The region is already overcapacity and the situation will only get worse

The steel industry in the Association of Southeast Asian Nations (ASEAN) needs government support, financing and technology to survive and be competitive in the face of the global decarbonization drive. This was discussed at the conference of the Southeast Asian Iron and Steel Institute (SEAISI), Kallanish reports.

The region’s steel industry is already overcapacitated, and the situation will get worse. ASEAN’s steel production capacity could increase from 78.1 million tons per year to 188.5 million tons per year by 2030 if the announced projects are implemented. This includes 73.7 million tpa of blast furnace capacity and 20.8 million tpa of direct reduced iron and/or EAF capacity.

This growth potential does not take into account the rapid expansion of induction furnace capacity in Indonesia, Malaysia and Thailand. In addition, as noted by SEAISI Chairman Lim Hong Thai, potential new investments are proposed and implemented by investors from outside Southeast Asia and are mostly focused on the production of commodity or low-grade steel.

In addition to the high volume of steel trade in ASEAN, which will worsen price competition, Chinese exports of steel products to the region are also growing rapidly. In 2023, exports of Chinese rolled products increased by 37% y/y – to 86 million tons. SEAISI expects its volumes to increase in 2024.

Without the support of governments and serious financing, it will be difficult for steelmakers in the region to overcome the challenges of decarbonization. Lim reminded that the EU steel industry receives strong government support in the form of subsidies and grants. Transitional financing from banking institutions will also be important. The current DRI production technology is not viable for steel mills in ASEAN because the price of these products is not low enough.

Almost all ASEAN countries have announced targets to achieve zero carbon emissions, and Indonesia, Thailand and Vietnam are developing a CO2 tax and emissions trading systems. However, countries in the region face various challenges, including access to clean technologies and financing for the green transition, as well as the availability of raw materials, especially amid growing restrictions on scrap exports.