. International trade: Last year (21), the economies of Thailand and the neighboring countries all strengthened. In addition, investment grew and prices for steel rose and these all helped to encourage increases in stock-holding, pushing up imports and exports. Coming on the heels of three years of declines averaging 1% per year, exports of flat products rose by 29.2 to.48. / Products which saw rises in the volume of exports include seamless steel piping, water tanks, and cans. Imports to Thailand also rose, these by 11.7% YoY to 9.5. These imports consisted mostly of hot and cold rolled steel and coated steel sheet, which is imported for use in manufacturing finished products such as motor vehicles and electrical goods Source: Trademap Figure 12: Thailand Steel Exports Iron ore, Scrap and Semi-steel (LHS) Finished steel (LHS) Steel products (LHS) Total Growth (RHS) Pipe Structure and parts Screw, bolts and nuts Figure 13: Thailand Steel Imports Source: Trademap Iron ore, Scrap and Semi-steel (LHS) Finished steel (LHS) Steel products (LHS) Total Growth (RHS) HRC & CRC Steel bar & section Coated sheets Figure 14: Domestic and Global Steel Price Indices Index Jan 212 = Domestic Global / Iron and Steel Institute of Thailand (ISIT) Source: Bloomberg Note: Calculated by

9 214 Apr Jul Oct Thailand Industry Outlook Steel Industry 215 Apr Jul Oct 21 Apr Jul Oct Dec Steel prices...starting to recover in 21, following four consecutive years of decline THB/tonne Figure 15: Domestic Steel Prices Global steel prices: The prices for iron ore and steel bar (raw materials) and the prices for hot rolled steel and steel rods and rebar all rose in 21, buoyed by rising prices in China, the world s biggest steel producer. However, in the second half of 21, steel prices in China fell back slightly from a high in the first half of the year which had encouraged Chinese producers to increase their production capacity. This was because in the first part of 21, demand for steel in China had risen on an expanding domestic real estate sector and on government policies which aimed to reduce the quantity of low-quality steel being produced and to cut back coal production, which is the main fuel used in the steel production. The combined effect of this was to cut back on production of steel, which in turn naturally led to rising prices in China, which fed into rising prices for steel on world markets (Table ). Looking at the specifics, in 21, prices for billet rose 7.2 to USD 329/tonne, while prices for slab increased 9.9 to USD 32/tonne. Rebar and hot rolled steel also saw their prices rise, increasing to USD 392.5/tonne (up ) and USD 412/tonne (up 14.7), respectively. Thai steel prices: Steel prices increased in line with world prices over 21, although prices were also supported by increasing demand coming about because of a recovery in the economy. However, in the latter half of 21, prices on the Thai market rose at a slower rate than they did on the world market, with increases on the world market being delayed by around 2-3 months. This was because domestic demand expanded only slightly over this period and so prices did not rise immediately (Figures 14 and 15). 2, 22, 18, 14, 1, Source: ISIT Note: HRC = Hot rolled coil Source: ISIT Table 8: Oil and Coking Coal Prices Energy Oil (USD/barrel) Coking coal (USD/tonne) Table 7: Domestic Scrap Prices Steel Bar Price (THB/tonne) 11,27 7,934 7,825 Growth () HRC Source: Bloomberg Note: Coking Coal = hard coking coal (Australia Export FOB); Oil Fuel = Oil fuel (Dubai) Production costs...under slight pressure from steadily increasing prices for scrap and the higher cost of coal Scrap prices: The price of scrap steel in Thailand fell considerably in 215 but rose steadily from the second half of 21, although despite this, the price remains low, at THB 7,825/tonne, compared to the average for of THB 11,/tonne (Table 7). This factor is therefore not exerting significant pressure on costs at present. Energy prices (oil and coal together represent 4% of total energy costs): Although crude prices were still relatively low in 21, cuts in production quotas by OPEC helped to stimulate a rise in prices in the latter half of the year. Meanwhile, following a cut in production by China, the price of coal jumped 54 to USD 12.2/tonne but Thai producers use only small amounts of coal so their energy costs rose only slightly. 9

10 Thailand Industry Outlook Steel Industry State regulations: Increasing tariffs on imports and expanding protection of the steel sector to protect against stock dumping in the short term For many years, the Thai government has had in place measures to deal with stock dumping of steel products, including anti-dumping duties which protect certain types of steel products. In 21, the scope of these measures was increased from 11 to 15 classes of steel products, including hot rolled steel, stainless steel, and low-carbon wire. In addition, the period during which the measures would be in effect has also been extended many times. Despite these efforts, though, the government has not been able to solve the problem of Chinese companies dumping cheap stock on the Thai market and so has introduced further safeguards to protect hot rolled steel and structural steel (H-sections) but these measures will only help Thai manufacturers over the short-term while they adjust to the new market conditions. Outlook anticipates that global consumption of steel for the years 217, 218, and 219 will total 1.54, 1.55, and 1.57 billion per year (Figure 1), an expansion of 1.3%,.9% and.7 respectively. 7/ This extra demand will be for construction steel for use in the Chinese real estate sector, which is expected to grow, and for increasing infrastructure development in many countries but especially in the ASEAN zone. Problems with over-supply are unlikely to abate in the next 3 years because although China plans to cut production capacity by 1-15 by 22, Chinese operators may evade these cuts by simply moving production to other countries. In addition, India, which is currently the world s third biggest producer of steel (after China and Japan), is planning to feed its industrial sector and to reduce imports, especially from China, by tripling its production capacity to 3 per year over the next five years. The demand for steel in Thailand is expected to grow to 19, 2 and 21 per year over the 3 years of , which translates as an annual growth rate of % per year (Table 9). Demand will be driven by construction, particularly from large-scale government projects such as the Eastern Economic Corridor, extensions to mass transit systems in the Greater Bangkok Region, and growth in real estate and in industries which require steel as an input or component and which are expected to recover gradually Figure 1: Global Steel Production and Consumption Trend F 218F 219F Production Growth Source: World Steel Association and BMI Consumption Growth Table 9: Domestic Steel Apparent Use Trend Total steel apparent use ( ) F 218F 219F Growth (%) 15.3% 1-3% 3.5-.% % Source: ISIT, forecast by 7/ World Steel Association and BMI 1

11 Thailand Industry Outlook Steel Industry Forecast demand for long and flat steel products over the next 3 years is described below. Long products: Demand for long products is forecast to grow at the relatively low rate of 1-3 in 217 to (Figure 17) since many government infrastructure projects are still at a stage which does not require large amounts of steel. For 218 and 219, demand should however expand considerably; growth of % and 8-12% is expected for these years, respectively. This demand will come largely from government projects, such as the plans for dualtrack railway and extensions to the Bangkok mass transit system, which in those years should be at the stage of consuming large amounts of construction steel in, for example, rail track, elevated track-ways, and reinforced concrete sleepers. Flat products: For 217, demand will grow by 1-3, or a total weight of (Figure 18). This low growth rate is a result of profit-seeking stock accumulation in 21, which occurred on the belief that prices were likely to increase and this pushed demand over its real level, with growth in the latter remaining at fairly low levels. This can be seen in the fact that production in industries which are consumers of flat steel products in 217, such as the manufacture of vehicles and electrical goods, would expand at a slow pace. For 218 growth of 2-4 is expected and the year after, 219, should see a 2-5 expansion in demand. In these years, manufacturers and sellers of flat steel products should benefit from the steadily improving fortunes of a variety of industries but especially of the 1 target industries selected for special government support, including the production of vehicles and electronic consumer goods, and of industries in the Eastern Economic Corridor. The output of steel manufacturers over the period tend to be limited to a total of 7-8 per year, although domestic demand will rise. However, because output in 21 was greater than real demand, stock levels have risen and over the next 3 years, production of long steel products is not forecast to expand greatly since, in addition to existing high stock levels, products which will be in demand (e.g. rail track) cannot be produced domestically. Traders and importers, rather than manufacturers, will thus be the beneficiaries of this increasing demand. Flat steel products are also not forecast to see large increases in demand since the industries which consume these products are themselves expected to see only slight expansions in demand Figure 17: Long Steel Apparent Use Trend Figure 18: Flat Steel Apparent Use Trend % F 218F 219F Apparent use (LHS) Source: ISIT, forecast by F 218F 219F Apparent use (LHS) Source: ISIT, forecast by Growth (RHS) Growth (RHS)

12 Thailand Industry Outlook Steel Industry In addition to this, forecasts for only slight increases in demand for both flat and long steel products over the coming three years also stem from another cause, namely stock dumping by foreign companies, especially those from China. As described above, the policy of the Chinese government to cut back on steel production capacity may well prompt Chinese operators to move production to other countries, and this will include their moving to Thailand to increasingly produce and distribute steel products for the Thai market. This is a development which needs to be followed closely, since over the long term it may have serious consequences for both producers and distributors in Thailand. Cost and Related Factors Trends in steel prices on the domestic market: It is expected that in 217, prices for rebar and steel rod, and hot and cold rolled steel 217 will rise 4-7 to THB 19,5-2, per tonne, partly as a result of improving world prices. One factor in this is the expansion in infrastructure and the provision of public utilities in many countries, which is helping to increase demand. For 218 and 219, prices should stabilize since rising prices in 217 tend to encourage manufacturers in many countries, though especially in China, to raise output and this will increase the downward pressure on prices caused by the over-supply of goods, even while demand is expanding. Trends in prices for crude oil and coal over the next 3 years: The expectation is that the price of crude oil will rise steadily as the world economy expands. The price of coking coal will, on the other hand, move in the opposite direction and prices will fall thanks to an over-supplied market. The energy costs for smelting iron may thus see small increases, though this will depend on the proportion of oil to coal in the cost matrix. 8/ Labor shortages may adversely affect businesses The Thai government s 217 decree on migrant workers increased the fines and punishments for those guilty of crimes relating to the employment of illegal workers and this may encourage some foreign workers to return to their home countries. If this happens, it will have negative consequences for a wide variety of industries which employ foreign laborers but particularly for the construction and real estate sectors, which might face a slowdown caused by labor shortages and this would possibly then have knock-on effects for orders of construction steel. 8/ Based on Input-Output Tables, 21, NESDB 12

13 Thailand Industry Outlook Steel Industry s view: View: Over , demand for steel will expand, particularly for long products which are used in construction. This growth in demand is in line with the general growth in construction following on from increasing infrastructure investment. Meanwhile, only gradual growth in industries which are downstream consumers of flat steel products will lead to lower levels of growth in demand for these products. In terms of production, manufacturers will come under pressure as they lose market share to cheaper importers and potentially also to foreign players opening up production facilities in Thailand. Problems with an over-supplied market would also persist and these factors will all help restrain any expansion in output. Manufacturers of steel products: Income will tend to increase, particularly for certain groups. Manufacturers of rebar and structural steel, which constitute the overwhelming majority of long products, are forecast to see increasing income on expanding order books as a result of the government pushing through spending on infrastructure projects. However, Thai producers may also experience increasingly stiff competition from cheap imports, as well as facing the prospect of competing with Chinese manufacturers establishing factories in Thailand and these developments may restrict the possibilities for increasing profitability. Manufacturers of hot and cold rolled steel, which comprise the greater share of flat products, would see slower growth in income than manufacturers of steel for construction. Although demand for consuming products (e.g. agricultural equipment and machine, steel pipe and furniture) would recover, these products may encounter high competition with imports that it would cause still-limited demand for flat products that are produced domestically. reduce flat demand. Looking to vehicle market, its recovery may yield limited benefit to domestic manufacturers of flat products because auto parts are usually imported from parent companies. Therefore, profit margin of flat product manufactures is expected to remain low, due to fierce competition with imported products that have advantages of higher-quality & lower-cost because those imported products are mostly made from iron ore, while most Thai products are made from scrap. Although, some players products are produced from imported steel sheet, production costs are higher. Traders and importers: Income for this group will trend upwards, especially for those who import goods for use in construction which cannot be manufactured by Thai operators (e.g. railway tracks), as they will benefit from government action to speed investment on infrastructure projects, including mass transit systems and twin-track railway. Income for other importers and traders would likely stabilize as the sector waits for clear signs of recovery in downstream industries. 13

14 Thailand Industry Outlook Steel Industry KRUNGSRI RESEARCH Somprawin Manprasert, Ph.D. Phornphan Phoksuphat Head of Research Division and Chief Economist Head of Macroeconomic and Industry Research Macroeconomic Team Sarun Sunansathaporn Head of Strategic Economics Sujit Chaivichayachat Head of Forecasting and Macroprudential Economics Churailuk Pholsri Senior Economist Soison Lohsuwannakul Senior Economist (Regional Economics) Kongphop Wongkaew Economist Tanaporn Sriklay Economist Industry Team Chetchuda Chuasuwan Head of Agricultural and Industrial Sectors Taned Mahattanalai Head of Service and Real Estate Sectors Poonsuk Ninkitsaranont Senior Analyst (Healthcare, Modern Trade, ICT) Piyanuch Sathapongpakdee Senior Analyst (Transportation & Logistics, Industry Risk Ratings) Narin Tunpaiboon Senior Analyst (Power Generation, Biofuel, Chemical & Plastic Products) Talublugkhana Thanadhidhasuwanna Senior Analyst (Financial Sectors) Puttachard Lunkam Analyst (Tourism Sectors, Real Estate in Upcountry) Niratsai Toomwongsa Analyst (Construction Contractor, Construction Materials) Wanna Yongpisanphob Analyst (Automobile, Electronics & Electrical Appliances, Beverages) Patchara Klinchuanchun Analyst (Real Estate in BMR) Rachot Liengchan Analyst (Oil & Gas, Petrochemicals, Industry Scenario Analysis) Intelligence Team Arpakorn Nopparattayaporn Analyst MIS and Reporting Team Suratchanee Somprasong Administrator Thamon Sernsuksakul Administrator Chirdsak Srichaiton MIS Officer Wongsagon Keawuttung MIS Officer For research subscription, contact Disclaimer This document is based on public information believed to be reliable. Nevertheless, would not affirm the accuracy and completeness of this information. The opinions expressed in this document are our own, which are not necessarily the opinions of Bank of Ayudhya. We reserve the right to change opinions or forecast without prior notice. 14