Thailand emerged as the top importer of Japanese steel products for the first time in 2018, as major Japanese makers of cars, home appliances and machinery have moved into Southeast Asia’s biggest production hub.
Japan shipped 5.9 million tons of steel products to Thailand last year, up 5.2 percent from a year ago and surpassing South Korea and China, which had been Japan’s two largest steel consumers for the last two decades.
South Korea imported 5.4 million tons, down 9.5 percent, and China imported 5.6 million tons, a 1 percent dip, the Japan Iron and Steel Federation said Thursday.
Steel is Japan’s fourth-largest export item after automobiles, semiconductors and auto parts. Japan, the world’s second-largest exporter after China, shipped 36.5 million tons abroad last year.
South Korea had been the top importer of Japanese steel products partly because of its position as the world’s leading shipbuilder.
Generally, the construction sector accounts for a large portion of steel consumption in many countries.
But Thailand has a distinctive steel consumption structure compared to other Southeast Asian nations, with automobiles, consumer electronics and machinery accounting for 19 percent, 8.7 percent and 6.6 percent of all steel consumption, respectively, according to data of the South East Asia Iron and Steel Institute.
“In the wake of the 1997 Asian financial crisis, Japanese automakers relocated their production lines to Thailand as a market and a manufacturing and export hub for pickup trucks and later for small eco-friendly cars,” Kazushi Shimizu, an economics professor at Kyushu University, wrote in an email.
Thailand, Southeast Asia’s second-largest economy after Indonesia, boasts about half of the regional vehicle output of around 4.4 million units, according to 2018 statistics.
The Japan-Thailand Economic Partnership Agreement, which took effect in 2007, has also boosted steel shipments to Thailand by eliminating tariffs on such products in 2018, said Shimizu, a Southeast Asian economy expert.
Major Japanese steel-makers such as Nippon Steel & Sumitomo Metal Corp. and JFE Steel Corp. only have blast furnaces in their home markets due to massive investment sizes, political and economic risks abroad and other reasons.
But Japan’s two largest steel mills and Japanese trading houses have established a number of downstream processing bases in Southeast Asia, mainly in Thailand.
Japanese steel-makers have shipped crude steel to these countries and processed it there to meet demand for high-quality products from Japanese manufacturing affiliates operating in the region.
Southeast Asia’s robust demand has supported Japanese steel exports as its shipments to the region account for 35 percent of the world total, the Japan Iron and Steel Federation says.
But the World Steel Association forecast in its short-term outlook last October that growth of global steel demand will slow to 1.4 percent this year, down from a 2018 estimate of 3.9 percent.
“Japanese steel-makers are likely to face weak external demand amid tepid growth in global steel consumption in the long run,” said Masashi Kaneko, head of the international trade and overseas market research group at the Japanese federation.
Despite Thailand’s strong appetite at present, “Southeast Asian countries such as Indonesia and Vietnam are gearing up to boost domestic steel output for domestic use.”