Thailand's steel industry has been quite vibrant lately as seen in increases in production capacity to meet expected rising demand this year amid brighter prospects in the construction, automotive and machinery industries. New equipment installations have been mainly to replace lost facilities after last year's floods. Domestic consumption of steel during 5M12 (Jan-May) totaled 5.3 million metric tons, representing an increase of 10.6 percent YoY. Despite the global downtrend, steel prices here have been on the rise due largely to ample demand, especially from within the ASEAN market. Of total steel exports in 5M12, shipments to ASEAN made up 37 percent. Notably, exports to Laos and Malaysia soared 49.9 percent and 24 percent, over-year respectively. KResearch holds the view that domestic steel consumption may witness continuing growth supported by:
1) Expanding construction, automotive and machinery industries In light of the flood crisis late last year, these three sectors have boosted their capacity to compensate for losses incurred by the disaster. Government policies to promote infrastructural investments, especially new skytrain routes – and the first-car buyer program have been beneficial to the construction and automotive sectors over the past five months.
2) Expected government policies in support of iron and steel product producers amid rising competition: Currently, price competition has intensified in Thailand because imported substitutes are offered at lower prices as they enjoy tax benefits both at their home country and in Thailand, taking advantage of different components in certain categories.
3) Lower steel prices amid easing global demand: Thailand should benefit from our lower production costs amid softening global steel prices. With no upstream production domestically, we are reliant mainly on imported iron and steel feedstock.
KResearch projects that domestic steel consumption may grow perhaps 6.4-12.5 percent YoY, totaling 15.6-16.5 million metric tons, beating 2011 when we produced 14.7 million metric tons, increasing 4.8 percent YoY, then. For 2012, domestic demand may average 1.3-1.4 million metric tons per month, outpacing the five-year average, due to higher demand from related industries. The government and other related agencies may have to seek anti-dumping measures to prevent a huge influx of steel from large steel producing countries. Strict quality control over imported products should also be put in place to bar substandard steel. Inspections of imported steel should be strictly enforced to ensure that the imports are in compliance with Customs regulations to guard against tariff evasion as a preventative measure for both local producers and consumers.
In brief, our exports to ASEAN should have a bright future amid sluggish demand elsewhere due to the Eurozone crisis. Therefore, ASEAN has emerged as Thai steel exporters' target market.
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