Posted on 12 Feb 2013
Domestic iron and steel manufacturers expect production to rebound this year after a sharp decline in 2012, on the back of expected rapid growth in infrastructure development in the country during 2013.
Edward Pinem, the Indonesian Iron and Steel Industry Association (IISIA) executive director, said on Tuesday in Jakarta that local output would likely rise by 23.1 percent this year to return to the production level of the 4.8 million tons recorded in 2011.
Indonesia is realizing its Masterplan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI), comprising a wide array of infrastructure projects including toll roads, airports and railways, to boost its gross domestic product to about US$4.5 trillion by 2025, which will make it among the world’s 10 biggest economies.
Sales of cars are expected to top 1.2 million units, while sales of motorcycles will reach 6.3 million this year, according to industry groups. “The utilization rate will surge from the 65 percent of last year to 80 percent this year along with smoother flows of raw materials,” Pinem told a press briefing.
The output of the local iron and steel industry dropped to around 3.9 million tons last year, about 20 percent down from the 4.8 million tons in 2011, as local facilities slowed production due to raw material shortages.
The production decline in 2012 was also caused by low demand.
Early last year, local customs seized steel cargo containing imported scrap metal at the country’s main import gate, Tanjung Priok Port in North Jakarta. More than 2,000 containers filled with scrap metal was detained following the finding of more than 100 containers contaminated by hazardous toxic waste by the custom authorities at the port. Some of the scrap was reexported and some was detained by the authorities.
A number of industrial players then replaced scrap metal with steel billets to keep production on track, but others curbed operations. Better prices would also help local manufacturers to boost their outputs this year, Pinem said.
Steel prices will possibly rise by around US$90 per ton until May this year, from approximately $700 per ton in December last year, the association earlier said.
Domestic steel consumption will leap by between 6 and 9 percent this year to the 11.4 million tons estimated last year, with between 35 percent and 40 percent of that being sourced from imports due to a limited domestic capacity, according to the association.
The capacity issue is partly a result of the relatively small, new investment in the upstream sector.
However, the required investment in the upstream sector is sizeable, while sources of the minerals needed for production are mostly located in remote areas with poor infrastructure, with power, road and seaport issues sometimes serving to put off investors from setting up facilities.
