What does OECD Review of Steelmaking Capacity Development in Asian Region Reveal?

OECD (Organisation for Economic Co-operation and Development) is an intergovernmental economic organization with 36 member countries and was founded in 1961 to stimulate economic progress and world trade.

Recently OCED carried out the review of steel sector development that includes additions, closures, postponements and cancellation of steel capacities in the Asian region, the findings of which are as below:

Asia

Steelmaking capacity in Asia has decreased from 1,522 MnT in 2016 to 1,489 MnT in 2017 (-2.1%). However, in the absence of additional closures, steelmaking capacity in the region could increase again to 1,508 MnT between 2018 and 2020 (+1.3 %).

China

Between 2006 and 2015, Chinese steelmaking capacity more than doubled, from 488 MnT to 1,150 MnT. However, capacity started to decline more recently, falling by around 65 MnT in 2016 from the previous year. Moreover, a target was set for reducing steelmaking capacity by an additional 50 MnT in 2017 as part of the 100-150 MnT closure target set for the period until 2020 by National Development and Reform Commission (NDRC).

According to the Ministry of Industry and Information Technology (MIIT), China's steel capacity closures in 2017 actually exceeded 50 MnT. China has also started closing down outdated AND polluting induction furnaces (IF). MIIT reported that 140 MnT of induction furnace (IF) capacities were eliminated in 2017.

It is important to note that induction furnaces output is not captured in official statistics and the closure of additional induction furnaces of 100-150 MnT is anticipated till 2020.

In terms of capacity additions, there are some new capacity investments projects in China. Shandong Iron & Steel is building an 8.5 MnT plant in Rizhao, Shandong province. In the context of Shougang Jingtang's investment project in Hebei province, the company has started a second phase that entails an additional 5 MnT of steelmaking capacity. These new mills are designed to produce high value-added products to meet the demand for flat products in the automotive and home appliance industries in China.

India

Steelmaking capacity in India has been expanding at a fast rate in recent years and there are several new investment projects underway. Capacity is estimated to have increased to almost 122 MnT in 2016, more than double the level of 56 MnT in 2006.

Further growth is expected in the coming years ahead. For example, in late 2017, Jindal Steel and Power Ltd. (JSPL) completed the commissioning of a new basic oxygen furnace (BOF) at its Angul plant in the state of Odisha. The National Mineral Development Corporation (NMDC) is constructing a Greenfield steelworks in the state of Chhattisgarh, while Steel Authority of India Ltd (SAIL) is expanding steelmaking capacity at its Bhilai plant, both projects of which are expected to be operational in 2018.

JSW Steel is coming up with additional capacity of 6.7 MnT at Vijaynagar and Dolvi plants which will be operational by 2021 whereas Tata Steel is currently undergoing expansion works at its Kalinganagar plant from 3 MnT to 8 MnT which will be completed by 2020.
As a result of its rapid capacity expansion, India could become the world's second largest steel producer over the next few years.

On 8 May 2017, the Ministry of Steel of India published the "National Steel Policy 2017" (hereafter the NSP 2017) (Ministry of Steel of India, 2017[6]). According to the NSP 2017, India's authorities expect that 300 MnT of domestic crude steelmaking capacity would be required in the economy by 2030-31, based on its demand projections.

These expectations assume that most of the projected additional demand for steel would need to be satisfied by domestic steel production. However, attaining such a level of production capacity would entail an additional capacity of 175.2 MnT from the 124.8 MnT level in 2017 (+140%) and the NSP notes that this would require an extensive mobilization of natural resources, finances, manpower and infrastructure (including land).

ASEAN countries

Steelmaking capacity has expanded rapidly in the Association of South East Asian Nations (ASEAN) over the past decade and there are many steel projects being planned, particularly in Vietnam. Steelmaking capacity in the ASEAN region has increased from 48.7 MnT to 55.7 MnT between 2016 and 2017 (+14.4 %).

Formosa Ha Tinh Steel has started operating a new blast furnace with a capacity of 7 MnT in Ha Tinh province, Vietnam in 2017 (Formosa Ha Tinh Steel, 2017). Other projects include the Gunung Steel Group's installation of a 0.5 MnT electric arc furnace (EAF) in Indonesia, and SteelAsia Manufacturing Corporation's 0.8 MnT EAF in Bulacan, Philippines, which are expected to become operational in 2018.

In addition, solid steel demand growth has attracted many foreign investors to the South East Asian region and there are several new investment plans supported by Chinese companies. For example, Alliance Steel, which is funded by Chinese companies, is building a Greenfield integrated steel mill with a capacity of 3.5 MnT in Kuantan Industrial Park, Malaysia, with commissioning expected for 2018. The construction of several large BOF plants are also being planned in Vietnam, which would support capacity growth in the region in the coming few years.

Bangladesh and Pakistan

Bangladesh and Pakistan have enjoyed strong steel demand growth in recent years, and several projects to build new steel mills are underway. In Bangladesh, GPH Ispat Ltd and Kabir Group of Industries are constructing new EAF mills, with a total of 1.3 MnT of capacity expected to become operational in 2018.

In Pakistan, Amreli Steels Ltd. has commissioned a 0.2 MnT IF in Dhabeji and Agha Steel Industries is installing a 0.08 MnT induction furnace in Karachi, which are expected to become operational in 2018.

Japan and Korea

There are no major capacity investments underway in Japan or Korea, but several closures have recently taken place as part of resource reallocation plans. For example, Japan's Kyoei Steel and Osaka Steel shut down two EAFs (with a capacity of 0.48 MnT each) in 2016, to reduce production costs and increase efficiency by reallocating all crude steelmaking production to other more efficient plants.

In addition, Kobe Steel has shut down upstream equipment, also resulting in the permanent closure of a BOF with 1.38 MnT of capacity at Kobe Works at the end of October 2017. The upstream processes were moved to Kakogawa Works to compensate for the reduction at Kobe Works, but without any corresponding increase in crude steelmaking capacity this is likely to result in higher steelmaking capacity utilisation rates and potentially scale- driven efficiency gains at the Kakogawa Works.