Posted on 08 Nov 2012
Low average selling price of steel resulting from an oversupply in the domestic market hit earnings of the country’s major steel producers in the first nine months of this year.
Indonesian Iron and Steel Industry Association (IISIA) executive director Edward Pinem said in Jakarta last week that the influx of imported steel products had caused an oversupply in the country’s steel market, which in turn led to a price slump.
He said that many foreign steel makers such as those from China had turned to Indonesia to sell their products due to the decline in demand from Europe. “Steel products that were originally destined for Europe entered Indonesia instead. They flooded the local market,” he added.
Imported hot-rolled coil (HRC) and cold-rolled coil (CRC) from China are among the products that local businesses often fret over.
Based on data from the Industry Ministry, last year, HRC imports from China grew more than twofold to US$38.19 million from 2009. CRC imports surged as well in 2011, up 44.3 percent to $88.32 million from the previous two years. By 2011, overall steel imports from China reached $8.28 billion, 40.7 percent higher from 2009.
Indonesia’s largest steel maker PT Krakatau Steel (KRAS) is among those affected by the oversupply. Krakatau saw a significant increase in its net revenues during the first nine months of 2012 on the back of higher sales volume, but the low prices had caused its net profits to plunge.
As of September, Krakatau sold a total of 1.72 million tons of steel products, a 16.3 percent growth from the previous year. Krakatau’s net revenues climbed 25.5 percent to Rp 15.88 trillion ($1.65 billion), but its bottom line dropped 99.2 percent to Rp 7.76 billion.
Krakatau investor relations head Robby Janis said its products’ average selling prices had been declining since last March.
Between January and September 2012, the price of HRC dropped 5.6 percent to Rp 7,263 per kilogram compared to the same period last year, while that of CRC declined 6.3 percent to Rp 8,320 per kilogram from the same period last year. Bar price also fell, down 3.7 percent to Rp 6,365 per kilogram.
Publicly listed PT Gunawan Dianjaya Steel (GDST), which manufactures hot-rolled steel plates, also booked lower profits. The company’s net profits fell 64.4 percent to Rp 36.09 billion due to lower average selling price, which dropped 10 percent to $650 per metric ton as of September 2012, from the figure recorded last March.
Gunawan Dianjaya corporate secretary Hadi Sutjipto said the company also attributed its poor performance to the ailing European market.
“Ever since the economic crisis hit Europe, our exports to the region had been sluggish. Europe previously accounted for 40 percent of our foreign market,” Hadi said during a telephone interview, adding that his firm had temporarily stopped exporting to Europe.
“We rely on domestic projects to improve our performance, but there are only two months left before the year ends. It will be impossible to reach our targets,” he said.
Previously, Gunawan Dianjaya set its net revenues and net profits targets at Rp 2.1 trillion and Rp 100 billion, respectively. By last September, the Surabaya-based company had a production capacity of 450,000 ton per year.
Meanwhile, PT Saranacentral Bajatama (BAJA) and PT Jaya Pari Steel (JPRS), both listed on the Indonesia Stock Exchange, also suffered from a drop in their net profits. The net profits of Saranacentral, which produces various zinc coated steel sheets, slumped 13.8 percent to Rp 13.64 billion. Those of Jaya Pari, a steel plate manufacturer, fell 86.3 percent to Rp 3.66 billion.
Edward of the steel association said that the steel industry hoped the new antidumping policy, issued by the government last October, could help solve oversupply and low price problems.
The policy sets import duties for iron and steel hot-rolled plates coming from China, Singapore and Ukraine at 10.47 percent, 12.33 percent and 12.5 percent, respectively.
Trust Securities stock market analyst Reza Priyambada said that the global economic situation would remain a factor in the companies’ financial performances next year. “Steel is an upstream industry, its supports other downstream businesses. If the latter improves globally, it will affect the steel sector positively,” he said.
