Growth in Indonesia’s Steel Usage Set for Slowdown

By webadmin on 10:09 pm Jun 13, 2012
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ID/Damiana Simanjuntak

Indonesia’s steel consumption growth is forecast to slow to 5 percent this year, to about 9 million tons, from 32.5 percent in 2011 because of lack of raw materials to produce steel, an industry source said.

“This growth will only be prompted by consumption, not because of the absorption of new investment realization,” said Edward Pinem, an executive director at the Indonesian Iron and Steel Industry Association who made the forecast.

The forecast was much lower than his earlier estimate of 10 million tons.

Steel consumption grew by 15 percent in 2010 and by 32.5 percent last year, to 8.6 million tons. The growth is on par with the country’s economic growth, Edward said.

“If the GDP this year is only growing by 6.5 percent, that will mean that the steel sector will only rise by 5 percent,” he said.

Five percent was an optimistic estimate, he added, because it did not take into account the effect of higher down payments for home and vehicle purchases.

Indonesian regulators raised the down payment for home purchases this month, a move that could curb loan demand.

Edward said the housing, infrastructure, and oil and gas sectors were the country’s largest consumers of steel, but although the local products met all standards, oil and gas companies usually had their own suppliers overseas.

He said another problem for the steel industry was a shortage of raw material in the form of scrap iron, which mostly had to be imported.

The government has been unable to guarantee a stable supply of gas for the industry, he said, even though the price rose 55 percent to $10.13 per million British thermal units last month. 

“We didn’t have raw material, but in the end we were able to adapt by importing semi-processed goods such as billets or slabs,” Edward said. He added that prices for billets and slabs had also increased.

“Prices are rising in Indonesia, not because the prices are rising internationally, but because of high demand,” he said. “They know that there are no raw materials, and therefore prices are increased.”

Edward voiced concerns that domestic steel production would only reach 4 million to 4.5 million tons this year if the shortage of raw material was not resolved.

Indonesia’s steel industry still imports 70 percent of the scrap material for its raw material.

Only Krakatau Steel, a state-controlled steelmaker, produces steel with 70 percent to 80 percent iron ore and the rest from scrap metal. Other industries, Edward said, rely entirely on scrap metal.

Edward said that with steel production at only 4 million to 4.5 million tons, the country would need to import another 4.5 million to 5 million tons to meet the national consumption of the metal.