Toshiba

[Year]

Myanmar Iron and Steel

Industry Geography, Political & Economy Climate, Steel

Production & Imports, and Available Energy

Sources.

Win Kyaw Oo

Myanmar Iron and Steel Industry

1. Geography

Endowed with abundant natural resources, Myanmar is the largest country in the mainland

Southeast Asia, which accommodates more than 130 ethnic minorities. With the 60-million-

populated country taking up steps into a new era of reforms and developments, the international

community is increasingly starting up its attention to the former hermit kingdom.

Geographically, the 678,500-sq-km country is strategically a land bridge between South

and East Asian regions, sending a clear signal to investors about the country's accessibility and the ease of doing business there. Topography can be roughly divided into three parts: the western

hilly region, the central valley region and eastern hills region. Bordering with India, China, Laos, Thailand and Bangladesh, the country’s 1385-mile coastal line faces the Bay of Bengal in the south and southwest. (See: Map-A)

The tropical country has three seasons, namely summer from March to May, rainy season

from iune to October and cold season from November to February.

People are not iust friendly but intelligent as well, while they are painstakingly straggling to rise up into a new and prosperous life from the scrap heap of an old suppressive system crafted

by former dictators. Through the help of international media coverage and travels to akin neighbours in the region, the young generation wakes up with a thirst for prosperity like them.

2. The country’s overall political and economy climate

In the political front, the military stepped aside two years ago, handing power to a

nominally civilian government made up largely of former generals that have instituted political reforms, signed ceasefires with most of the ethnic minorities, and promised economic

modernization. Power in Myanmar today is diffused among the military, different factions of the government, and an increasingly active and demanding parliament.

Coming back into the international fold, Myanmar began winning the heart of European Union members, of the Americas and of the Asian. Here you go some examples. EU lifted

sanctions against the country, the U.S. reduced tariffs on Myanmar-made imports, and Regional countries are boosting tiles with Myanmar.

US President Barack Obama’s administration has made Myanmar one of its top foreign

policies. Trade and other exchanges are being encouraged, and very recently, acting US Assistant Secretary of State for East Asian and Pacific Affairs Joseph Yun told Congress the administration is even looking at ways to support nascent military engagement with Myanmar as

a way of encouraging further political reforms.

Favourable business environment

Looking at economics and business aspects, there is clear evidence that the country's economy is also set for a rapid turnaround.

Myanmar's government is delivering on promised political reforms including peace with

its regional, political and ethnic opponents, and its efforts to also reform the economy will likely pay enormous dividends for the nation and foreign investors alike.

In the space of a few short years, Myanmar has embraced foreign investment laws that

allow 100 percent ownership of assets by foreigners with provision for these assets to be freely traded. Laws such as this remove the veil of protectionism and nationalism in which many

emerging nations feel compelled to cloak their foreign investment regulations.

Meanwhile, Myanmar's strategic value for two most populated nations of the world is immense. This is further enhanced with the impending completion of two infrastructure projects linking Myanmar with China and India.

These policy reforms and many others – such as abandoning the country’s grossly overvalued official exchange rate and adopting a market-based exchange rate system and

allowing anyone holding foreign currency account with state-owned banks to import through normal trade liberally –produced a tsunami of foreign visitors to initiate aid programs and reap the early fruits of an improved investment climate.

Foreign investors have lined up to initiate new exploration and development ventures (both oil and gas, offshore and onshore). The government is accommodating this demand, perhaps more than can be justified from a long-term development perspective. It has also been

more supportive of mining sector development than may be economically wise or socially tolerable.

Myanmar’s manufacturing sector is a mix of problems and opportunities. Let us cite a

couple of the problems. First, the high ground is occupied by state-owned enterprises, those not considered state-run by controlled by the military, and enterprises created by cronies or proxies of the previous government. Together these represent the bulk of the vested interests in the

economy.

Second, exceeding high land prices are off-setting much of the advantage of Myanmar’s low-wage labour. However, the opportunities grow out of these problems. Meanwhile, the

President Thein Sein government is committed to privatizing the state-owned enterprises sector both to enhance competitiveness and to reduce its drag on the budget. Another noteworthy development is the enactment of Labout Law in March 2012 that has been viewed positively by

both employers and workers.

With Myanmar committed to free trade in 2015 with its partners in the ASEAN Economic Community, the government is taking steps to rationalise the trade regimes as best it

can be against resistance from vested interests.

Another key driver of investment will be the role of Myanmar’s large diaspora. It consists of two distinct segments. More than 100,000 skilled professionals scattered around the world,

and as many as three million semi- and unskilled workers in Southeast Asia, mostly in Thailand. Already skilled professionals are returning in significant numbers to test the waters, taking

advantage of family connections and language ability.

The global economy is distinctly less favourable today. For example, the kind of export-led growth strategy that worked so well in other East Asian economies may not be a winner for Myanmar. On the other hand, the growth prospects of Myanmar’s Asian neighbours are

considerably better than those of the United States and Europe, which would work to Myanmar’s advantage. It could be said of Myanmar’s unique aspects partly due to its long isolation.

According to the Asian Development Bank, Myanmar’s gross domestic product (GDP)

was 6.3 percent in the fiscal year 2012-13, up from 5 percent in the previous year. The bank forecast 6.5 percent growth for the current fiscal year, which ends March 31, 2014.

It said the growth "reflects business optimism buoyed by the government‘s steps since

2011 to liberalize the economy and prospects for further reform." Investor optimism was reflected by a 14-fold increase in the number of new foreign company registrations in the first 10 months of fiscal 2012.

3. Steel Production and Imports

There are approximately 100,000 tonnes per year of steel production capacity in the

private sector, while The Myanma Economic Corporation (MEC), a quasi-government body, is

the most dominant player in Myanmar’s iron and steel industry, operating a total of five major

steel mills with total capacity of 850,000 tonnes per year, but actually producing perhaps only

10% of the capacity at present.

Mills from the regional neighbours and beyond are eager to tap steel potential of the new

hotspot in the region, Myanmar, according to sources at the South East Asia Iron and Steel

Institute.

The sources said more than 90 percent of Myanmar’s annual consumption, which was

some 630,000 tonnes in a few years back, was imports manly from Ukraine, China, India, South Korea and Thailand, adding that Myanmar’s steel sector was still in its infancy.

Generally speaking, Myanmar demand for steel would continue to increase some years from now because the constructor sector was booming with many more infrastructure projects on

way, a local industrialist said.

Tuning back to Myanmar’s iron and steel industry, the country’s economic development is no other but the growth of the sector to come along with a surge in the sector. Let’s have a

prospective look at it in Myanmar.

There are three sectors involved in Myanmar iron and steel production, namely government sector, Myanma Economic Corporation and a semi-govt sector and private sector.

The Government Sector

In the government sector, there is one steel mill situated in Anisakhan in Pyin Oo Lwin township, Mandalay Division. The mill of capacity 200,000 tonnes, which was commissioned into service in October 1982, producing sponge iron generated from locally available iron ore

and materials, was recently transferred to Myanma Economic Holdings Ltd. (MEH), a business arm of the government.

As well, there are four steel mills and one iron making plant operated by the Myanma Economic

Corporation (MEC) under the Ministry of Defense. According to source of the MEC, their locations and projected capacities are as follow.

1. Ywama Steel Mill in Yangon of 50,000 tonnes a year put into service in 1955. 2. Kyauk Swe Kyoe Mill, commissioned into service in 1996, in Magway Division

producing 250,000 toones per annum. 3. Another mill in Yangon Division of 150,000 tonnes a year began producing in 1997.

4. In Myangyan, Mandalay Divison, the mill of a capacity of 200,000 tonnes inaugurated in 2005, which is being upgraded into the capacity 400,000 tonnes a year, has been transferred to the Ministry of Industry recently.

5. The same ministry launched a Southern Shan State mill of 200,000 tonnes per year that is being upgraded as well.

Despite the fact that the installed capacity is as mentioned above, the actual production is

much below due to facilities constraints such mainly as a severe shortage of power supply, which are being under development, though.

The Private Sector

Armed with a vision to fulfill domestic demand escalating for steel needs, the private

sector struggles also to come up with its own capacity. There are some 100 private enterprises – each of which is of 0.5 to 2.5 tonnes a year, having induction furnaces scattered around in industrial zones in the country. The production in an estimated volume stands at 100,000 tonnes

per annum. Segmenting it into as follow:

- Upper Myanmar 30,000 tonnes a year. - Lower Myanmar 70,000 tonnes a year.

So in maths, Myanmar’s annual iron and steel production would be 950,000 tonnes per

year. However, the figure depends on the availabilities and facilities such as raw materials and power supplies.

Meanwhile, the annual consumption of iron and steel is around 17,500,000 tonnes per

year, some half of which is locally met amid a myriad of challenges, and the rest is imports.

According to the South East Asia Iron and Steel Institute (SEAISIS)’s estimates, the country imported some 629,000 tonnes of finished steel in 2010, primarily for the construction sector.

The body’s estimated figure segmented into as follow.

No Imported products Volume

(tones)

Yr on yr

(up/down)

Origin country

1 Steel billets 117,000 200 % up China, S. Korea, Thailand

2 Steel bars 179,000 22 % down China, S. Korea,

Thailand

3 Steel sections 64,000 12 % up China, S. Korea, Thailand

4 Wire rods 23,000 Stable China, S. Korea, Thailand

5 Steel plates 11,000 63 % down Thailand, 74 % of the total supplier

6 Hot roll coins 23,000 5 % up S. Korea

7 Cold roll coins 26,000 32 % up S. Korea

8 Hot dipped galvanized 28,000 15 % up India, Thailand

9 Colour coated sheet 13,000 22 % up Taiwan

Based upon the recent increase in national infrastructure development projects. It is estimated that the annual steel consumption in some years to come would be three to four times

the current rate. That’s why the projected iron and steel consumption could be around six to eight million tonnes a year. Obviously, the domestic supply is a long way to go to meet an increasing

demand entranced by the country’s development process ongoing.

Discussing over the feasibility if investment in Myanmar iron and steel industry, the development of Myanmar’s per capita consumption of steel is found to ne approximately seven to nine kilogram, which is well below compared to S. Korea’s 1156.6 Kg and Taiwan’s 785 in

2011.

Meanwhile, Myanmar is also emphasing to improve the industry, welcoming prospective investors to explore possibilities for mutual interests. Investment forms could be as follow.

It would be profitable to form a consortium of international iron and steel traders, which

is forming the industry sales centres (yards) in Myanmar. They are expected to negotiate with the government to take up leased plots for shore cases and storage yards, enjoying

tax shelters, and easily accessing to import licenses and other benefits. This would help fulfill immediate needs of the nation’s steel and iron.

Given the facilities of the most dominant player MEC are well below their projected

production capacity, it would be an industry operative under a JV or a production sharing contract with the quasi-government body in such a way providing modern technology and

imported spare parts. This would be beneficial to the nation as well as to the parties involved. Or, a foreign 100 percent own facility is allowed to operate.

The most probable option would be to do joint venture investment in the private sector with local entrepreneurs for mini mills in a combination of modern technology and local

iron ore resources, which will result in transferring technologies to local workforces. It would be advisable to start with a manageable scale to supply for local consumption, and then grow larger stages for export to neighbouring countries.

4. Estimated potential of Iron Ore Reserves

The locations of iron ore deposits in Myanmar are roughly shown as below.

No Name of Deposit Ore reserves

(million tones)

Category Fe % Type of ore

1 Kathaing Taung (Pharkant tsp, Kachin State)

223 P-2 50.54 Hematite 15%, Magnetite 2%,

Geothite 75%

2 La-Maung (Pharkant tsp., Kachin State)

8.9 P-2 51.54 Hematite, Magnetite,

3 Peng Pet (Taunggyi tsp.,

Shan State south)

109.7 P-2 56.40 Hematite,

Limonite,

4 Kyattwin Yay (Pyin Oo Lwin tsp, Mandalay Division)

8.2 P-2 54.00 Hematite 60%, Limonite 40%,

5 Kho Kyun (Bokpyin tsp.,

Tanintharyi Division)

7.6 P-2 46.05

6 Maputae (Kawthaung tsp., Tanintharyi Division)

1.3 P-2 42.00

7 Taungnyo Taung (Shwegu

tsp., Kachin State)

18.9 P-4 40.67 Hematite,

Limonite,

8 Yinmar Pin (Tharzi tsp., Mandalay Division)

25 P-4 49.59

9 Kandaw Yan Siami

(Winemaw tsp., Kachin State)

2.064

0.0371

P-2

P-4

59.28

65.67

Hematite

Magnetite

Remarks: Iron ore reserve rankings used are P-1 Proven, P-2 Probable, P-3 Possible, and P-4 Potential, depending on sizes, underground water table, quality and quantity of the ore. (Source:

Ministry of Mines)

It can be seen that the estimated iron ore reserve in total is nearly 400 million tons. Still there are many more prospective areas yet to be exploited (See: Distribution of Iron Deposits and

Map-2). To be commercially feasible for running a steel mill, the content of ferrous metal must be 56 percent and above in an ore reserve of 100 million tonnes.

5 Available Energy Sources for Iron and Steel Production

Electric power generation plan up to 2030.

Year Hydro Power

(Megawatt)

Gas Turbine

(Megawatt)

Coal fired

(Megawatt)

Total Generation

(Megawatt)

Peak Demand

(Megawatt)

2010 3070.00 545.00 240.00 3855.00 1917.00

2015 8170.00 555.00 240.00 8965.00 4307.20

2020 11392.00 555.00 240.00 12187.00 5602.30

2025 17042.00 324.00 240.00 17606.00 9477.80

2030 23412.00 178.00 240.00 23830.00 12177.90

Source: Ministry of Electric Power

Like in most other businesses in Myanmar, the iron and steel production industries encounter power shortages, though there is growth potential in energy supply.

Estimated potential coal Reserves

Descriptions Kalaywa Deposit,

Sagaing Division

Dar Thwe Kyauk

Deposit, Sagaing

Division

Pa Lu Zawa Deposit,

Sagaing Division

Fixed carbon 52.50 % 47.54 % 46.00 %

Volatile Matter 38.67 % 40.36 % 42.00 %

Calorific Value 11720 Btu/lb 12124 Btu/lb 11600 Btu/lb

Specific Gravity 1.35 1.33 1.30

Ore Type Sub-bituminous Sub-bituminous to

Lignite

Sub-bituminous

Category P-2 P-3 P-4

Ore Reserve 7.3 million tons 38 million tons 89 million tons

(Source: Ministry of Mines)

Most of the industries in the private sector use coal-fired furnaces. However, air pollution is becoming pressing environmental issues. Myanmar is seeking high technology from world class iron and steel producers, and through SEAISI is trying to gain access to technology to minimize

pollution and to deploy smokeless furnaces.

Natural Gas

There is possibility of receiving sufficient natural gas supply to all the industrial zones

from Myanma Oil and Gas Enterprise (MOGE) under the Ministry of Energy in the near future.

Currently, some industrial zones started receiving natural gas supply for furnaces and gas

turbines but not sufficient. Myanmar has signeficant gas reserves are estimated about 16 TCF

(trillion cubic feet of gas) and probable and possible reserves are estimated over 110 TFC.

MOGE (Myanmar) is producing natural gas from offshore exploration blocks under

production sharing contracts with foreign partners such as TOTAL (French),Chevrons (USA),

PTTEPI (Thailand) in Yadana Offshore Project; and with PETRONAS (Malaysia), Nippon Oil

(Japan), PTTEPI in Yetagon Offshore Project. Offshore gas sales from those two projects have

already been generating revenues of over 1300 million US dollars every year. MOGE's future

gas distribution plan for local services and industries is mentioned below.

a. Avilability of Gas from each offshore production filed

Yadana Field - 125 mmcfd (millions of cubic feet per day)

Yetagun field - 135 mmcfd

Shwe field - 100 mmcfd

Zawtika field - 60 mmcfd

b. Gas distribution from Yadana and Yetagun Fields (260 mmcfd in 2012)

Yangon Region - 152.5 mmcfd

Pyay Region - 52.50 mmcfd

Mawlamying Region - 55.00 mmcfd

c. Gas distribution plan from Shwe Field (100 mmcfd starting May 2013)

Sakhar - Myingyan Region - 14.5 mmcfd

Paleik Region - 1.00 mmcfd

Kyaukse Region - 16.5 mmcfd

Chauk - Sale Region - 9.00 mmcfd

Pyinnyaung Region - 18.3 mmcfd

Peng Pet Region - 17.0 mmcfd

Magwe-Pyawbwe-Yeni Region - 23.7 mmcfd

[Source: MOGE and the Mirror-Myanmar Daily News, 21 June 2012,p 6]

Under the directives of the Government, the Ministry of Energy has drawn up the above mentioned plans to share the offshore natural gas supply for domestic use. As such, the productions in all the industrial zones (including the iron and steel industry) are expected to increase in the near future.

Summing up, Myanmar’s iron and steel industry and its growing demand for the products are luring investments into the country by the offer of ore reserves and new market opportunities

along with political and economic reforms taken up.

Map-A: Myanmar’s geographical location.