Thailand’s new government to boost steel demand

"Post-January 2020 once the budget starts, we should see an improvement in steel demand in Thailand, with a lot of it for new construction," said Rajiv Mangal, president and chief executive of Tata Steel Thailand, at SteelMint's Steel Scrap, Billet and DRI Trade Summit in Bangkok, Thailand, yesterday.

Increased demand will help support average steel plant utilisation rates that have fallen below 50pc, he said. Long product makers are hit hardest by oversupply, operating at less than 40pc utilisation.

"This is not a healthy rate for the long-term sustainability of the business," he said.

The country's roughly 4mn t/yr crude steel production is mostly scrap based.

Consumption has also lagged, with use of rebar and section steels down by 9pc in the first half of 2019.

"While there are good growth stories, actual consumption on the ground has not matched the numbers," he said. Wire rod consumption has increased this year, with around 60pc of wire rod demand met by imports, he added.

Thailand's elections this year installed a civilian government in July, ending five years of military rule. Former army commander Prayuth Chan-o-cha, who oversaw a 2014 coup, was elected prime minister after a March election.

Thailand's budget year runs from October-September, but its budget process is likely to be delayed by two to three months because of delays in installing the new government, Mangal said.

The military government has already taken steps to support the steel industry, he said. It imposed a five-year ban on new rebar plants and billet-making used to make rebar, and passed new standards for rebar that require it to be embossed with its route of manufacture: blast furnace, electric arc furnace or induction furnace.

It has also imposed duties on imports and has new anti-circumvention laws in the pipeline that will close loopholes, he said. The government has begun work on a third international airport near Pattaya, with plans to link the three international airports by high-speed rail.

But the new government cannot impose too many protectionist measures to support its steel industry because its steel consumer segment is much larger than the steelmaking sector, he said. Thailand continues to be a fairly open economy and is the second-largest importer of finished steel products behind the US, he said. Imports accounted for nearly 12mn t of the 19mn t finished steel demand in 2018, he said, and the imports comprised of around 7mn-8mn t of flat products and 4mn t of long products. Its well-developed downstream steel business has supply chain linkages outside of Thailand, with stakes from Japanese and South Korean companies.

Japan was Thailand's largest source of flat products, while China was its biggest source of long products in 2018, according to the US Department of Commerce.

Tata Steel Thailand operates at a 70-75pc utilisation rate, well ahead of the average, because its operations are more profitable, he said.

Import duties have been targeted at rebar to make it very difficult to import, and the new law will help eliminate loopholes, he said.

"That should help some demand with the existing capacities in the country, but it is an ongoing issue. I don't think there is a single destination that we reach. It is a balance that must be done."

Billet could compete

Thailand's steel industry could rely on billet rather than scrap to increase output, especially with rapid declines in iron ore prices making billet more attractive, Mangal said.

US Commerce statistics put Thailand's semi-finished steel imports at 3.2mn t in 2018, with Iran the largest supplier at 1.5mn t.

Mills can buy billet rather than make crude steel from scrap if the in-house costs are higher than billet. Given ailing auto demand across Asia this year and depressed flat steel prices making returns better for long products, he asked if there was there an opportunity for billet producers in the short term.

The natural band for 62pc iron ore prices is $60-70/dry metric tonne (dmt), towards which prices have fallen recently. If iron ore prices continue to move lower, southeast Asia's secondary steelmakers may shift to using more billet if it is priced low enough to compete with scrap, he said.

Billet offers were heard at around $425/t cfr southeast Asia earlier this week. Iran-origin billet was offered at $428/t cfr southeast Asia. Malaysia-origin billet was offered at $440-455/t cfr southeast Asia.

India has recently been actively exporting billet at $410/t fob to the Philippines, an Indian mill official said.