MANILA • China banned induction furnaces last year in a crackdown on polluting producers of low-quality steel. But these machines have made their way to parts of South-east Asia, hitting domestic steelmakers and fuelling safety and environmental concerns.
The Philippines and Indonesia have been seeing an influx of these furnaces since China prohibited their use for steel-making in June last year, eliminating 140 million tonnes of capacity - or just over the combined output of the US and Germany.
The two South-east Asian nations - big steel importers with fast-growing economies - are ideal markets for these induction furnaces (IFs) that produce cheaper steel.
But some big Indonesian and Philippine steelmakers claim that IF-produced steel does not meet national quality standards and poses a major risk in these countries that are prone to earthquakes and typhoons. They have urged their governments to ban IFs.
Unlike electric arc furnaces, IFs have limited or no capacity to remove impurities, resulting in inconsistent product quality.
Since most IFs in the two countries produce rebar, which is used in construction, rival steelmakers say that poses safety hazards.
In the Philippines, "the rebar market is under attack from IF producers" which sell the product 20 per cent cheaper than those from electric arc furnaces, said Mr Roberto Cola, president of the Philippine Iron and Steel Institute.
In Indonesia, after China banned IFs, the furnaces were imported by factories to reduce steel-making costs at the expense of safety, said Mr Silmy Karim, chief executive of top Indonesian steelmaker Krakatau Steel. "Imagine, Indonesia is an epicentre for earthquakes, so we must be vigilant. They must be prohibited," said Mr Karim, who is also chairman of the Indonesian Iron and Steel Association.
In banning IFs, China was also addressing the overcapacity that has dogged its steel sector for years.
It has not stopped the sale of these machines to buyers outside China, mostly sold as second-hand equipment.
A trader based in top Chinese steel-producing city Tangshan buys and sells IFs with capacity of between 0.25 tonnes and 60 tonnes to "whoever wants to buy", he says.
"I can also send it to overseas buyers as long as their country is okay with importing second-hand equipment," said the trader, who spoke on condition of anonymity, adding that there are container companies that process the shipping.
Another Tangshan-based trader said many of these machines are shipped to South-east Asian nations such as Indonesia and Cambodia, most exported as parts then assembled at the final destination.
The Asean Iron and Steel Council urged member governments in January to prohibit the imports of Chinese IFs for use in steel-making, saying the region has become a preferred destination for the "obsolete and unwanted equipment from China".
"If it's an Asean directive, all governments are inclined to comply," said Trade Undersecretary Ruth Castelo from the Philippines, whose government has launched an investigation into IFs that is expected to be completed in the first quarter of next year.
The total capacity of IFs in the Philippines has surged to 400,000 tonnes to 500,000 tonnes, from 150,000 tonnes to 200,000 tonnes two years ago, said Mr Cola, who is also vice-president of leading Philippine steelmaker Steel Asia Manufacturing.
In Indonesia, 30 per cent to 40 per cent of domestic rebar producers use IFs, said Mr Karim.
Elsewhere in the region, Vietnam has not seen any movement of IFs from China since the latter banned the furnaces last year, said Mr Chu Duc Khai, vice-chairman of the Vietnam Steel Association, adding that the government is not allowing new investment in IFs.
There are also no new IF investments in Thailand, with the rebar market there facing overcapacity, making it unattractive for new entrants, said Mr Wikrom Vajragupta, chairman of the Thailand Iron and Steel Industry Club.
Ms Castelo, the Philippine trade official, said she visited three steel plants using IFs and found them either lacking or without anti-pollution devices. "It's not safe even for the workers and for the neighbouring areas," said Ms Castelo.