JFE Meranti is a newcomer to the coated steel coil sector, and it expects its first years to be challenging while it works to achieve the lion’s share of Myanmar’s up-and-coming market for coated steel products, chief executive and managing director Sebastian Langendorf has told Fastmarkets.
Langendorf was speaking in an exclusive interview at JFE Meranti’s Singapore headquarters in the Marina Bay Financial Center on March 1.
“The Myanmar coated steel market has tremendous potential,” he said.
“In the short term, it will be a challenging environment because it is such a young economy. But we expect there to be significant opportunities eventually, because Myanmar is a frontier country with a good domestic base for our key target segments in the building and construction industries,” he added.
This is also the right time for JFE Meranti to enter the coated steel business in Myanmar, with steelmakers in Southeast Asia set to experience a boom time in light of the continuous restructuring in the Chinese steel market, he said.
“Given that the Chinese steel market will continue to restructure in the long term, capacity consolidation will continue, and exports will continue to be restricted,” he said. “In light of this, there is definitely a capacity replacement requirement in Southeast Asia.”
JFE Meranti is a joint venture between Japan’s JFE Steel, Singapore’s Meranti Steel Pte Ltd and traders JFE Shoji, Marubeni-Itochu Steel, and Hanwa Co Ltd. JFE Steel has a 35% share in the venture, while Meranti Steel has a 20% share. The three traders each have a 15% share.
Langendorf cited Vietnamese producer Formosa Ha Tinh Steel and upcoming projects in the Philippines, Indonesia and Malaysia as prime examples of increasing self-sustainability in Southeast Asian steel production.
“Some of the Japanese and South Korean mills are ageing, and all are running at high [capacity utilization] rates to feed domestic demand, [while] India’s rising production will largely cater to its own domestic markets, so Southeast Asian producers will enjoy favorable markets in the medium term,” he said.
This will be supported by the growing economic middle class in the region, with young, growing populations in many Southeast Asian countries expected to increase their average steel consumption per capita, especially from the building and construction industries.
Myanmar’s rapid development
Myanmar’s rapid economic development and steel consumption is a prime example of how Southeast Asia steel production capacity can progress in the long term, and is the key reason why Langendorf chose to start a new coated coil company in that country.
JFE Meranti plans to commission a painted coil line with capacity for 90,000 tonnes per year in November 2019. It also plans to launch a 180,000 tpy galvanized coil line in March 2020 in the Thilawa Special Economic Zone, which lies 23km southeast of the city of Yangon.
JFE Meranti’s new facility will produce aluminium zinc coated coils of 0.25-0.7mm thickness for use in roofing and walling applications, and which therefore require high corrosion-resistance qualities, as well as zinc-coated coils of 0.7-2.0mm thickness for use in trusses, purlins and other structural steel products.
It plans to sell its products to the building and construction industries, including foreign direct investments in the Thilawa Special Economic Zone, and to local factories which need building and roofing materials, as well as for structural applications such as trusses and purlins.
“Being situated in the Thilawa Special Economic Zone is very beneficial for us because of the advantage which we have in getting a stable power supply, as well as the strong regulatory and governance framework which helps us to clear our incoming shipments through the customs process rapidly,” Langendorf said.
“For example, in the future, our cold-rolled coil substrate can be cleared at the Thilawa port to unload into our factory within 3-5 days. This will help us in terms of our working capital because there won’t be any shipment delays due to customs checks,” he explained.
But logistical challenges are still present in Myanmar, especially with regard to heating costs.
“We need gas to heat our furnaces,” Langendorf said, “and while Myanmar has its own natural gas reserves, there is a shortage of natural gas for commercial use because large quantities of Burmese gas are exported to China and Thailand.”
This has led JFE Meranti to depend on liquefied petroleum gas, and has increased its operational costs due to the accompanying costs for handling and storage.
“But in the medium term, we are confident that we can be a fully competitive coated coil producer because we are in the Thilawa Special Economic Zone,” Langendorf said.
The company plans to have its own cold-rolling mill and a second galvanizing line in the medium term, based on the expected growth in demand.
“The cold-rolling mill will be located at our current plant to feed our own production. The expansion will be in tandem with our second galvanizing line,” Langendorf said, without giving details of the capacities the company expects to add.
Future anti-dumping measures?
While the steel industry in Myanmar is just beginning to appear, there is no telling when the prospect of anti-dumping measures will approach.
“There isn’t much to protect now, in terms of steel production in Myanmar. There isn’t any sizeable crude steel production in the country – domestic production is a mere 1% of the total consumption of 2 million tpy,” Langendorf said.
“But if there are any upstream undertakings by companies in Myanmar, especially with regard to hot-rolled coil production, there could be discussions about starting anti-dumping measures,” he said.
Large-scale integrated steel production is rather unlikely in the coming few years, given that there is no physical infrastructure in place for more advanced steelmaking in the country.
“Electricity and deep-sea ports are a challenge in Myanmar, even over the next five to seven years,” Langendorf said. “But the domestic market opportunity will be there. As of now, JFE Meranti is not participating in any discussions about erecting trader barriers in Myanmar.”
Regional competitors will always be present, Langendorf accepted, even if anti-dumping measures are set up.
“There is no 100% market share for domestic producers in any steel market in Asia. We foresee that we will have a large share, but there will surely be imports especially into segments where we don’t want to compete,” he said.
This would be especially noticeable, he said, in the lower-quality, cheaper market segments, which regional producers, and especially those from China and Vietnam, would try to target.
“While Vietnam has a good domestic demand base due to its large population of 80 million, and growing steel consumption per capita, galvanizing supply exceeds the current demand base,” Langendorf said. “This is especially so after Vietnamese re-rollers lost some of their export channels when the United States introduced its Section 232 import tariffs.”