China’s steel mills should conduct a more thorough study when exploring overseas steel investment opportunities either in greenfield projects or takeovers of existing steel assets, as risks have been arising in steel overcapacity in some countries or the growing difficulties in receiving funding, Ruan Qinghua, vice general manager of Capital Engineering & Research Incorporation Limited of Metallurgical Corporation of China (MCC) reminded the market.
MCC is China’s largest metallurgical engineering and construction company that have been contracted to many major iron or steel projects in and out of China, and Ruan highlighted the risks with addressing the over 163 attendees of Mysteel’s 2021 Steel Semis Imports Training on May 28 in Shanghai.
The ASEAN region, a hot market for China’s steel investments and also a core market for China’s steel exports, is now nearly saturated, and steel consumption has been seriously affected by the COVID-19 outbreak in 2020-2021, Mysteel Global noted, though the volume may still have small room to grow, Ruan shared.
At present, Vietnam’s steel consumption is at about 25 million tonnes/year, Malaysia’s at around 13 million t/y, and the Philippines around 11 million t/y, which is “just about a whole-year steel output for an individual large-size steelmaker in China,” he noted.
In contrast, China-invested steel mills in the ASEAN region is still proceeding with their expansion, Ruan warned, and in Malaysia, for example, Alliance Steel (M) Sdn. Bhd, and Eastern Steel Sdn. Bhd – both with Chinese investments – are still aiming to expand their steel capacities to a total of 15 million t/y, which will increase the country’s steel capacity to around 30 million t/y once commissioned.
With so serious overcapacity in sight, this will definitely lead to steel exports from the ASEAN country, and this is a typical case that should propel the Chinese steel mills to consider “where these products will eventually go, whether they are to stay domestically for demand at home or they will flow back to China”, Ruan commented.
In the developed economies in European Union and the U.S., steel demand in the long run is unlikely to grow substantially, as tertiary industry and services are the major contributors to their economic growths, Ruan said, and in UK, for example, steel consumption is only about 150kg/per capita annually, much lower than the world’s average at 230kg/per capita annually in terms of 2019, according to the data from the World Steel Association.
Other than the concern on demand and supply, securing financing is another key issue for the Chinese investors to assess in evaluating the overseas steel investments, as “a few steel projects we are working on have been ongoing for several years, (longer than expected), and we have noted the difficulties in financing for the investors”, Ruan shared.
He also noted that some preferential policies to finance the projects under China’s “Belt and Road Initiative” have been revised and it is getting “comparatively difficult to source financing from related banks”.
Other than these, political risks in various countries such as their relationships with China, the status of the infrastructure facilities, and human resources costs should also be included in the project feasibility study, Ruan added.
Table: China’s ongoing overseas-invested steel projects
Written by Olivia Zhang, zhangwd@mysteel.com and Li Ye, Lea Li, liye@mysteel.comSource: translation of Ruan’s sharing in presentation
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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