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8 Apr 2008


Opportunities with Chinese Steel Industry: Attractive Alternative (Business Brief No.2133)

For years now, the Thai public and private sectors have exerted considerable effort into initiating the building of a domestic upstream steel industry – i.e., a steel smelting plant (steel mill) – despite many obstacles. One of those obstacles has been the problem of very high capitalization over THB100 billion.
KASIKORN RESEARCH CENTER (KResearch) holds the view that Thailand has several advantages to become a production base for an upstream steel industry and the potential to become a fully-integrated steel production center for Southeast Asian thanks to high demand among domestic industries. These include the automotive, canned food, machinery industries, etc. In addition, several state mega projects should help boost the demand for construction materials, including steel over the long-term, as well. A fully integrated steel industry would also increase our competitiveness against neighboring countries and strengthen the downstream steel and related industries.
AJoint venture between Thai and international entrepreneurs should be a suitable form of investment for the upstream industry because it would benefit Thailand in both investment capital and the transfer of steel smelting technology from overseas. Over the past 2-3 years, several international firms have shown interest in investing in the construction of steel mills in Thailand. They include Shougang of China that has submitted an application for investment promotion privileges to the Board of Investment (BOI) to set up a steel mill here. However, political changes in Thailand and the finding for suitable construction site have been the major obstacles for the project start-up.
Toward the end of 2007, four international steel producers expressed their interest in investing in the upstream steel industry here. These include major steel producers from Japan, Nippon Steel and JFE Steel, plus the world's largest steel maker, ArcelorMittal, and Baosteel, the largest steel producer of China. These companies can serve as potential joint venture partners, thanks to their capital advantage and technology expertise, which should help lift our steel manufacturing standards and upgrade Thailand toward becoming the leading steel producer in Southeast Asia.
KResearch views that drawing investment from China for the development of our steel industry is an interesting option because China has been one of the world's largest steel industry and most advanced.
Over recent years, Chinese entrepreneurs have begun to invest in several Thai industries, such as the machinery manufacturing, processed food, and automotive industries. China is targeting to become the world's leading car maker and is expanding their investments here. If their investment plans are expanding, this will spur domestic steel demand in Thailand. We have already seen a few large projects from China.
As a result, if Thailand can attract Chinese steel makers to enter into a joint venture in the upstream steel industry, it would be the largest project from China here so far. This project would not only enhance our domestic steel industry, but also create a better investment atmosphere and greater familiarity with Thailand by Chinese investors. Furthermore, this project could serve as a spring board for other types of Chinese investment in Thailand.

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