set conference v6 · an overview of thailand’s steel industry iron and steel institute of...

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An overview of Thailand’s steel industry

Iron and Steel Institute of Thailand

June 2008

Presented By

1

Contents

Thailand economic situation & demand drivers

Thailand steel industry situation & demand drivers

Steelmaking capacity analysis – short term

Steelmaking capacity analysis – long term

22

Despite the retarding domestic consumption and investment, overall economy in 2007 still expanded delightfully by 4.8% y-o-y due to the increasing export sector.

4.03.9Growth rate of Government Investment(At constant prices,%)

0.53.7Growth rate of Private Investment(At constant prices,%)

12.01.0Trade Balance (Bil.USD)

9.67.9Growth Rate of Import value (%)

18.117.0Growth Rate of Export value (%)

33.532.0Exchange rate (per USD)

2.34.7Inflation rate (consumer price index)

4.85.1GDP Growth rate (At constant prices, %)

3,720.03,186.4GDP (At current price : Bil.USD)

20072006Indicator

Source : NESDB Economic report

3

Thailand GDP structure by expenditure

Source : SCB Research

52%

9%

22%

17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

TH 2007

Private consumption

Public consumption

Investment

Net export of goods and services

Thailand economy is driven by private consumption, new investment and international trade. Electronics, appliances and automotive are Thailand’s key exporting sector. While, agricultural and food take lower share of total export.

Thailand export structure

4

Factors will effect to Thailand economy in 2008.

Confidence level of private sector (+)

Inflation (-)

Global economy(-)

Agricultural product price (+,-)

Economic stimulation by gov’t(+)

Source : BOT Inflation report, NESDB economic report and ISIT analysis

More stable in political situation induces confidence level of private sectorConsumer confidential index has increased from 69 in Q4 2007 to 73 in April 2008More confidence level will lead to more spending and more investment

Cost push inflation by oil and commodity price erodes purchasing powerHeadline inflation has increased from 2.9% in Q4 2007 to 6.2% in April 2008Bank of Thailand possible to increase policy interest rate to stabilize inflation and increase real interest rate that will decrease private consumption and increase cost of investment

USA economy remains on down trend, reflecting the impacts of sub-prime crisis.European consumer and investor confidences have eroded by USA sub-prime crisisJapanese economy decelerated from 1.7% growth in Q4 of 2007 to 1.0% in Q1 2008 due to contraction in residential investmentChinese economy slowed down from 11.2% in Q4 of 2007 to 10.6% in Q1 2008Slowdown in global economy may be threat to Thailand export market

Thailand is beneficial from incomes transfer (from food importing countries) which is generated by food prices increase.However, negative impact from rising agricultural price is an inflation that erodes household purchasing power.

Tax measures to support SMEs including personal income tax exemptionsTax measures for investment stimulation and competitiveness strengthening.The reduction of specific business tax rate from 3.0 % to 0.1 %for property businesses, and a reduction of fee for transfer and mortgage of property from 2 % to 0.01%.

5

Thailand economy shows positive sign in 2008.

Source : NESDB Economic report

6

Contents





7

Thailand steel industry profile

Traders / Stockists

Rebar –old mill

Long –mini mills

Flat– rolling mills

Flat –mini mills

Downstream - Flat

Downstream - Flat

Cold-formed section & pipe

Rolling mills

Mini mills

1960s1950s

19961992

1995

1960s

Capacity

-Semi – Long: 3.4 million tpy

-Semi – Flat: 3.0 million tpy

-Rolled products: Long: 7.7 million tpy

-Rolled products: Flat: 11.38 million tpy

8

4,451 4,652

6,7477,497

8,954 9,3808,339 7,877

6,7627,607

10,04910,967

12,66113,876

12,154 12,148

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2000 2001 2002 2003 2004 2005 2006 2007

Production Import Export Apparent Consumption

Source : ISIT

Thailand steel consumption stagnated last two years after showing significant growth by 15.5% CAGR during 2000 – 2005.

Thailand steel consumption in 2000 – 2007 (‘000 tonnes)

9

Thailand steel Import – Export in 2007 (Unit : ‘000 tonnes)

-2,356

-924-1,784

-818-1,295

-246

-545

-24

-166

-725

-1,594

-427

-236

52

13

93

0

108

25

263

823

213

483

237

19

190

Import Export

Thailand still relies on imports of both semi-finished and finished steel products due to lack of raw material and upstream industry.

Billet

Wire rod

Section

HRC

HRP

CRC

Coated

Slab

Bar

Seamless pipe

Welded pipe

Scrap

Pig iron

9

Source : ISIT analysis

10

China is leader in semis market, while Japan is leader in finished steel market.

Other, 8%

Australia, 2%

EU, 4%

Brazil, 14%

Ukraine, 4%

Russia, 31%

China, 36%

Japan, 56%

China, 17%

Australia, 4%S.Korea

, 11%

ASEAN, 4%Taiwan,

3%EU, 2%Other,

2%

Semis import breakdown in 2007

100% =2.4 million tonnesFinished products import breakdown in 2007

100% = 6.3 million tonnes

Source: Thailand customs department and ISIT analysis

11

In 2008, CIS becomes leader in semis market due to Chinese gov’t effort to decrease the export of low value added product.

Other, 9%Mexico,

4%

USA, 4%China,

8%

Brazil, 15%

Australia, Ukraine

, 16%

Russia, 31%

Semis import breakdown in 2008

100% = 1.17 million tonnes

12

Construction is a major consuming sector.

Total consumption in 2007 = 13.148 million tonnes

Consumption per capita in 2007 = 199.6 kg

Ratio of long : flat steel consumption = 38 : 62

Consumption by downstream sector

- Construction 60%

- Automotive 12%

- Industrial 11%

- Appliance 8%

- Packaging 5%

- Other 4%


4%5%

8%

11%

60%12%

Construction

Auto

Appliance

Packaging

Industrial

Other

13

Source : ISIT

Steel demand is possible to pick up in 2008 as recover in construction sector and rising in automotive and appliance sector.

1,148

979 1,009 1,030 9801,058 1,047

1,2471,239

0

200

400

600

800

1,000

1,200

1,400Ja

n

Feb

Mar Apr

May Jun

Jul

Aug

Sep

Oct

Nov

Dec Jan

Feb

Mar Apr

2007 2008

Thou

sand

MT

Production Import Export Consumption

Total ('000MT) Jan-Apr 07 Jan-Apr 08 Change '07/'08

Production 2,733 3,032 10.96%

Import 2,542 2,554 0.46%

Export 860 840 -2.36%

Apparent Consumption 4,415 4,746 7.50%

14

Long products consumption (monthly)

0

100

200

300

400

500

600

Jan

Feb

Mar Ap

r

May Ju

n

Jul

Aug

Sep Oct

Nov

Dec Ja

n

Feb

Mar Ap

r

2007 2008

Thou

sand

MT


Flat products consumption (monthly)

0100200300400500600700800

Jan

Feb

Mar Ap

r

May Ju

n

Jul

Aug

Sep Oct

Nov

Dec Ja

n

Feb

Mar Ap

r

2002 2003

Thou

sand

MT


Flat (,000MT) Jan-Apr 07 Jan-Apr 08 Change

Production 1,314 1,331 1.3%Import 1,914 1,988 3.9%Export 662 557 - 15.9%Apparent Consumption 2,566 2,762 7.6%

Long (,000MT) Jan-Apr 07 Jan-Apr 08 Change

Production 1,419 1,701 19.9%Import 628 566 - 9.9%Export 197 283 43.2%Apparent Consumption 1,850 1,985 7.3%

Unit : 000 MT

Source : ISIT

Finished steel import has shown significant growth for both long and flat product.

15

Source : ISIT

Thai’s mini-mills show significant growth from high profit margin of semi-finished product…

Semi-Finished Consumption by Monthly (000MT)

0

200

400

600

800

1,000

1,200

1,400Ja

nFe

bMar Apr

May

Jun

Jul

Aug

Sep

Oct

Nov Dec Jan

Feb

Mar Apr

May

Jun

Jul

Aug

Sep

Oct

Nov Dec Jan

Feb

Mar Apr

May

Jun

Jul

Aug

Sep

Oct

Nov Dec Jan

Feb

Mar Apr

2005 2006 2007 2008

thou

sand


Unit (,000 MT) Jan-Apr 07 Jan-Apr 08 Change

Production 1,754 1,947 11.00%Import 1,095 1,086 -0.82%Export 7 12 72.17%Consumption 2,842 3,021 6.30%

Semis import (MT) Jan-Apr 07 Jan-Apr 08 Growth

Slab 591,744 616,894 4.25%

Billet 404,619 468,656 15.83%

Raw mat. import (MT) Jan-Apr 07 Jan-Apr 08 Growth

Scrap 475,798 918,029 92.95%

Pig iron 341,804 220,445 -35.51%

16

Source: SBB

35-36%

56%42-55%

25%

Gap price long products

… especially since 2007

230

108 118

260245

700

630

278218

315

450

930890

385335

433

695

1,005

925

413355 425

740

-100

100

300

500

700

900

1,100

Jan-

05

May

-05

Sep-

05

Jan-

06

May

-06

Sep-

06

Jan-

07

May

-07

Sep-

07

Jan-

08

May

-08

Scrap-Billet Billet-rebar HMS 80:20 Billet Rebar

17

Source: SBB

43-47%

56%32%

25%

Gap price flat products

260

238

295

205

700630

218

315

450

278

960925

310

460

655

515

1,015965

595

385

515

708

-200

0

200

400

600

800

1,000

1,200Ja

n-05

Jun-

05

Nov

-05

Apr

-06

Sep-

06

Feb-

07

Jul-0

7

Dec

-07

May

-08

Scrap-slab Slab-HRC HMS 80:20 Slab HRC

18

571553

575

626656 663

736

786

645

569

625

675 664

719

845

920

674654

704

630

708

770

875

965

500

600

700

800

900

1,000

ก.ย.-07 ต.ค.-07 พ.ย.-07 ธ.ค.-07 ม.ค.-08 ก.พ.-08 มี.ค.-08 เม.ย.-08HRC domestic china HRC China exportHRC Thailand Import* HRC East Asia Import cfr

23%

18%

Source: SBB, and ISIT analysis

* HRC Thailand import = HRC China export + Freight rate for 3 year handymax charter hire at 29 USD/MT

Steel users in Thailand pay cost of steel 10-25% higher than China company due to…

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… transportation cost

Source: ISIT analysis

4,454 NM(31.3 USD/tonne)



ore

ore

FG

Freight cost estimation

* Ore is transported by capesize shipFinished good (FG) is transported by handymax shipFreight calculation is based on freight for year 2007 (3 year charter hire)

20

Steel price rising leads to more trade balance deficit

Import 2007 Jan-Apr 2007

Jan-Apr 2008

% Change 07/08

ScrapVolume 1,784,006 475,798 918,057 93.0%

Value 21,329 5,416 12,729 135.0%Semis

Volume 2,444,294 1,166,819 1,233,092 5.7%Value 41,149 18,354 25,075 36.6%

HR productsVolume 4,028,049 1,336,793 1,471,213 10.1%

Value 115,950 38,324 42,425 10.7%CR products

Volume 874,771 298,887 293,420 -1.8%Value 35,018 11,546 11,882 2.9%

Coated productsVolume 1,594,107 496,133 567,335 14.4%

Value 48,902 15,634 16,974 8.6%Total import

Volume 13,830,005 4,776,870 5,615,468 17.6%Value 327,437 110,747 135,011 21.9%

Thailand steel import breakdown by group

* Volume: tonnes

Value: million THB

Source: Thailand customs department and ISIT analysis

21

Factors will effect to Thailand steel industry in 2008.

New private investment (+)

Growing manufacturing sectors (+)

Raw material supply & price (-)

China export (-)

Private investment is forecasted to pick up the pace to 8.5 % growth, stronger than 1.4 % in 2007.

Capacity utilization of electronic, petroleum, vehicle, beverage, food, chemical, construction and paper is higher than 80% at present. New investment to expand capacity is necessary.

Public investment projects to improve infrastructure, particularly the mass transit system in Bangkok and the vicinity areas will enhance steel demand, especially from domestic supply

Automotive production in Q1 2008 grew up by 25%, while CBU export also rose up 27%.

Refrigerators, Washing machines and Air-conditioners production in Q1 2008 grew up by 24%, 21% and 41%, respectively.

Rising in manufacturing sectors will mainly beneficial to steel import from Japan, South Korea and Taiwan.

Rising global steel demand, depreciation in USD, oil price surging, consolidation in raw material suppliers is root cause of steel price growth.

Insufficiency in semi-finished products will impact to construction and property sector.

Finished steel export from China to Thailand has gained market share from 6.6% in 2004 to 11.7% in 2008.

Most of steel import from China is commercial quality that has negative impact to domestic producer.

Trade measure implemented by USA and EU will lead China steel products move to Asia and ASEAN.

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Contents





23

2,134 2,143 2,101 1,814 1,5322,100 2,127

2,538

3,5514,533

5,161 4,9145,655

9,057 8,7888,031

3,837

5,9606,762

7,607

10,04910,967

12,661

13,877

12,154 12,148

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Unit: ‘000 tonnes

Source : SEAISI statistical yearbook and ISIT analysis

Apparent steel consumption

Crude steel production

Thailand has low capability to self-supply for its crude steel with 47% of total steel consumption.

15.2%

CAGR (’00-07)

8.7%

24

Thailand import 1.8 million tonnes scrap and 2.5 million tonnes of semis to fullfill its demand.

1,280

1,850 1,6831,373

1,784

4,181

5,012

5,709

3,924

2,443

2003 2004 2005 2006 2007

Source: Thailand customs department

Scrap

Semis

Scrap and semis import

Unit: ‘000 tonnes

25

Source : SEAISI and World Trade Atlas

Even in Asian countries, most of them also rely on imported scrap due to structural scrap deficit.

Steel scrap import – export 2007- estimate (Unit : ‘000 tonnes)

-5,418

-3,359

-397

-3,300

-1,212

-7,000

-15,674

-1051

-1,784

-674

-6,790

79

302

772

25

79

426

64

599

167

Import Export

China

Taiwan

Malaysia

Indonesia

India

Thailand

Philippines

Singapore

Japan

South Korea

-99

Total

Vietnam

12,897

26

5,881

4,1893,592 3,587

3,280

2,446 2,075

2001 2002 2003 2004 2005 2006 2007E

Steel industry expansion in Russia lead to lower billet export.

Source : International Iron and Steel Institute, World bank in Russia, Severstal, WTA

Russia billet export (‘ 000 tonnes)

CAGR 01--07-16%

26.891 24.93 25.329 26.286 29.3335.156

39.888

5.14.7

7.3 7.26.4 6.7

8.1

0

12

3

45

6

78

9

2001 2002 2003 2004 2005 2006 2007E0

510

15

2025

30

3540

45GDP growth (%)

Increasing high energy prices, large capital inflows and rising domestic demand in Russia are key economic drivers.

Russia’s billet export has significantly dropped serve domestic demand.

Russia has become a net importer of rebar to fulfill booming construction sector.

Steel demand (mt)

LHS

RHS

27

4,1944,965

8,402

2006 2007 Total EAFCapacity

3,437, 69%


Semis import 2006 – 2007

2006: 3,924,295 tonnes

- Billet: 1,525,704

- Slab: 2,083,935

- All other semis: 314,657

2007: 2,443,285 tonnes

- Billet: 817,677

- Slab: 1,294,888

- All other semis: 330,720

Thailand crude steel production 2006 – 2007 (‘000 tonnes)

* Exclude Siam Yamato Steel

In short term, Thailand’s mini-mills possible to expand its production efficiency in order to match with nameplate EAF capacity by a few investment.

Assumption

24 heats/day for 1st Tier producers

20 heats/day for 2nd , 3rd Tier producers

24 heats/day for GJS (NSM), G-Steel producers

Operating day: 330 days/year

28

2,2132,728

4,837

2006 2007 Capacity

2,109

Billet production 2006 – 2007 (‘000 tonnes)

Invest some modern facilities, for example, water cooled panel, oxygen burner to improve efficiency of EAF

Invest new CCM

Adjust operating practice will improve productivity and efficiency that lead to capacity improvement

Long product mini-mills can expand their steelmaking capability by modernizing some facilities and improving operation practice.


29

1,9812,237

3,801

2006 2007 Capacity

1,564

Slab production 2006 – 2007 (‘000 tonnes)

Invest new CCM to produce more billet or slab

Adjust operating practice will improve productivity level that lead to more output

GJS (NSM) and G-Steel possible to improve their production capacity to produce billet or slab as well.


30

Steel plants in Thailand are relatively new and modern.

G-Steel

GJS (NSM)

Blooms

Billets

1.5

1.5

0.7

3.4

2007, capacity Million tons

Flat

Long

Plant evaluation

– Medium slab caster– Coil box

– Thin slab caster – Vacuum degassing– Consteel furnace

– Efficient EAF plant

– 4 tier 1 plants– 5 tier 2 plants– 4 tier 3 plants

Plant age

7-8 years

6 years

7 years

4-10 years

Plant

Well-conditioned

Poorly-conditioned


31

Contents





32

Flat application Long application Technology

Application Quality evaluation

ApplicationsProduction technology

EAF using 100% Scrap

EAF using 50% scrap & 50% DRI/ Virgin Metal

Blast furnace with 100% Virgin Metal

Construction

Same as above

Commodity Commodity

Quality

Quality

Source: Thailand Steel Industry Transformation Plan

Billet for commodity rebar/wire rodBloom

PC wire rod

Same as above plusSame as above plus*

Same as above plus*

Automotive internal panelsAppliance internal panelsPackaging non-deep drawingElectrical steel

Automotive external panelsAppliance external panelsPackaging deep drawing

* Since it is difficult to quantify separately the quality and commodity grades in Automotive, Packaging and Electrical steel, they have been classified as Quality, to develop a conservative estimate of commodity demand

EAF route is limited to produce high quality steel.

33

Relative share of different metallics in global metallics demand (%)

Source : McKinsey & Company analysis

Growth of scarp availability will not overtake with growth of steel demand.

World steel scrap ratio

34

15,18516,168

17,15018,132

19,11420,097

21,07922,061

23,043

12,87213,653

14,49615,408

16,39617,469

18,637

19,911

21,303

22,82824,026

2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E

Method 1: Forecasting by relationship with GDP Method 2: Forecasting by growth of downstream industries


Thailand steel consumption is projected to grow up with CAGR 6-6.5%.

Thailand steel demand projection (‘000 tonnes)

35

Thailand import high quality steel products more than 5 million tonnes…

Source: Thailand customs department

177,257183,670186,534134,15195,58378,01772,47271,524Value (million THB)

5.375.465.235.054.343.943.273.30Volume (million tonnes)

20072006200520042003200220012000

High quality steel import

Remark:

High quality steels import include: bar, wire rod, wire, HRC, HRP, CRC, Coated, pipe and tube from Japan, South Korea, Taiwan of China and European Union

Application:

Bar: forging parts for automotive and machinery

Wire rod and wire: fastener for automotive, PC wire & strand, etc.

HRC and HRP: automotive parts, HAEA, HRC for CRC, ship building, machinery parts

CRC: inner automotive parts, TMBP, Silicon steel

Coated: Galvanneal for outer parts, HAEA

Pipe and tube: gas cylinder, etc.

36

8,115 8,625 9,153 9,701 10,270 10,865 11,487 12,139 12,826

5,9146,285

6,6707,069

7,4857,918

8,3718,847

9,3479,876

13,551

2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E


Commercial grade

High quality grade

14,02914,910

15,82316,770

17,75518,783

19,85920,986

22,17323,427

* Ratio of quality steel import / steel consumption: 42%

… and will grow up to almost 10 million tonnes in next 10 years.

Thailand high quality steel demand projection (‘000 tonnes)

set conference v6 · an overview of thailand’s steel industry iron and steel institute of...

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