In absence of impetus Indonesian steel demand growth remains slack

In the absence of a strong driving force, Indonesia’s steel demand has remained limited at an average of 12 million tonnes a year, lagging behind its peers in Southeast Asia, Purwono Widodo, member of executive committee at the Indonesian Iron and Steel Industry Association, said in a discussion on Wednesday, February 7, in Jakarta.

Vietnam’s steel demand has jumped to 22 million tonnes a year on the back of robust consumption from the construction sector, while Thailand relies on its automotive industry to boost demand to 19 million tonnes a year, according to IISA data.

“We have a problem with consumption. Our steel demand has grown in the past 20 years, but it only grows in line with the country’s GDP growth,” said Widodo, who is also marketing director of Indonesia’s state-owned steel company PT Krakatau Steel. “We don’t have any key driver that can catapult demand.”

The country’s industry had initially hoped that automotive industry and shipyard could support domestic demand, but the growth in both industries was insufficient to increase steel consumption, Widodo said. Construction sector also is yet to lift Indonesia’s steel consumption significantly, despite the fact that the government has been pushing for infrastructure projects.

With stable demand growth, Indonesia’s steel consumption is expected to reach 59 kilograms per capita of steel consumption in 2019, up slightly from 55 kg/ per capita.

“As long as the government and the industry players can’t determine the key driver, our steel consumption will only grow by 5-7 percent. We’re lucky, if it can grow by 10 percent. But it won’t jump by 22 percent like Vietnam’s demand,” he said.

While demand has remained stagnant, domestic production is still unable to fill it. Imports still account for around 40 percent of the country’s total consumption. The industry is now ramping up the domestic capacity to meet demand, Widodo said.

According to the Industry Ministry, there’s $3 billion investment new investment in metal processing this year. The investment comes from existing smelters that are expanding their capacity and from new plants.

They are PT Fajar Bhakti Nusantara, which invest US$350 million to expand its nickel pig iron plant in Gebe West Papua and Virtue Dragon, a Chinese company, which is expanding its ferronickel smelters in Konawe, Sulawesi with investment of US$2.5 billion.

Harjanto, director general of Metal, Machinery, Transportation and Electronics Industries at the Industry Ministry, said there are 34 smelters with investment worth 752.62 trillion rupiah. The smelters consist of iron ore smelters, nickel ore, bauxite copper concentrate, stainless steel and aluminium.

The country’s steel smelter capacity reaches 7.6 million tons (Krakatau Posco has 3 million tons of capacity, Krakatau Steel at 1.2 million tons, and Dexin Steel in Morowali at 3 million tons), data from the Industry Ministry shows. Indonesia also has stainless steel slab smelters with a capacity of 2 million tons.

Supply-Demand and Capacity Utilization of Indonesia’s Steel Industry 2016
Product Capacity Production Export Demand Utilization Import Import Ratio Condition
Slab       5,200            2,839       751       3,597 55%    1,509 42% Low Utilization
Billet       4,842            1,907            –       3,331 39%    1,424 43% Low Utilization
HRC       2,700            2,051         88       3,215 76%    1,252 39% Need Expand
Plate       3,200            1,500       378       1,325 47%       203 15% Low Utilization
CRC       1,690                959           1       1,814 57%       856 47% Need Expand
WR       2,155                595         56       1,382 28%       844 61% Low Utilization
Rebar       6,791            1,673         36       2,056 25%       420 20% Low Utilization
Profile       1,331                764         11           966 57%       213 22% Low Utilization
Coated Sheet       1,650                801         31       2,241 49%    1,471 66% Need Expand
Pipe & Tube       2,392            1,288         60       1,484 54%       256 17% Low Utilization