China invests in steel production in ASEAN countries

To improve steelmaking capabilities and environmental controls, the Chinese government has successfully minimized the country's obsolete steel capacity. It managed to eliminate a total of 120 million tonnes of overcapacity between 2016 and 2017, with a further 30 million tonnes of capacity reductions in 2018.

Along with the capacity cuts, the Chinese government has also strictly prevented the addition of new capacity in order to successfully advance the structural reform of the supply for the country's steel industry.

The Chinese government has announced plans of action to reduce steel capacity. Along with this, provincial governments have also launched their respective action plans to monitor capacity cuts in their cities. However, the local action plan is different from the provincial difference. For example, the Hebei provincial government announced at the end of March 2018 an action plan to close another 10 million tons in 2018, 10 million tons in 2019 and another 20 million tons in 2020.

As a result of tight control over the country's new added steel capacity, some steelmakers in China have shifted their investments to new steel markets such as the ASEAN countries. Among the ASEAN countries, Indonesia and Malaysia are the main investment destinations.

Shaanxi Iron and Steel (Shaagang) recently announced its intention to build more than 10 million steelmaking facilities per year in Indonesia. The projects will be divided into two phases: the first is a steel plant with a capacity of 7.5 million tons in the industrial park Jambi, Indonesia. It is advisable that production could replace the 12 million tons per year of steel that Indonesia currently imports. The second stage is 3 million tons of rolled metal per year for the production of building metal structures.

Another Chinse company, Xinxing Ductile Iron Pipe, is about to invest in its second expansion of a co-production of ferronickel smelts on Obi Island in North Maluku, Indonesia. The company aims that the new Phase 2 capacity of 570,000 tonnes per annum of ferronickel will serve strong demand from stainless steel producers in China.

In addition, China's Hebei Xin WuAn Steel Group and China Metallurgical Group Corp (MCC) have also announced their intention to jointly invest in steel production in Sarawak, Malaysia, by signing a memorandum of understanding with the Malaysian government.