Amid negative circumstances both foreign and domestic, Thai steel makers are walking a thin line and avoiding obstacles in order to maintain their capability and profitability.
The US-China trade war, shrinking Thai exports, political instability and long-delayed megaprojects are big risks for steel producers.
SET-listed Millcon Steel Plc is no exception. Pravit Horungruang, acting president and chief executive, said Thailand has to compete with emerging countries that can produce steel. For example, Vietnam will soon become the largest steel producer in Southeast Asia, he said.
"Vietnam can produce steel at cheaper prices," Mr Pravit said. "There is a second manufacturing facility in that country with a production capacity of 7 million tonnes for upstream products."
Combined with the first facility, owned by a Chinese company, Vietnam will have overall production of 14 million tonnes.
Mr Pravit said Thai steel producers are concerned about this movement from Vietnam because it can increase overall steel supply in Southeast Asia.
"The new supply will impact in terms of exports to other countries and dumping in Thailand," he said.
Thailand itself has the highest energy costs in Southeast Asia, and energy costs account for 60-70% of Thai-made steel prices.
Thailand also has many steel makers in the midstream to downstream levels, mainly for export.
"We will lose our competitiveness in the near future," Mr Pravit said. "Thai steel products are struggling to compete with cheaper prices for wire rod steel from China and Vietnam."
He said the plant in Vietnam can produce many steel types.
Steel diversification
Mr Pravit said Millcon plans to increase the production capacity for premium-grade steel from 84,000 tonnes a year now to 240,000 tonnes a year in the next two years.
"We are trying to escape the aggressive competition in the global steel market and the premium products for wire rod steel have higher value and margin compared with the commodity-grade ones," he said.
Moreover, Millcon is joining forces with a Japanese steel firm to set up Kobelco Millcon Steel Co to produce premium steel products to supply the automotive industry.
Beginning the joint venture in February 2016, Millcon owns a 50% stake and Japan's Kobe Steel holds the other half.
"Thai steel products are struggling to compete with wire rod steel from China and Vietnam." — Pravit Horungruang Acting president and CEO, Millcon Steel Plc
The venture company has two manufacturing plants, one in Bangkok with capacity of 300,000 tonnes a year and one in Rayong with capacity of 800,000 tonnes a year.
Mr Pravit said Millcon is in talks with Myanmar about future investment to operate its second overseas steel plant in Myingyan, Mandalay.
"We want to expand our business presence in Myanmar to serve demand in that country's construction sector, driven by the economic growth and new megaprojects," he said.
Millcon's first project in Myanmar started in 2016 by joining with a local company to invest in a US$12-million plant to produce construction steel for Myanmar.
Millcon owns a 45% stake in the joint venture, while General Engineering Co Ltd holds 45% and 10% is held by Thiha Group for Millcon Thiha Co Ltd.
The manufacturing plant is located in Thilawa Special Economic Zone under a contract for a land lease of up to 75 years, plus import tariff exemptions for machinery.
Millcon aims to increase its sales volume from Millcon Thiha to 30,000-40,000 tonnes a year from 24,000 tonnes.
Cost savings
Mr Pravit said Millcon is studying the feasibility of installing solar panels on the roof of its facility on Rama II Road in order to save energy.
The company plans for two megawatts of self-generated power.
"We have done our solar rooftop at our Rayong plant with the same power capacity and we cut our energy cost by 1 million baht per year," Mr Pravit said.
Millcon has budgeted 200 million baht for 2019, some of which will be allocated to the new solar rooftop.
"We will conclude this plan soon with expectations to save 1 million baht," Mr Pravit said.
In 2019, Millcon expects a 10% rise in total revenue from 21.75 billion baht the year before.
Mr Pravit said the new government should speed up pushing forward and accelerating ongoing megaprojects, also in the construction sector.
"The new government means further movement of the country's economy, and megaprojects in the Eastern Economic Corridor are waiting for the new administration to start construction," he said. "During the general election, many megaprojects were slowed down and some projects have been pending state budget disbursement, so there is no confidence from investors and business operators."
Thailand's steel consumption in 2019 is projected to decrease from 17-18 million tonnes in 2018 to 15 million tonnes in 2019, weighed by the economic slowdown and weak purchasing power.