South East Asia Iron & Steel Institute has announced that apparent steel consumption in ASEAN declined substantially in 2009 by 8% to 42.5 million tonnes as a result of the global economic meltdown. However, steel demand has been recovering since the second half of 2009. It is expected that the demand will increase significantly by 12% and 8% in 2010 and 2011, respectively.
The decline of steel demand in the region has resulted in a significant slowdown of steel imports. Flat steel import dropped by 27% and the import of long product decreased by 13% in 2009. However, production was relatively stable with a moderate increase of 1% in both flat and long products. This was due to the significant recovery of domestic output in the second half of 2009.
The recovery of the steel sector is, however, dampened by the robust increase in raw material prices. Many experts forecast that steel prices will be volatile but will maintain an upward trend throughout 2010.
Despite the continued increase in steel prices, many steel mills have suffered when the raw material prices are rising more rapidly than steel prices. CRU pointed that in many regions of the world, except North America and South East Asia, prices are rising at higher levels when compared to cost changes, suggesting that margins are being squeezed.
In the case of China, although hot rolled strip prices are increasing, the margin has been squeezed and it appears to have fallen significantly from above 90% in 2004 to between 10% and 20% in 2009.
For ASEAN re rollers, the margins for conversion from billet to rebar and slab to HRC were found to have dropped substantially to about 20 USD per tonne in April 2010. However, CRU observed that the margin for re rolling HRC into CRC in the region was USD 115 per tonne in April 2010, increasing from an average of USD 97 per tonne in the last 4 years. One possible reason could be the shortages in the region.
According to the CRU cost model, average margins at 11% over costs for HRC production in integrated mill and 42% for re rollers in ASEAN are half of the value when compared to China. The highest value added is created in the CRC production stage with 15% for integrated mills and 30% for re rollers. However, there is no value add at the coating stage. This brings to the question of whether ASEAN should invest more on HRC and CRC production line.
On the other hand, CIS re rollers in rebar and HRC stage are suffering from negative value add of 29% and 52%, respectively. Should CIS then just focus on producing billet and slab, rather than converting them to rebar and HRC?
(Sourced from www.seaisi.org)
