Indonesia Producers Brace for Possible Chinese Steel Glut If U.S. Applies Duties

A plan by the U. S. to apply hefty tariffs on steel and aluminium imports may prompt China to hunt for new buyers for their products elsewhere, including in Indonesia, putting pressure on the country's industry which is already struggling to increase output.

While Indonesian steel makers can benefit from cheaper raw materials as U.S. steel duty is likely to cause a supply glut, they are also cautious of a possible surge in influx of illegal Chinese products, Purwono Widodo, the head of the flat products cluster at the Indonesian Iron Ore and Steel Association, told Steelmint.com via text message this week.

President Donald Trump plans to apply 25 percent tariff on imported steel products and 10 percent duty on aluminium imports, a move which has drawn criticism and concerns from U.S. trading partners, including Japan and European Union.

"There is a concern that China would ship the product into Indonesia by allegedly circumventing it as alloy steel which is freed from duties, to avoid duties applied for carbon steel," said Widodo. "If this happens, it will disrupt the domestic steel industry," he added.
Indonesian steel production capacity has been stagnant, supplying about 60 percent of Indonesia's demand. The remaining 40 percent comes from imports.

Indonesian steel products can compete with imported steel as long as the costs of imported products still within the normal range and not lower as a effect of unjust trade practices, including circumvention and dumping, said Purwono. "If it's an unfair trade practice which cause predatory price, the government must protect the industry," he stated.

Steps to Tackle Chinese Steel

Harjanto, Director General of Metal, Machinery, Transportation and Electronics at the Industry Ministry said the ministry is reviewing a number of steps to curb imports Chinese steel products.

One of the measures is looking at Trade Minister Regulation No. 22/2018 on Guidelines for Importing Iron or Steel, Steel Alloy and its byproducts).
"We will try to build database as a guideline to the Trade Ministry, on which steel products have been produced domestically, which one we're still lacking of and which products can be sourced from imports," he said as quoted by Bisnis Indonesia.

The government will also prevent circumvention practice or misuse of HS code for steel alloy. Chinese steel makers often ship carbon steel coated with boron or chromium so that it can be exported to Indonesia as steel alloy which isn't subject to import duty.

Imports of steel alloy which is used for automotive and heavy machinery, has been surging, according to Harjanto. "But the product (steel alloy) here is used in construction, we will discuss the steps to address this with related ministries," he said.

Additionally, the Industry Ministry plans to apply a mandatory use of a domestic component of steel products. If this applies, Indonesian steel makers, which produce steel without a domestic component certificate (TKDN) won't be able to participate in project tender.

Despite the impending U.S. steel duty and a looming surge of Chinese steel imports, Indonesian steel production is poised to increase to meet growing demand and improve efficiency, Widodo said. The Indonesian Iron and Steel Industry Association forecast the country's steel demand may increase to 14.5 million tons this year, a 7 percent increase from 13,5 million tons in 2017, the association said on the website.