Tsingshan Indonesia shakes up stainless steel markets in South East Asia
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Shockwaves from Tsingshan's new stainless steel hub in Indonesia are reverberating across South East Asia and beyond, according to Wood Mackenzie.
“Competitively priced exports of Indonesian stainless product have provoked varying reactions from stainless steelmakers in the destination countries. China has warned off Tsingshan with anti-dumping duties, Taiwan has willingly taken Indonesian stainless instead of melting its own, South Korea is changing its mix of stainless grades and fighting a proposal for a new Tsingshan cold rolling (CR) mill, India is partnering with Tsingshan in a new CR venture that is about to enter production and Europe is worried that more Indonesian stainless might come its way,” said Sean Mulshaw, Wood Mackenzie Principal Analyst.
Tsingshan upsets the apple cart
Tsingshan's stainless complex in Morowali, Indonesia, entered production in mid-2017 with a capacity of 2Mtpa. In 2018, this was increased to 3Mtpa. A third line was commissioned but has yet to start commercial operations.
“Normally, the start up of a new 3Mtpa stainless melt shop would be good for nickel demand and generally positive for prices. In this case, however, the ramp up in production has been partly offset by cuts in output elsewhere, with more likely to follow.
“The Morowali mill is regarded as the lowest cost stainless operation in the world, primarily due to its integration with, and hot metal transfer of, nickel pig iron (NPI). Its stainless semi-finished products of slab and hot-rolled coil (HRC) are both very competitively priced. As a result, global producers are likely asking: why continue to melt stainless when I can purchase these lower priced semis and roll them instead?” added Mr. Mulshaw.
China closes the door
When Tsingshan started up the Morowali stainless complex in July 2017, output was principally shipped to China. By the end of March 2018, almost 1Mt of stainless steel slab and HRC had been exported to the country, however the market was not strong enough to absorb it.
“Inventories increased to record levels, the Chinese market weakened and Tisco, one of Tsingshan's main competitors, lobbied the government to take action. Threats of anti-dumping measures were made and Tsingshan duly backed off, cutting production at its own mills in China and expanding its customer base in other South East Asian countries.
“The Chinese government followed through on its threat of anti-dumping duties. On 23rd March 2019, it introduced preliminary tariffs against Indonesia, South Korea and Europe. This triggered a repeat of the early-2018 oversupply situation, as Tsingshan increased its stainless exports to China in the period immediately leading up to the duty instigation date. This, combined with strong domestic production in March and into Q2, drove inventories back up to record highs,” said Mr. Mulshaw.
Taiwan embraces the change
Since Tsingshan's Indonesian stainless became available, Taiwan has been cutting domestic melt production.
Between November 2017 and March 2019, Taiwan imported 560kt of Indonesian stainless slab and HRC. As a result, from July 2018, Taiwan's own melt shop - of which Yusco is the largest – decided to reduce production by an average of 40kt per month. This is the equivalent of almost 500ktpa.
“The melt shop is the most expensive element of stainless steelmaking operations, therefore this strategy is reducing costs for Taiwanese mills. At the same time, iron-nickel inventories have doubled. In addition, since the beginning of 2019, Taiwan's mills have increased stainless steel scrap imports considerably, further lowering their primary nickel requirements. These changes equate to a cut in primary nickel consumption in stainless of about one third, from 46kt in 2017 to an estimated 31kt in 2019.
“Stainless imports from Indonesia have also replaced imports from other countries, most noticeably China and South Korea. These two countries accounted for almost 90% of stainless HRC imports in 2017, however this share approached 60% in 2018 and will sit at approximately 50% in 2019,” added Mr. Mulshaw.
South Korea resists
When looking at South Korea, imports from China, Taiwan and Japan are being replaced by imports from Indonesia.
“While domestic output of the country's main producer, Posco, has not been greatly affected in terms of quantity, it has instigated a change in product mix. In January 2019, the company stated that its efforts to combat the Tsingshan threat would be two-fold: to produce more ferritic and high chrome grades of stainless that Tsingshan does not make in Indonesia; and to produce a low-cost stainless product that would directly compete with Tsingshan's 304 grade.
“There is now an added threat from Tsingshan's stainless cold-rolled coil (CRC). Tsingshan has reportedly submitted a letter of intent to the Busan city government for a new 600ktpa stainless CR mill. The Korean Iron and Steel Association (KoSA) opposed the motion. Korea's cold rollers may be happy taking cheaper HRC from Indonesia in preference to the semis previously obtained from Posco, however a new CR mill fed by that same low-priced HRC would undoubtedly take market share from them too,” said Mr. Mulshaw.
India partners up
Tsingshan has intensified its stainless HRC shipments to India in preparation for the July start up of its new 600ktpa CR mill at Mundra, Gujarat.
“This could spell trouble for Jindal Stainless. The company owns India's two largest flat rolling mills, both of which had disappointing sales of stainless products in 2018-2019. During the first week of July, India's Ministry of Commerce and Industry announced that it would launch an anti-dumping investigation of stainless flat products from 15 countries, including Indonesia, China, South Korea, Taiwan and Japan. The investigation was triggered by appeals from the Indian Stainless Steel Development Association (ISSDA) and three subsidiaries of Jindal Steel and Power, including Jindal Stainless (Hisar),” said Mr. Mulshaw.
European mills expected to struggle
In 2015 to 2017, EU27 imports of stainless steel from Indonesia amounted to an average of approximately 3kt per quarter, though this increased to more than 20kt per quarter in 2018 and 30kt in Q1 2019. The Indonesian share of imports has increased from less than 1% in 2015 to 2017 to 4.4% in 2018 and 10% in Q1 2019.
“In 2018, the U.S. 232 tariffs redirected considerable quantities of stainless away from the U.S. to Europe. Preliminary safeguarding measures brought in by the European Commission failed to mitigate effectively against this. As such, 2018 was a boom year for imports leading to stainless oversupply and high European stocks. The safeguards only began to have a noticeable impact from Q4, as illustrated by substantially reduced imports during that quarter. Definitive safeguards came in in January 2019 and these are functioning more effectively, as country by country quotas have provided import restraint. Indonesia is not limited by its own quota because it was not shipping any stainless to Europe between 2015-2017. This is why Indonesia is seen as a particular threat.
“European mills cannot afford to face a renewed challenge from Indonesian imports, especially with production levels sharply down on last year,” said Mr. Mulshaw.
What will Tsingshan do now?
In 2018, Tsingshan shipped 950kt stainless slab and HRC to China. This now has to be shipped elsewhere, yet only 800kt of product was exported to alternative destinations.
"Agreeing new offtakes for such a large quantity of stainless will not be a quick process. Shortly before the anti-dumping instigation date, around 200kt went to China. If Tsingshan's new CR mill in India comes online in July, perhaps a further 300kt can go there. That leaves 450kt of other stainless that needs to be exported somewhere.
“If customers are not found then Tsingshan may have to cut production in Indonesia. This is counter to market expectations, with the start up of the third 1Mtpa line expected in H2 2019. However, producing more stainless will only add to the offtake challenge. For that reason, we expect the start up of the third line to be deferred until, at the very earliest, 2020,” concluded Mr. Mulshaw.