Posted on 29 Jan 2013
THE emergence of Asean as the world's biggest steel importing region in recent years has attracted world major steel producers from Japan, South Korea and China to increase their investment presence and exports in this thriving region.
But the serious threat of unfair trade practices by major non-Asean steel producers especially from China has resulted in a harmful impact on regional steel players, which are struggling to retain market share in their home turf amid production cuts and increasing costs.
The latest move by Asean steel players seeking for a review in Asean-China Free Trade Agreement (ACFTA) on steel products will likely see more intervention by the affected Asean governments in the form of anti-dumping duties, safeguard measures and other trade actions this year to protect their domestic steel industry.
StarBizWeek recently met with the Asean Iron and Steel Council (AISC) president and South East Asia Iron and Steel Institute (SEAISI) chairman Chow Chong Long to give his views on the latest regional steel sector development.
Below are excerpts from the interview.
What would you consider major threats that will challenge the competitiveness of the Asean steel players this year?
Chow: With ACFTA fully implemented in early 2010, there have been a huge surge of imports of various steel products from China into Asean. China's share of Asean's total steel import in 2009 was only 10% but its share jumped to 17% in 2010 and further increased to 23% in 2011, making China the second largest exporter to Asean, just behind Japan.
What is detrimental is that most of the steel exports from China, unlike Japan, are directly competing with similar products produced by the Asean steel manufactures.
On the other hand, there has been very little export of steel products from Asean going into China. Thus, the steel trade is basically a one-way traffic.
In the current situation of global economic uncertainties which brings about negative impact on steel demand and steel price, there is also an increasing trend for countries in the region to institute protective walls to insulate their domestic industry from external threats which include the Asean countries.
Furthermore, Asean is not self-sufficient in raw material supply for its iron and steel sector. The region imports substantial volume of ferrous scrap, its main raw material input, as well as iron ore and coking coal. Raw materials constitute about 65% to 70% of the cost of production of steel.
With the high volatility in the prices of such materials, this poses a great challenge to the steel players in managing cost and price of their finished products.
Given the fact that Asean is one of the few regions in the world that is still experiencing healthy growth in steel demand, it has attracted keen interest from the major global steel players which are increasing their investment presence in the region.
While this could bring about the much needed upgrading of technology for the industry but on the other hand, it could also lead to the crowding out of the domestic steel players who might not be in a good position to compete with the big boys.
With the influx of China-based steel products flooding into Asean, what are some of the counter measures taken by AISC members to address the whole issue?
AISC actually has brought up the matter with the China Iron and Steel Association in its annual dialogues with the association last year but nothing concrete has come out of it so far.
The situation basically arises out of the duty and tax rebate structure of the Chinese steel industry. In effort to discourage the export of low value add steel products, the Chinese government imposes export duty on such products and provides rebates for the export of high value added products.
The steel exporters from China are taking advantage of the loopholes in the duty structure by exporting steel added with the minimum amount of boron and recently chromium and declared under alloy steel, which enjoys tax rebate.
These products, which are competing directly with similar products in the region, also came in under the tariff preferences accorded in the ACFTA.
Given this development, one may be excused for thinking that the Chinese government has purposely designed its tax structure to dominate the steel market in Asean under ACFTA.
In any case, the Governments in the Asean region are well aware of this and many are instituting measures such as trade actions to address the problem.
For example, Malaysia on Oct 23 last year imposed provisional anti dumping duties on imports of steel wire rods from five countries including China. Indonesia in the same month also imposed an anti dumping duty of 10.47% on hot rolled plates from China.
Thailand also recently announced that it will proceed with an anti dumping investigation into high carbon wire rods import from China as well as initiating safeguards investigation on hot rolled steel flat products with certain amount of alloying elements such as boron, chromium which apparently aimed at China imports. Any Asean nations which are slow in taking trade remedy action will receive the full brunt of the influx.
As the SEAISI chairman and AISC president, what are the strategic areas which the Asean iron and steel industry players can work together to achieve a win-win situation?
As the iron and steel industry in the region progressed and became better developed, the Asean member countries started to gradually assume a bigger role in the running of the affairs of SEAISI. By 2007, SEAISI was fully “localised” and now the management is entirely in Asean hands.
Another significant milestone is the integration of SEAISI and the Asean Iron and Steel Industry Federation (AISIF) in end-2011 and the subsequent formation of the Asean Iron and Steel Council (AISC) within SEAISI to deal with economic and trade matters.
In light of the above developments, I would like to see the SEAISI playing a positive role in further enhancing the level of cooperation among the steel players in the region.
As for the AISC, its six steel association members from Malaysia, Indonesia, the Philippines, Thailand, Singapore and Vietnam, are now seeking for an immediate review in ACFTA on steel products. The Asean Secretariat in Jakarta will be taking up the matter with China.
The industry players under AISC, would be able to project a united front in bringing up issues with the major steel trading partners from China, Japan and South Korea.
Another area that industry players can work together is to enlarge intra-Asean steel trade. Asean is a growing market with a huge population around 600 million people.
Steel demand in the region is also growing rapidly and in 2011, apparent steel consumption in Asean crossed the 50 million tonnes threshold for the first time.
However, the intra-Asean steel trade is still low not more than 10% for most steel products, except for scrap and sections. Most of the high end steel products are supplied by the non-Asean countries mainly Japan, South Korea and Taiwan.
The regional industry players should therefore see how best they can take advantage of this void by investing and producing such products in Asean to supply to one another.
In this context, the industry players should also explore the options of forming joint-ventures and/or going into specialisation.
Another area is in the development of human capital and innovation of technology for the region.
It has been highlighted in the last three years SEAISI Conferences that shortage of skilled engineers and technicians is one of the major challenges for the iron and steel industry in the region.
The SEAISI board will review on this.
