Indonesian Steel Makers See Stable Output Growth in the Next 3 Years

Indonesian steel producers forecast a flat production growth in the next three years due in part to domestic policies and massive influx of overseas steel from China, the world's second biggest economy, according to Silmy Karim, chairman of the Indonesian Iron and Steel Industry Association (IISIA).

"For the next three years, it is expected that the growth in total output to remain stable, so that domestic demand will be met by domestic steel producers and massive imports (from China)," Karim said in an interview with SteelMint on Dec 8.

Karim said total steel output is estimated to increase by more than 20% to reach more than 10 million tonnes this year (2018) from the previous year. Indonesian steel output was 7.86 million tonnes in 2017 and 6.58 million tonnes in 2016, according to data from SEAISI, a website of the association of iron and steel industry association in the Southeast Asian region or ASEAN.

Indonesian producers, according to Karim, are faced with massive influx of steel imports especially from China. China's steel producers, according to Karim, sold their products in Indonesia at a much lower price. That, in turn, hurt the steel industry in the local market.

Karim said that the huge imports of alloy steel from China were primarily used as a substitute for carbon steel, commonly used in the construction industry.

"The price of alloy steel from China is way much cheaper as they benefit from a tax rebate policy of between 9 to 13% and they evade the anti dumping import duty of as much as 20% in Indonesia. That result in China's steel to have a comparative advantage of as much as 29% to 33% (from tax policy)," said Karim who is also president director of PT Krakatau Steel, Indonesia's state owned steel maker.

Apart from massive influx of steel imports, Indonesia's steel industry is facing a low utilization by steel producers, Karim said. As such, the association has called on the government to better use steel produced in the domestic in the infrastructure development in Indonesia. The oil and gas, mining and manufacturing industries are also encouraged to use steel produced by domestic makers, Karim said.

Massive infrastructure development such as roads, water, toll roads in Indonesia should benefit Indonesian steel makers. Still Karim though did not give any forecast on steel consumption in Indonesia. Indonesia's consumption of steel stood at 13.59 million tonnes in 2017, growing by 7.3% from 12.67 million tonnes in 2016, according to data from SEAISI.

The government's forecast the economy to expand by 5.2% this year and 5.2% next year. The economic growth in Indonesia has been hovering in the area of more than 5% in the past two years. Still, Karim voiced his concerns that massive influx of steel imports coupled with trade policy would eventually hurt the Indonesian steel producers in a big way. "The market share of domestic steel makers will continue to shrink as they have been substituted by the imports of alloy steel," Karim said. "The price steel produced by domestic makers will decline. And domestic steel producers will feel the pinch," Karim said.