0. AEC and Thai Steel Industry
19 November 2011

1. Contents Current Steel Industry Situation
Consequences from the ASEAN Economic Community
Implications on Thailand and recommendation
Implications to the ASEAN Steel Industry

2. The apparent steel use has increased on average 7. 6 percent per year
The apparent steel use has increased on average 7.6 percent per year. It has a strong positive correlation with the economic growth
Thailand apparent steel use (‘000 Tonnes)
CAGR 10/00 (%)
7.6 %
7.6 %
5.3 %
-0.1 %
Economic recovery & growth
Construction boom
Economic slowdown
Construction contracted
Manufacturing growth
Economic contracted
Economic growth
Construction recovery
Manufacturing boom
Source: Iron and Steel Institute of Thailand

3. Shortage of the supply. The local production is only 30 percent of the demand. Relying on import
Thailand crude steel production and steel demand (‘000 Tonnes)
Source: Iron and Steel Institute of Thailand

4. Thailand Steel Industry Structure
Ironmaking
Finishing & Coating
Forming
End Users
Steelmaking
Long Product
1 Mill
TATA (Mini-Blast Furnace)
Hot-Rolling
Cold-Drawing
1,000 Mills
Machining
Bending
Cutting
Welding
Forging
Heat Treatment
Etc.
Scrap recycle
Construction
54%
~ 50 Mills
TATA
Sahaviriya
Tycoon
Etc.
Production: 3.7 m T
Import: 1.7 m T
Export: 0.8 m T
Demand: 4.7 m T
~ 100 Mills
16 Mills
TATA
G Steel
GJS
SYS
TRIUMP
Etc.
Production:4.2 m T
Import:3.7 m T
Export:0.2 mT
Demand:7.7 m T
Import
Russia, Ukraine, Turkey, Brazil
Export
Vietnam, Philippines, India, Taiwan
Automobiles and parts
16%
Machinery and Industrial Products
13%
Flat Products
Hot-Rolling
Cold-Rolling
Coating
5 Mills
G Steel
GJ Steel
Sahaviriya
LPN
Production: 3.9 m T
Import: 3 m T
Export :0.3m T
Demand : 4.2 m T
Import
Japan, S. Korea, Australia, China
Export
Vietnam, Malaysia, Laos
3 Mills
SUS
TCRSS
Bluescope
Production: 1.7 m T
Import:0.7 m T
Export: 0.1 m T
Demand: 1.6 m T
Import
Japan, S. Korea, Taiwan, China
Export
China, India, Italy, Indonesia
~ 15 Mills
Bluescope
Thai Tin Plate
Production: 0.8 m T
Import: 2.2 m T
Export: 0.1m T
Demand: 2.9 m T
Import
Japan, S. Korea, Taiwan, China
Export
Vietnam, Laos, Myanmar, Hong Kong
Electrical Appliances
12%
Packaging 5%
Source: Iron and Steel Institute of Thailand

5. Thailand relies on the Non-ASEAN countries on its import (2009)
Thailand steel trade in 2009 (Million USD)
Thailand Export
Thailand Import
HS 72 (iron and steel)
HS 73 (articles of I and S)
HS 72
HS 73
Value %
Brunei
6.38
0.00
793.48
0.02
2,714.25
0.04
14.21
Cambodia
40,399.62
3.85
30,512.50
0.76
6,616.79
0.10
184.91
Indonesia
73,718.75
7.02
129,143.29
3.22
11,496.90
0.17
53,212.92
1.37
Lao PDR
68,424.95
6.51
47,662.68
1.19
318.27
214.28
0.01
Malaysia
87,708.63
8.35
125,268.99
3.12
109,273.05
1.59
255,214.58
6.58
Myanmar
53,406.88
5.08
24,843.72
0.62
78.29
466.12
Philippines
26,680.29
2.54
58,046.00
1.45
18,101.81
0.26
29,539.82
Singapore
55,928.44
5.32
160,714.90
4.00
71,967.47
1.05
254,174.64
6.56
Vietnam
180,535.93
17.19
109,145.29
2.72
19,962.32
0.29
17,486.65
0.45
ASEAN
586,809.85
55.86
686,130.85
17.09
240,529.14
3.50
610,508.12
15.75
Non ASEAN
463,637.42
44.14
3,329,296.37
82.91
6,638,215.77
96.50
3,265,939.81
84.25
World
1,050,447.28
100.00
4,015,427.21
6,878,744.91
3,876,447.93
Source: WITS

6. Thailand is capable of producing commercial grade, but needs to import quality grade!
Thailand steel import in 2010 (Tonnes)

7. Some Evidences
The demand for steel is positively related to the economic performance. Obvious! Construction shares more than half of total demand while automobiles, machineries, and electrical appliances share over ten percent
Due to the shortage of supply, imports are mostly from non-ASEAN countries; China, Japan, Korea, Australia, Taiwan, Russia, and eastern European countries.
Local production for commercial grade, not quality grade
Exporting some HS 72 (iron and steel) to ASEAN members
Exports to non-ASEAN countries with different destinations from one year to another

8. Contents Current Steel Industry Situation
Consequences from the ASEAN Economic Community
Implications on Thailand and recommendation
Implications to the ASEAN Steel Industry

9. Milestones of ASEAN
Bangkok Declaration
40th Anniversary of ASEAN
Cebu The Philippines
INDONESIA
AFTA
PHILIPPINES
ASEAN Community
Declaration of ASEAN Concord II
Bali Indonesia
SINGAPORE
MALAYSIA
VIETNAM
CAMBODIA
THAILAND
- อาเซียนก่อตั้งขึ้นเมื่อปี 2510 ครบรอบ 40 ปีเมื่อปีที่แล้ว (2550) โดยวัตถุประสงค์เริ่มแรก เป็นเรื่องของการสร้างความมั่นคง เพื่อต้านภัยคุกคามคอมมิวนิสต์
- สมาชิกแรกเริ่มของอาเซียนเดิม 6 ประเทศ คือ บรูไน ดารุสซาลาม อินโดนีเซีย มาเลเซีย ฟิลิปปินส์ สิงคโปร์ และไทย
ต่อมาได้มีสมาชิกเพิ่มเข้ามาอีก 4 ประเทศ ได้แก่ กัมพูชา ลาว เมียนมาร์ และเวียดนาม หรือที่เรียกกันติดปากว่า CLMV
เดือน ต.ค ที่บาหลี ผู้นำอาเซียนได้ลงนามในปฏิญญาว่าด้วยความร่วมมืออาเซียน (Declaration of ASEAN Concord II หรือ Bali Concord) เห็นชอบให้มีการจัดตั้งประชาคมอาเซียน (ASEAN Community) ภายในปี 2020
เดือน ม.ค ที่เซบู ประเทศ ฟิลิปปินส์ ผู้นำฯ ได้ตกลงให้มีการจัดตั้งประชาคมให้แล้วเสร็จเร็วขึ้นเป็นภายในปี 2015
1967
1999
2003
2007
2015
1984
1992
1995
1997
BRUNEI DARUSSALAM
MYANMAR
LAOS

10. AEC
Single market and production base (goods, services, capital, skilled workers, and investment)
Competitive economic region (Competition policy, IPRs, tax harmonization, e-commerce, and basic infrastructure)
Equitable economic development (CLMV)
Integration with the global economy (ASEAN plus and plus plus and global production networking)

11. Overview of the ASEAN Economic Community
AEC
Single Market and
Production base
characteristic
objective
Free flow of goods
services, investment,
and skilled labor
To create a stable, prosperous and highly competitive ASEAN economic region
Freer flow of capital

12. Single market and production base

13. ATIGA (ASEAN Trade in Goods Agreement) Tariff Measures
2003
zero tariff for 60% of IL
2007
zero tariff for 80% of IL
2010
zero tariff for 100% of IL
CLMV
VN with 0-5% for substantial items
LS and MYR with 0-5% for substantial items
CAM with 0-5% for substantial items
2015
IL = Inclusion list

14. ATIGA (ASEAN Trade in Goods Agreement) Non-Tariff Issues
Elimination of non tariff barriers
Technical Barriers to Trade (Standard, testing procedure, … )
Custom valuation ….
Rule of Origin
Trade Facilitation

15. AEC and Potential sectors for Thailand
Automotive
& Parts*
Electrical & Electronics*
Food Production Hub (packing*)
Tourism Hub
Manufacturing & Assembly Hub*
Machinery and Metalworking Production Base*
Source: Thai Federation Industry
5/6 potential sectors involve steel industry

16. Comparison Thailand and its ASEAN Partners in steel industry
the largest steel market in region
capable of producing various steel products as compared to ASEAN partners due to the FDI and joint venture steel mills (Korea/Japan/india)
Malaysia
strong in rebar, wire rod, wire, galvanized steel and steel pipe market
Indonesia
strong in rebar, wire rod, hot-rolled coil and hot-rolled plate market
attract new investment from global steel players as huge market potential and its prosperous economy
Singapore
strong in rebar and wire rod and strong steel trader in heavy section, seamless pipe and galvanized steel
Vietnam
strong in rebar, cold-rolled coil and zincalume market
Booming steel market in Vietnam is expected after it survives the volatile economic period
Philippines steel production serves local market, no role in export

17. Recalling the AEC: growth driven within ASEAN and attracted Non-ASEAN
Single market and production base (goods, services, capital, skilled workers, and investment)
Competitive economic region (Competition policy, IPRs, tax harmonization, e-commerce, and basic infrastructure)
Equitable economic development (CLMV)
Integration with the global economy (ASEAN plus and plus plus and global production networking)

18. Methodology
Constructing the value chain from upstream to downstream of Thai Steel Industry base on HS 72 and 73 at 4-6 digits
Scope of study on the Five Selected industries
Policy gap analysis
AEC factors affecting the supply and demand conditions
Non-AEC factors (other than ASEAN) affecting demand and supply conditions
Integrated five selected industries to evaluate the opportunity and threat of the Thai steel industry for each product item
Grouping the iron and steel products and indicate the National strategies towards the AEC
Identifying policy implications or what to be done at the ASEAN level

19. Figure 1: Supply chain of steel and automotive industry

20. Figure 2: Factors from AEC to auto-related steel industry

21. Figure 3: Factors from AEC Plus to auto-related steel industry

22. Contents Current Steel Industry Situation
Consequences from the ASEAN Economic Community
Implications on Thailand and recommendation
Implications to the ASEAN Steel Industry

23. Implications on the selected downstream industries: Thailand
Automobiles
ASEAN countries demand more automobiles as the AEC that induces more production and trade level
Thailand is center of ASEAN production hub for automobiles
New investment from big auto assembly companies also eye on Thailand and Indonesia (even with the flooded situation)
Most of steel products are imported mainly from Japan and South Korea (quality and security of supply chain)
Electrical Appliances
Thailand is center of ASEAN production hub in Air-conditioner, Refrigerator, Washing machine and HHD (60% of global production, but gone with the flood for the time-being)
Malaysia is center of ASEAN production hub in LCD, and LED
South Korea has invested significantly in ASEAN in the past few years while Japan has been investing since 1980s
ASEAN steel producers can serve in some products, while imported quality steel products mainly come from Japan and South Korea

24. Implications on the selected downstream industries: Thailand
Machinery
Fossil and renewable energy boom have driven new investment in oil & gas and petrochemical plants
New regulation for double hull ship will drive steel plate demand
A lot of new investments from global construction and agricultural machinery assembly companies will allow Thailand to be the hub
Most of steel quality grades are imported
Canned food
Thailand is center of world food factory
Canned food output has been grown up slightly but limited by seasonal factor of materials such as fruits and seafoods
Mechanization of agricultural process will increase more output in canned food
All ASEAN tin-plate and tin-free steel producers are Japan-joint venture firms

25. Implications on the selected downstream industries Thailand
Construction
Largest steel consuming sector in every ASEAN country
Great opportunity from the ASEAN connectivity project
Still to be liberalize to foreign investment except Singapore
Most of steel usage can supply by local producers
Every country set its own mandatory standard in steel for construction

26. AEC: Opportunity and threat for Thai steel industry
Potential of steel demand growth from new investment in construction and manufacturing sectors
Rising steel demand in Cambodia, Laos and Myanmar which nearby Thailand
Relocation of Japan automotive to Thailand
Potential to produce higher value steel to replace imports with JV of non-ASEAN countries
Threat
Non-Tariff measures among ASEAN members (standard)
Higher cost from new regulations in environment and energy usage
Rising of steel and steel products import from China (commercial grades)

27. Strategies for Thai Iron and Steel Industry under the ASEAN Economic Community
Strategy 1: Improve the Potential of High-Grade Production that are currently imported (import substitution) Strategy 2: Strengthen Potential Producers Strategy 3: Fulfill the Missing Gap in the Supply Chain Strategy 4: Establish “an immunity” for Domestic Producers

28. Strategy 1: Improve the Potential of High-Grade Production that are currently imported (import substitution)
Product group
All downstream steel products which have not yet produced in Thailand as a result of an inadequate technology
Product type
Long product: Seamless Pipe
Flat product: Electrical Steel Sheet, Hot-Dip Galvanized Steel Sheet – Zero Spangle, Hot-Dip Galvanized Steel Sheet – Galvanneal, Hot-Dip Galvanized Steel Sheet – Galfan, and Hot-Dip Galvanized Steel Sheet – HRC Based and Color & Plastic Coated Steel Sheet
Strategy
Government should not only allow an import but also lower barriers as well as facilitate the import from ASEAN members.
To encourage domestic investment in the Iron and Steel Industry and establish a production network among ASEAN members

29. Strategy 2: Strengthen Potential Producers
Product group
Potential products which are currently exporting to ASEAN market.
Product type
Long product: include Rebar, Hot-Rolled Small Steel Section, Hot-Rolled Heavy Steel Section, Cold Drawn Bar, Steel Wire
Flat product: Hot-Rolled Steel Sheet for Direct Use, Cold-Rolled Steel Sheet – GIS, Hot-Dip Galvanized – Normal Spangle & Pre - Painted, Galvalume Steel Sheet & Pre – Painted and Welded Carbon Steel Pipe
Strategy
Facilitating aforementioned products to export and fully utilize benefit from the ASEAN Economic Community.
Encouraging a creation of trade and distribution network and supporting joint venture. As a result, we could better expand and access the ASEAN market.

30. Strategy 3: Fulfill the Missing Gap in the Supply Chain
Product group
Steel products at the upstream of the long supply chain; these products could not produce domestically or we could produce only a limit amount of commercial-grade products as we could not secure enough supply of high quality raw materials
Product type
Long product: Bar, Wire Rod
Flat product: Hot-Rolled Steel Sheet – P&O, Hot-Rolled Steel Sheet for Subseqence Cold Rolling, Hot-Rolled Steel Plate and Hot-Rolled Stainless Steel Sheet & Plate
Strategy
The government should promote an investment in the upstream industry (Ironmaking) in Thailand.
Establishment of raw material network, trade and distribution network, and cooperation mechanism among steel producers and related industries

31. Strategy 4: Establish “an immunity” for Domestic Producers
Product group
Products which suffered from the loss of competitiveness due to high costs or import competing products
Most of these products have been imported from ASEAN major dialogue partners especially the People’s Republic of China which is the major producer who is suffering from overcapacity problem.
ASEAN members are currently involving in new investment projects; consequently, these countries are likely to be our competitors in the year to come especially when we will be fully integrated in 2015.
Product type
Long product: Rebar, Steel Wire, Wire Product
Flat product: Hot-Rolled Steel Sheet for Direct Use, Hot-Dip Galvanized – Normal Spangle & Pre - Painted, Galvalume Steel Sheet & Pre – Painted, Electro-Galvanized Steel Sheet, Tin – Plated Steel Sheet, Tin-Free Steel Sheet, Cold – Rolled Stainless Steel Sheet and Welded Stainless Steel Pipe
Strategy
Strengthening producers in this group of products so that they could lower their costs and improve their production processes which would eventually help them compete and export to the ASEAN market.

32. Contents Current Steel Industry Situation
Consequences from the ASEAN Economic Community
Implications on Thailand and recommendation
Implications to the ASEAN Steel Industry

33. ASEAN external economics relations ASEAN-Australia- New Zealand FTA
ASEAN-China FTA
ASEAN-EU
ASEAN-Korea FTA
ASEAN-Japan CEP
AEC
ASEAN-India FTA
ASEAN-Australia- New Zealand FTA

34. Implications to the ASEAN Steel Industry
Private sector roles
Steel trade center/network
ASEAN Joint Venture Firm
ASEAN Holding Firm
Government roles
Rule of Origin (ROO)
Mutual Recognition Agreement
Trade Facilitation
New investment in high grade steel product
Preparation for new trade regulations
Steel association/institute can play roles in
Cooperation with private sector and government to create solid and fast action
Data center in trade statistics, trade regulations, and insightful market information

35. Implications to the ASEAN Steel Industry
ASEAN plus three and ASEAN plus six
ASEAN is a channel to access to high potential markets like China and India
ASEAN centrality for the East Asia
Enhancement cooperation of ASEAN members is the key to sustain the ASEAN steel industry under competition from global steel companies