The company plans to bolster its local retail distribution channel in a bid to expand its steel products and maintain overall sales amidst an uncertain demand scenario. In financial year 2018-19 (FY19), TSTH posted sales of 1.15 MnT, down by 5.18% year-on-year, which it attributed to bearish local demand levels. Export volumes gained 20.4% for the period to 136,000 tonnes, making up 11.8% of total steel sales.
On January 28, 2019, TSTH reported that Tata Steel Global Holdings entered into a share purchase agreement with Hebsteel Global Holding Pte, a wholly-owned subsidiary of the HBIS Group Co from Hebei, China. Tata Steel Global Holdings will sell 5.72 billion shares, representing 67.9%, to a new joint venture company and hold an ownership via Hebsteel Global Holding and Tata Steel Global Holdings. Hebsteel will hold a 70% stake, while Tata will own the rest.
Rajiv Mangal, President and CEO of TSTH, talks with Steel360, detailing TSTH’s future outlook, including prospects of the Thailand steel industry. Excerpts from the interview
The Thailand steel industry is poised for growth… what is the outlook on the same?
Unlike other countries in the ASEAN region, where dependence of the steel sector on construction is very high (more than 75%), Thailand’s steel consuming sectors are diverse. Construction, machine and appliances and automobiles consumed 55%, 21% and 19% respectively of the total steel consumed in 2018. Total apparent finished goods steel consumption in the country was 17.4 MnT in 2018, up by 4.8% year-on-year (y-o-y). These translate into approximately 263 kg per capita of steel consumption.
The year 2018 saw a y-o-y increase in automobile, cement and canned sea food production by 8.9%, 1.2% and 13.6% respectively. At the same time, refrigerators, compressors and canned fruit production witnessed a y-o-y decline of 9%, 9.9% and 12.7% respectively. With the first car policy after-effects almost gone and huge infrastructure development plans announced for the next five years by the Thai government, steel consumption is expected to witness healthy growth in the coming years. As per the Iron & Steel Institute of Thailand (ISIT), steel consumption in 2019 is likely to be around 19 MnT, an increase of approximately 8% over 2018. Personally, I feel growth will be in the range of 4-6% on account of the continuing trade frictions in the international arena and political uncertainty in the country after the general elections in March 2019.
Is Thailand’s steel capacity utilisation low?
Thailand imported around 12 MnT of steel in 2018. At the same time, domestic production was around 7.1 MnT with average capacity utilisation below 50%. This is not good for the financial health of the domestic steel industry. One of the major reasons for low capacity utilisation in Thailand is that 100% of the steel production is based on the secondary route of steel making. This makes the cost of steel produced locally higher than that manufactured through the primary route in major steel producing countries like China, Japan and Korea. At the same time, most of the steel manufactured in the country is in the upstream and commodity by nature. With new blast furnace-based capacities coming on stream in Vietnam and Malaysia in the last one year, the challenge for Thai steel producers has aggravated. The need of the hour is consolidation and shifting up in the value chain.
What are the measures Tata Steel Thailand will undertake to increase production and demand from local mills and what is the status of the HBIS takeover?
Tata Steel Thailand has a rated capacity of 1.7 MnT per annum of long products, spread across three manufacturing sites in this country. By virtue of better product mix, a pan-Thailand reach and sales of branded products, the average capacity utilisation of the company is in the range of 70-75%. This is much higher than the country average. Exports account for 10-12% of the total sales. During 2011-16, Thailand saw widespread dumping of wire rods from China. With structural changes in the Chinese steel industry and the Thai government imposing tariff and non-tariff measures, imports from China have come down in the last two years.
In the coming years, Tata Steel Thailand plans to enhance capacity utilisation beyond 80-85% by increasing sales of high-end wire rods suitable for the auto sector, ready-to-use cut and bend products and high-strength rebars for construction companies. With a strong brand presence in Laos, Cambodia and Myanmar, exports to these countries are also poised to go up.
The share purchase agreement signed with HBIS was in the end of January 2019 which is not yet closed.
Do you see steel scrap imports rising in the coming years in Thailand? What is your forecast?
As scrap remains the primary raw material for steel making in Thailand, its consumption is bound to increase in line with steel production increase in the coming years. At the same time, the domestic steel industry has taken up with the government, in terms of promoting exports of value- added products and discouraging exports of scarce raw material like steel scrap.
Another factor to be closely tracked is increase in steel production and consumption in Vietnam and Malaysia from the new investments in the last 2-3 years. If these countries resort to aggressive exports, Thailand may witness increased imports of semis and finished products. Thus, the rate of change in imports of scrap in Thailand will depend upon its policy for prevention of scrap exports and imports of semis and finished steel from neighbouring countries.