Thailand's steel industry
navigates through
a changing world steel industry
By Jon Fernquest |
The world steel industry is undergoing consolidation:
Surging demand for steel products over the past five years, coupled with capacity utilisation constraints, have been key catalysts. As a result...a handful of gigantic players can wield huge influence on prices.
The world's largest steel company ArcelorMittal has "output bigger than the combined capacity of all its peers."
Sahaviriya Steel, Thailand's largest hot-rolled steel coil manufacturer, has adopted a strategy of vertical integration, with a new 500-billion-baht smelter in the works and investments planned in ore mining.
With this strategy Thailand's dependence on imported steel will be reduced and Sahaviriya will move closer to its goal of being the region's largest integrated steel producer.
The strategy might also make it an attractive acquisition target for foereign steel producers seeking even greater consolidation.
Read a recent article about Sahaviriya's joint Thai-China smelter project.
Read more articles on Thailand's steel industry.
Here is the Bangkok Post article in full:
STEEL
Sahaviriya says scale critical in global battle
POST REPORTERSMonday August 11, 2008
Thailand's biggest steelmaker, Sahaviriya Steel Group of Companies (SVG), is looking for ways to better integrate its operations in a bid to strengthen negotiating power with global steel giants who are hunting smaller firms to acquire.
"We are aiming at investing in ore mining, pushing our 500-billion-baht smelting project to start as soon as possible, and a steel production plant overseas also is in our sights," said group president Win Viriyapraphaikit.
"In doing so we could achieve a goal of being the region's largest integrated steel producer.
"I have to admit that it is very difficult for us to keep a majority holding in the assets we founded," he said, adding that integration among its own businesses from raw materials to downstream products would ensure supplies of raw materials and lower its costs at a time of intensifying competition.
The world's largest steel company, ArcelorMittal, has set the tone for a global wave of consolidation in the industry, and has annual output of 120 million tonnes. Mr Win said the market leader's success had pushed other big contenders such as JFE, Nippon Steel and Posco to pursue similar strategies.
Surging demand for steel products over the past five years, coupled with capacity utilisation constraints, have been key catalysts. As a result, says Mr Win, a handful of gigantic players can wield huge influence on prices.
"With ArcelorMittal's output bigger than the combined capacity of all its peers, it can announce production cuts when steel market prices soften."
He said world steel prices were now completely controlled by a few groups from iron ore miners to steel producers, making it even harder for smaller players to survive, even when they are the beneficiaries of high prices.
Not only have steel producers been consolidating, but also more than 75% of the iron ore in the world is controlled by three operators that can basically dictate the prices of raw materials.
The iron ore prices have risen by 70% to 85% on average since early this year. The spot price of coking coal, the main fuel used in the steel industry, is up more than 300% to a record $365 a tonne from only $80 last year, while high oil prices have doubles freight costs - a major concern for shippers of heavy products such as steel.
Mr Win said steel bar was $1,500 per tonne in July compared with $570 in June 2006, with steel sheet up to $1,200 a tonne from $600 at the end of last year
He said Sahaviriya's huge smelter would be a key weapon to help the company fight back against global market dominance by a few foreign companies.
The company, however, has faced three years of delays due in large part to protests by environmental activists and communities in Prachuap Khiri Khan.
The company is now conducting an environmental impact assessment and once the report is approved, it will resubmit its application for investment privileges with the Board of Investment.
Mr Win also called for support from the government in the form of a master plan for the steel sector, similar to plans prepared by rival countries. Among them are Vietnam, China and Pakistan, which view steel as a national strategic industry.
"The Thai government has overlooked this industry. We have survived in business through numerous periods of hardship without any help from the state," he said, adding that steel as an industry represented economic value second only to energy.
Having a local smelter, he said, would reduce dependence on imported steel that now costs the country some 500 billion baht a year. It would also reduce the costs of local producers that want to make more varieties of high-grade steel to meet the demand of key industries such as automobiles and electronics.
The Sahaviriya Group is the majority shareholder in the country's top hot-rolled steelmaker, Sahaviriya Steel Industry Plc (SSI). It also makes cold-rolled steel, bars for construction and various high-grade finished steel products.
SSI shares closed on Friday on the Stock Exchange of Thailand at 96 satang, unchanged, in trade worth 11.7 million baht.
(Source: Bangkok Post, business, POST REPORTERS, 11-08-08, temp-link)
Vocabulary:
scale - teh size of operations, whether a large or small amount is being produced
critical - important
acquisition - buying another company, the purchase of a company or asset (See glossary)
target - what you aim to reach or achieve (See glossary)
in the works - currently being planned and worked on, but not yet finished
Sahaviriya Group, Sahaviriya Steel Group of Companies (SVG) - manufactures hot rolled steel sheets and coils in Prachuap Khirikan. The company is the Thailand's largest hot-rolled steel coil manufacturer and will be upgrading its facilities with the new smelter (See Yahoo Finance)
X in a bid to Y strengthen negotiating power with global steel giants -
strengthen negotiating power - have a better position in negotiations to get whaat you want
strengthen negotiating power with global steel giants -
integrate its operations in a bid to strengthen negotiating power with global steel giants -
vertical integration - when a firm owns its upstream suppliers and its downstream buyers, when it owns many stages of production (See Wikipedia)
JFE - a Japanese steel company created in a merger in 2002, main business is steel production, although it also engages in engineering, construction, logistics, and chemicals. The company also operates several overseas subsidiaries, including California Steel in the United States, Fujian Sino-Japan Metal in China, and Minas da Serra Geral in Brazil (See Wikipedia)
Nippon Steel - the world's second largest steel producer after Mittal Steel, a Japanese company (See Wikipedia)
Posco - South Korea's large steel company (See Wikipedia)
ArcelorMittal - "the largest steel company in the world, with 310,000 employees in more than 60 countries. It has led the consolidation of the world steel industry and today ranks as the only truly global steelmaker. The company was founded in 2006 when Arcelor and Mittal Steel merged. It ranked at 39th position in Fortune Global 500 companies list. The company is headquartered in Luxembourg City, in southern Luxembourg, the former seat of Arcelor." (See Wikipedia)
ore, iron ore - rocks and minerals that contain the metal iron, a smelter is used to turn ore into steel and iron (See Wikipedia)
ore mining - digging deep in the ground to get the iron ore
a smelter, a steel smelter - an industrial plant that uses a high-temperature process to separate out a pure metal, usually in a molten form, from an ore (Source: Nova Science; See Wikipedia)
smelting project - Sahaviriya is currently building a smelter
is in our sights - is something we plan to do (a target we plan to hit or a goal that we plan to achieve)
integrated - become part of a system closely linked with other parts in the system (See glossary)
an integrated steel producer - a steel producer engaging in many different stages of production, from mining to finished product
integration among its own businesses from raw materials to downstream products
intensifying competition - getting more and more competitive, competition growing
the tone of Y - the general atmosphere, environment, or situation in which events happen
set the tone for Y - determine the general atmosphere, environment, or situation in which events happen
consolidation in the industry - join or merge smaller companies into a larger company
global wave of consolidation in the industry - smaller companies are joining together into larger companies all over the world
contenders - people or companies competing for something
capacity, production capacity - the largest amount that can be produced from a factory or plant
capacity utilisation, utilisation rate - the percentage of full capacity that is used, for a machine, equipment, or a factory
constraints - something that limits or controls what you can do
capacity utilisation constraints - limited capacity places a limit on what a company can do
coupled with - combined with
full capacity, run at full capacity - when the factory is producing the largest amount that can be produced (given current facilities, machines, and equipment)
peers - the people at the same level as you, doing the same job, activity, or business
the combined capacity of all its peers - the capacity of all companies in the same industry
a catalyst - something that causes change or an event to happen
wield huge influence on prices - can act to change prices (because it is powerful)
dictate the prices of raw materials - set steel prices (because it is so powerful)
investment privileges - special business advanatages, such as reduced taxes, that are given to encourage certain types of businesses beneficial to the economy
Board of Investment (BOI) - the Thai government agency responsible for providing incentives to encourage investment in Thailand (See website)
master plan for the steel sector - a long-term government plan for developing the steel industry (five to ten years)
national strategic industry - industry has long-term importance for the whole country (so the government should be involved in planning, promoting it, and perhaps supporting it financially)
overlooked - do not realise or notice how important something is (See glossary)
dependence - need, cannot function without
reduce dependence on imported steel - don't need to import if there is a supply inside Thailand
hot rolling - a steel manufacturing process used to produce sheet metal and other intermediate products (See Wikipedia on steel and hot rolling)
hot-rolled steelmaker - a steelmaker that uses the hot rolling process in its steel mill
cold-rolled steel - a steel making process (See Wikipedia)
bars for construction, girders - steel bars used to support construction, a support beam used in construction (See Wikipedia)
finished steel products, finished steel - "Steel that is ready for the market and has been processed beyond the stages of billets, blooms, sheet bars, slabs, and wire rods." (Source: About.com Metals Glossary)
