Posted on 07 Sep 2017
The recent decline in iron and steel imports, the result of months of monitoring of inflows of these products, is not enough for Indonesian steel producers. They’re now demanding a wider “level playing field” against foreign manufacturers.
The Iron and Steel Industry Association (IISIA) estimates that the domestic industry will only fulfill 45 percent of national demand this year for around 18 million tons, a slight increase from 40 percent last year but a far cry from the ideal local market absorption level of at least 80 percent.
“Ideally, the local market would absorb 80 percent to 90 percent of domestic production,” IISIA executive director Hidayat Triseputro told The Jakarta Post recently, adding that the small increase demand in China that had reduced steel exports worldwide, including to Indonesia, as well as improved monitoring of alloy entering Indonesia since January.
Central Statistics Agency (BPS) data shows that imports of iron, steel and their derivatives declined by 9.6 percent (year-on-year) to 6.6 million tons in the first half of the year.
Hidayat wants the government to lower domestic production costs to strengthen the local steel industry to prepare for a possible future decline in Chinese domestic demand that could lead to a swell of imports entering into Indonesia.
“The China factor really determines [any excessive steel],” Hidayat remarked.
Stubbornly high gas prices and logistics cost have made Indonesia notorious for its costly manufacturing industry, leading to expensive local products. A vicious cycle is then created as local buyers prefer to buy cheaper foreign steel.
“How are we supposed to compete [with imported steel] if gas from [state firm] PGN steel costs US$9 per mmbtu [million British thermal units] despite the government’s decision to lower it to $6 per mmbtu? said Krakatau Steel marketing director Purwono Widodo at a separate event.
State-run oil and gas firm Pertamina, he further said, was willing to offer $6 per mmbtu but it lacked sufficient gas supply.
The high logistics costs in Indonesia also add to the hardships of local steel producers, according to the association. Transporting goods from Jakarta to Makassar in South Sulawesi, for example is more costly than going so from Thailand to Makassar.
While the government is trying to fix gas prices and logistics cost, businesspeople are urging it to provide safeguards against imported steel and push China to fulfil its commitment to slash excess production capacity.
Worldwide crude steel production capacity reached 1.62 billion tons in 2015, with half of it, or 808.4 million tons, coming from China, Indonesia Industry Ministry data shows.
However, Chinese national demand only reached around 500 million tons, Purwono noted, and so the remaining 300 million tons were exported worldwide. China slashed capacity by 65 million tons in 2016 and aims to cut another 50 million tons this year.
High production costs and competition with cheaper foreign product have left just three local players standing in the coated steel industry: PT NS BlueScope Indonesia, PT Sunrise Steel and publicly listed PT Saranacentral Bajatama.
The same forces have also led to an absence of factories dedicated to other intermediary steel products such as stainless steel rods and shaft bars such as stainless steel slabs, billets, rods, bars and hot rolled coil.
