19 November

2011

AEC and Thai Steel Industry

1

Contents• Current Steel Industry Situation• Consequences from the ASEAN Economic

Community• Implications on Thailand and

recommendation• Implications to the ASEAN Steel Industry

2

The apparent steel use has increased on average 7.6 percent per year. It has a strong positive correlation with the economic growth

3

8,031

3,837

5,9606,762

7,607

10,049

10,967

12,661

13,876

12,15412,716

13,581

10,758

14,012

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Production Import Export Apparent Use

Thailand apparent steel use (‘000 Tonnes)CAGR 10/00 (%)

7.6 %

5.3 %

7.6 %

-0.1 %

Economic recovery & growth

Construction boom

Economic slowdown

Construction contracted

Manufacturing growth

Economic growth Construction recovery Manufacturing boom

Economic contracted

Source: Iron and Steel Institute of Thailand

Shortage of the supply. The local production is only 30 percent of the demand. Relying on import

4

3,837

13,877

10,758

14,012

1,814

5,161 5,5654,145

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2010E

Steel Demand Crude Steel Production

Source: Iron and Steel Institute of Thailand

Thailand crude steel production and steel demand (‘000 Tonnes)

5

Thailand Steel Industry StructureIronmaking Steelmaking Finishing & Coating End Users

Scrap recycle

Hot-Rolling

Hot-Rolling Cold-Rolling Coating

Construction54%

Automobiles and parts

16%

Machinery and Industrial Products

13%

Electrical Appliances

12%

Packaging5%

Cold-Drawing

Forming

16 Mills• TATA• G Steel• GJS• SYS• TRIUMP• Etc.

Production:4.2 m TImport:3.7 m TExport:0.2 mTDemand:7.7 m T

ImportRussia, Ukraine,

Turkey, Brazil

ExportVietnam,

Philippines, India, Taiwan

Long Product

Flat Products

3 Mills• SUS• TCRSS• Bluescope

Production: 1.7 m TImport:0.7 m TExport: 0.1 m TDemand: 1.6 m T

ImportJapan, S. Korea,

Taiwan, China

ExportChina, India, Italy,

Indonesia

~ 50 Mills• TATA• Sahaviriya• Tycoon• Etc.

Production: 3.7 m TImport: 1.7 m TExport: 0.8 m TDemand: 4.7 m T

~ 100 Mills

1,000 Mills

Machining

Bending

Cutting

Welding

Forging

Heat

Treatment

Etc.

1 Mill• TATA

(Mini-Blast Furnace)

Source: Iron and Steel Institute of Thailand

5 Mills• G Steel• GJ Steel• Sahaviriya• LPN

Production: 3.9 m TImport: 3 m TExport :0.3m TDemand : 4.2 m T

ImportJapan, S. Korea,

Australia, China

ExportVietnam,

Malaysia, Laos

~ 15 Mills• Bluescope• Thai Tin Plate

Production: 0.8 m TImport: 2.2 m TExport: 0.1m TDemand: 2.9 m T

ImportJapan, S. Korea, Taiwan, China

ExportVietnam, Laos,

Myanmar, Hong Kong

Thailand relies on the Non-ASEAN countries on its import (2009)

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  Thailand Export Thailand Import

 HS 72 (iron and

steel)HS 73 (articles of I

and S)HS 72 HS 73

  Value % Value % Value % Value %

Brunei 6.38 0.00 793.48 0.02 2,714.25 0.04 14.21 0.00

Cambodia 40,399.62 3.85 30,512.50 0.76 6,616.79 0.10 184.91 0.00

Indonesia 73,718.75 7.02 129,143.29 3.22 11,496.90 0.17 53,212.92 1.37

Lao PDR 68,424.95 6.51 47,662.68 1.19 318.27 0.00 214.28 0.01

Malaysia 87,708.63 8.35 125,268.99 3.12 109,273.05 1.59 255,214.58 6.58

Myanmar 53,406.88 5.08 24,843.72 0.62 78.29 0.00 466.12 0.01

Philippines 26,680.29 2.54 58,046.00 1.45 18,101.81 0.26 29,539.82 0.76

Singapore 55,928.44 5.32 160,714.90 4.00 71,967.47 1.05 254,174.64 6.56

Vietnam 180,535.93 17.19 109,145.29 2.72 19,962.32 0.29 17,486.65 0.45

ASEAN 586,809.85 55.86 686,130.85 17.09 240,529.14 3.50 610,508.12 15.75

Non ASEAN

463,637.42 44.143,329,296.3

782.91

6,638,215.77

96.503,265,939.8

184.25

World1,050,447.2

8100.0

04,015,427.2

1100.0

06,878,744.9

1100.0

03,876,447.9

3100.0

0

Thailand steel trade in 2009 (Million USD)

Source: WITS

Thailand is capable of producing commercial grade, but needs to import quality grade!

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Thailand steel import in 2010 (Tonnes)

Volume in 2010 (Tonnes) Main countries

Rebar x Very low -

Bar Few amount 523,128 Japan, China, S. Korea, Taiwan

Cold Drawn Bar x 69,272 Japan, S Korea, India, Italy

Wire Rod & Wire x 916,232 China, Japan, Taiwan, S. Korea, Brazil

Hot-Rolled Section x 12,607 Japan, China, UK, S. Korea

Seamless Pipe   196,623 China, Japan, Italy

HRC & HRP x 1,923,815 Japan, S. Korea, China, Austraila, Taiwan

HRC P&O Few amount 1,056,009 Japan, S. Korea

CR Carbon Steel x 684,055 Japan, S. Korea, China, Taiwan

CR Stainless Steel x 327,916 Japan, S. Korea, China, Taiwan

Galvanized & Pre-Painted x 1,515,500 Japan, China, S. Korea, Taiwan

Zn-Al & Pre-Painted x 123,948 China, Taiwan, S. Korea, Japan

TP & TF x 253,177 China, S. Korea, Taiwan, Belgium, Netherlands

Cold-Formed Steel Section & Pipe x 147,552 Italy, Japan, China, Taiwan, S. Korea

Flat products

ImportCapability to produce

Products

Long products

Some Evidences • The demand for steel is positively related to the

economic performance. Obvious! Construction shares more than half of total demand while automobiles, machineries, and electrical appliances share over ten percent

• Due to the shortage of supply, imports are mostly from non-ASEAN countries; China, Japan, Korea, Australia, Taiwan, Russia, and eastern European countries.

• Local production for commercial grade, not quality grade

• Exporting some HS 72 (iron and steel) to ASEAN members

• Exports to non-ASEAN countries with different destinations from one year to another

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Contents• Current Steel Industry Situation• Consequences from the ASEAN Economic

Community• Implications on Thailand and

recommendation• Implications to the ASEAN Steel Industry

9

1967 1997

Milestones of ASEAN

1984 1995

1999

Declaration of ASEAN Concord II

Bali Indonesia

2003 2007

40th Anniversary of ASEAN Cebu The Philippines

MYANMARBRUNEI DARUSSALAM

2015

ASEAN Community

AFTA

1992

Bangkok Declaratio

n

10LAOS

INDONESIA

MALAYSIA

PHILIPPINES

SINGAPORE

THAILAND

VIETNAM

CAMBODIA

AEC• Single market and production base (goods,

services, capital, skilled workers, and investment)

• Competitive economic region (Competition policy, IPRs, tax harmonization, e-commerce, and basic infrastructure)

• Equitable economic development (CLMV)• Integration with the global economy (ASEAN

plus and plus plus and global production networking)

11

12

AECSingle Market andProduction base

To create a stable, prosperous and highly competitive ASEAN

economic regionFreer flow of capital

Free flow of goods services, investment,

and skilled labor

characteristic

objective

Overview of the ASEAN Economic Community

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Single market and production base

14

ATIGA (ASEAN Trade in Goods

Agreement)

Tariff Measures

ASEAN 6

2003 zero tariff for 60% of IL2007 zero tariff for 80% of IL

2010zero tariff for 100% of

ILCLMV

2003VN with 0-5% for substantial items

2007LS and MYR with 0-5%

for substantial items

2010CAM with 0-5% for substantial items

2015zero tariff for 100% of

IL

IL = Inclusion list

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ATIGA (ASEAN Trade in Goods Agreement)

Non-Tariff Issues

o Elimination of non tariff barriers • Technical Barriers to Trade (Standard,

testing procedure, … )• Custom valuation • ….

oRule of Origino Trade Facilitation

Automotive

& Parts*Electrical & Electronics*

Food Production Hub (packing*)

Tourism HubManufacturing

& Assembly Hub*

Machinery and Metalworking

Production Base*

16

AEC and Potential sectors for Thailand

Source: Thai Federation Industry

5/6 potential sectors involve steel industry

Comparison Thailand and its ASEAN Partners in

steel industry

• Thailando the largest steel market in regiono capable of producing various steel products as compared to ASEAN partners

due to the FDI and joint venture steel mills (Korea/Japan/india)

• Malaysiao strong in rebar, wire rod, wire, galvanized steel and steel pipe market

• Indonesia o strong in rebar, wire rod, hot-rolled coil and hot-rolled plate marketo attract new investment from global steel players as huge market potential and

its prosperous economy

• Singapore o strong in rebar and wire rod and strong steel trader in heavy section, seamless

pipe and galvanized steel

• Vietnam o strong in rebar, cold-rolled coil and zincalume marketo Booming steel market in Vietnam is expected after it survives the volatile

economic period

• Philippines steel production serves local market, no role in export

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Recalling the AEC: growth driven within ASEAN and attracted Non-

ASEAN • Single market and production base (goods,

services, capital, skilled workers, and investment)• Competitive economic region (Competition policy,

IPRs, tax harmonization, e-commerce, and basic infrastructure)

• Equitable economic development (CLMV)• Integration with the global economy (ASEAN plus

and plus plus and global production networking)

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Methodology• Constructing the value chain from upstream to

downstream of Thai Steel Industry base on HS 72 and 73 at 4-6 digits

• Scope of study on the Five Selected industries • Policy gap analysis

o AEC factors affecting the supply and demand conditions o Non-AEC factors (other than ASEAN) affecting demand and supply conditions

• Integrated five selected industries to evaluate the opportunity and threat of the Thai steel industry for each product item

• Grouping the iron and steel products and indicate the National strategies towards the AEC

• Identifying policy implications or what to be done at the ASEAN level

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Ironmaking Steelmaking Finishing Downstream Industry

Crank shaft

Fastener, Tire Cord

Chassis, Wheel rim, Wheel rib

Bumper, Seat

Exhaust Pipe, Decorative Item

Outer Body

Shock absorber

Bar – Carbon, Alloy Cold Drawn Bar – Carbon, Alloy

Wire Products -Carbon, Alloy

Steel Wire -Carbon, Alloy

Wire Rod –Carbon, Alloy

Mini-Blast Furnace

Scrap

Billet production by EAF process

Slab production by EAF process

HRC for Direct Use –Carbon, Alloy

HRC P&O)– Carbon, Alloy

CRCHRC for Cold Rolling

Cold-Rolled Stainless Steel SheetHot-Rolled Stainless Steel

Sheet

Galvanneal

Welded Pipe – Carbon, Alloy

Layer 1: Supply Chain

Figure 1: Supply chain of steel and automotive industry

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°» µ®¦¦¤¥µ¥ r� � � � �

- Tax level in each country is the main non-tariff measures

Bar – Carbon, AlloyASEAN producers can’t do this product, need to import from outside ASEAN

Wire Products -Carbon, Alloy

Steel Wire - Carbon, Alloy

Wire Rod –Carbon, AlloyASEAN producers can’t do this product, need to import from outside ASEAN

HRC for Direct Use –Carbon, AlloyASEAN producers can’t do this product, need to import from outside ASEAN

HRC P&O - CarbonASEAN producers can’t do this product, need to import from outside ASEAN

CRCThai producers are so strong, but more treats from Vietnam in the near future

HRC for Cold RollingASEAN producers can’t do this product, need to import from outside ASEAN

Hot-Rolled Stainless Steel SheetASEAN producers can’t do this product, need to import from outside ASEAN

Galvannised Steel SheetASEAN producers can’t do this product, need to import from outside ASEAN

Welded Pipe - Carbon

Layer 2: AEC Factors

Supply Factors Demand Factor

+ Trade Facilitation for import and export automobile and parts will cut more costs

+ Each country in ASEAN will buy more automobile after AEC that induce more production and trade level

Impact for each company depends heavily on policy from headquarter (outside ASEAN)

Cold Drawn Bar –Carbon, AlloyLocal producer capable to produce this product (most are Japan JV company)

Cold-Rolled Stainless Steel SheetThai producers capable in popular grades. Vietnam and Malaysia will come out in the near future

Process which Thai producer can not produce or capable with limited grade and very small amount

Process whichThai producer capable to do

Ironmaking Steelmaking Finishing Downstream Industry

Mini-Blast Furnace

Scrap

Billet production by EAF process

Slab production by EAF process

Figure 2: Factors from AEC to auto-related steel industry

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Figure 3: Factors from AEC Plus to auto-related steel industry

Impact from AJCEP

Layer 3: External Factors

Supply Factor Demand Factor

Japan is still major investor in this region by focusing on Thai, Indonesia and Philippines and will expand more in the future, especially after Tsunami.

Car and truck import will expand continually from ASEAN Plus FTAs

Japan set Thai for their be production base in automotive sector for export, especially under FTAs e.g. Thai and ASEAN, and with India, Australia

Wire Products -Carbon, AlloyLocal producer capable to produce this product (most are Japan JV company)

Steel Wire - Carbon, AlloyLocal producer capable to produce this product (most are Japan JV company)

Wire Rod –Carbon, AlloyImport from Japan and Korea

HRC for Direct Use –Carbon, AlloyImport from Japan, Korea, Taiw an

HRC P&O – Carbon, AlloyImport from Japan, Korea, Taiw an

CRCKorean and Taiw anese steel company invests in Vietnam

HRC for Cold RollingImport from Japan, Korea, Taiwan

Cold-Rolled Stainless Steel SheetKorean steel company has

invested in Vietnam and JV between Japan and EU companies wil l go to Malaysia

Hot-Rolled Stainless Steel SheetImport from Korea, Japan, S. Africa and Europe

Galvannised Steel SheetImport from Japan and Korea. More investment project will ask for approve. Now there are new investment from Japan to Thai

Welded Pipe - CarbonLocal producer capable to produce this product (most are Japan JV company)

Bar – Carbon, AlloyImport from Japan, Korea, Taiwan. Gradually increase of import from China and India

Cold Drawn Bar – Carbon, AlloyLocal producer capable to produce this product (most are Japan JV company)

Process which Thai producer can not produce or capable with limited grade and very small amount

Process which Thai producer capable to do

Ironmaking Steelmaking Finishing Downstream Industry

Mini-Blast Furnace

Scrap

Billet production by EAF process

Slab production by EAF process

Contents• Current Steel Industry Situation• Consequences from the ASEAN Economic

Community• Implications on Thailand and

recommendation• Implications to the ASEAN Steel Industry

23

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Implications on the selected downstream industries: Thailand

Automobiles

ASEAN countries demand more automobiles as the AEC that induces more production and trade level

Thailand is center of ASEAN production hub for automobiles New investment from big auto assembly companies also eye on

Thailand and Indonesia (even with the flooded situation) Most of steel products are imported mainly from Japan and

South Korea (quality and security of supply chain)

Electrical Appliances

Thailand is center of ASEAN production hub in Air-conditioner, Refrigerator, Washing machine and HHD (60% of global production, but gone with the flood for the time-being)

Malaysia is center of ASEAN production hub in LCD, and LED South Korea has invested significantly in ASEAN in the past few

years while Japan has been investing since 1980s ASEAN steel producers can serve in some products, while

imported quality steel products mainly come from Japan and South Korea

25

Implications on the selected downstream industries: Thailand

Machinery

Fossil and renewable energy boom have driven new investment in oil & gas and petrochemical plants

New regulation for double hull ship will drive steel plate demand A lot of new investments from global construction and

agricultural machinery assembly companies will allow Thailand to be the hub

Most of steel quality grades are imported

Canned food

Thailand is center of world food factory

Canned food output has been grown up slightly but limited by seasonal factor of materials such as fruits and seafoods

Mechanization of agricultural process will increase more output in canned food

All ASEAN tin-plate and tin-free steel producers are Japan-joint venture firms

26

Implications on the selected downstream industries Thailand

Construction

Largest steel consuming sector in every ASEAN country

Great opportunity from the ASEAN connectivity project

Still to be liberalize to foreign investment except Singapore

Most of steel usage can supply by local producers

Every country set its own mandatory standard in steel for

construction

27

AEC: Opportunity and threat for Thai steel industry

Opportunity

Potential of steel demand growth from new investment in construction and manufacturing sectors

Rising steel demand in Cambodia, Laos and Myanmar which nearby Thailand

Relocation of Japan automotive to Thailand Potential to produce higher value steel to replace

imports with JV of non-ASEAN countries

Threat

Non-Tariff measures among ASEAN members (standard) Higher cost from new regulations in environment and

energy usage Rising of steel and steel products import from China

(commercial grades)

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Strategies for Thai Iron and Steel Industry under the ASEAN Economic Community

Strategy 1: Improve the Potential of High-Grade Production that are

currently imported (import substitution)

Strategy 2: Strengthen Potential Producers

Strategy 3: Fulfill the Missing Gap in the Supply Chain

Strategy 4: Establish “an immunity” for Domestic Producers

Strategy 1: Improve the Potential of High-Grade Production that are currently imported (import substitution)

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Product group

All downstream steel products which have not yet produced in Thailand as a result of an inadequate technology

Product type

Long product: Seamless Pipe

Flat product: Electrical Steel Sheet, Hot-Dip Galvanized Steel Sheet – Zero Spangle, Hot-Dip Galvanized Steel Sheet – Galvanneal, Hot-Dip Galvanized Steel Sheet – Galfan, and Hot-Dip Galvanized Steel Sheet – HRC Based and Color & Plastic Coated Steel Sheet

Strategy

Government should not only allow an import but also lower barriers as well as facilitate the import from ASEAN members.

To encourage domestic investment in the Iron and Steel Industry and establish a production network among ASEAN members

Strategy 2: Strengthen Potential Producers

30

Product group

Potential products which are currently exporting to ASEAN market.

Product type

Long product: include Rebar, Hot-Rolled Small Steel Section, Hot-Rolled Heavy Steel Section, Cold Drawn Bar, Steel Wire

Flat product: Hot-Rolled Steel Sheet for Direct Use, Cold-Rolled Steel Sheet – GIS, Hot-Dip Galvanized – Normal Spangle & Pre - Painted, Galvalume Steel Sheet & Pre – Painted and Welded Carbon Steel Pipe

Strategy

Facilitating aforementioned products to export and fully utilize benefit from the ASEAN Economic Community.

Encouraging a creation of trade and distribution network and supporting joint venture. As a result, we could better expand and access the ASEAN market.

Strategy 3: Fulfill the Missing Gap in the Supply Chain

31

Product group

Steel products at the upstream of the long supply chain; these products could not produce domestically or we could produce only a limit amount of commercial-grade products as we could not secure enough supply of high quality raw materials

Product type

Long product: Bar, Wire Rod

Flat product: Hot-Rolled Steel Sheet – P&O, Hot-Rolled Steel Sheet for Subseqence Cold Rolling, Hot-Rolled Steel Plate and Hot-Rolled Stainless Steel Sheet & Plate

Strategy

The government should promote an investment in the upstream industry (Ironmaking) in Thailand.

Establishment of raw material network, trade and distribution network, and cooperation mechanism among steel producers and related industries

Strategy 4: Establish “an immunity” for Domestic

Producers

32

Product group

Products which suffered from the loss of competitiveness due to high costs or import competing products

Most of these products have been imported from ASEAN major dialogue partners especially the People’s Republic of China which is the major producer who is suffering from overcapacity problem.

ASEAN members are currently involving in new investment projects; consequently, these countries are likely to be our competitors in the year to come especially when we will be fully integrated in 2015.

Product type

Long product: Rebar, Steel Wire, Wire Product

Flat product: Hot-Rolled Steel Sheet for Direct Use, Hot-Dip Galvanized – Normal Spangle & Pre - Painted, Galvalume Steel Sheet & Pre – Painted, Electro-Galvanized Steel Sheet, Tin – Plated Steel Sheet, Tin-Free Steel Sheet, Cold – Rolled Stainless Steel Sheet and Welded Stainless Steel Pipe

Strategy

Strengthening producers in this group of products so that they could lower their costs and improve their production processes which would eventually help them compete and export to the ASEAN market.

Contents• Current Steel Industry Situation• Consequences from the ASEAN Economic

Community• Implications on Thailand and

recommendation• Implications to the ASEAN Steel Industry

33

34

ASEAN-Korea FTA

ASEAN-Japan CEP

ASEAN-EU

ASEAN-India FTA

ASEAN-China FTA

ASEAN-Australia- New Zealand FTA

ASEAN external economics relations

AEC

35

Implications to the ASEAN Steel Industry

Steel trade center/network

ASEAN Joint Venture Firm

ASEAN Holding Firm

Private sector roles

Rule of Origin (ROO)

Mutual Recognition Agreement

Trade Facilitation

New investment in high grade steel product

Preparation for new trade regulations

Government roles

Cooperation with private sector and government to create solid and fast action

Data center in trade statistics, trade regulations, and insightful market information

Steel association/institute can play roles in

36

Implications to the ASEAN Steel Industry

ASEAN plus three and ASEAN plus six

ASEAN is a channel to access to high potential markets like

China and India

ASEAN centrality for the East Asia

Enhancement cooperation of ASEAN members is the key to sustain

the ASEAN steel industry under competition from global steel

companies