Update COVID-19 in Indonesia: 115,056 confirmed infections, 5,388 deaths (4 August 2020)
5 August 2020 (closed)
USD/IDR (14,647) +60.00 +0.41%
EUR/IDR (17,355) +42.63 +0.25%
Jakarta Composite Index (5,127.05) +52.02 +1.03%
Domestic steel sales in Indonesia are expected to rise 6 percent y/y to 15.1 million tons in 2014. Meanwhile, the global average steel price has been USD $536 per ton this year, implying that the market value of Indonesian steel sales is to reach USD $8 billion this year. In recent years, the country’s steel sales have been rising on development of infrastructure, defense industry, and manufacturing. The sales are expected to continue rising in the years ahead due to commitment of the government to boost infrastructure development.
As the central government is aware that infrastructure bottlenecks are a major reason for limited economic growth in Southeast Asia’s largest economy, it unveiled its Masterplan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI) in 2011. This masterplan is particularly focussed on infrastructure development. Three years after the introduction of the masterplan, success has been limited primarily due to the lack of funds. As the government has limited funds at its disposal it relies heavily on the private sector to finance projects within the MP3EI framework. However, private participation - particularly foreign participation - is still limited due to Indonesia’s notorious bureaucracy, difficulty of land acquisition, and regulatory/legal uncertainties. Furthermore, infrastructure projects are not the most popular investment choice of the private sector as they usually involve high investments and a relatively long time before profits can be taken.
But as Joko Widodo (Jokowi) will be inaugurated on 20 October 2014 as Indonesia’s seventh President, expectations of enhanced infrastructure development are high. Jokowi announced earlier that he would like to slash energy subsidies and relocate available funds to infrastructure development (as well as social development). Currently, the lack of quality and quantity of infrastructure in Indonesia causes high logistics costs and low competitiveness of Indonesian businesses. If Jokowi indeed succeeds in improving domestic infrastructure then steel sales are expected to rise in the years ahead. Irvan Kamal Hakim, President Director of Krakatau Steel, estimates that the domestic steel market expands by between 8 to 12 percent per year with the exception of this year amid slowing economic growth and the political uncertainties triggered by the country’s legislative and presidential elections (which made some investors decide to postpone projects).
However, the domestic steel industry faces several challenges. The most important one is that domestic steel production capacity is limited. Indonesian steel demand was about 14 million tons in 2013, while domestic production capacity was only seven million tons per year. The deficit thus needs to be imported from abroad. This situation is reason why two major Japan-based steel producers, Mitsubishi Steel Manufacturing and Nippon Steel & Sumitomo Metal Corporation (NSSMC), invest a total of USD $450 million in Indonesia for the acquisition of Jatim Steel Manufacturing as well as for the establishment of a special steel factory in a joint venture with Indonesia's largest steelmaker Krakatau Steel. This partnership will focus on the production of automotive flat steel as the car industry in Indonesia has been developing rapidly in recent years.
Other challenges are the quality of domestically produced steel and the chronic global oversupply, primarily caused by China, the world's largest steel producer. Due to the slowing pace of economic growth in China, the domestic market cannot fully absorb the country’s steel output resulting in an overcapacity of 200 million tons in China (and 525 million tons globally). As such, enhanced economic growth in China would seriously support the global steel industry.
According to information from Mesteel, the global steel price fell 4.3 percent to USD $545 per ton in October 2014, down from USD $570 per ton in January 2014, and significantly lower from its peak of USD $1,100 per ton in July 2008.
Indonesian Domestic Steel Sales 2010-2014:
|Year|| Steel Sales Volume
|2014||15.1 million tons¹|
|2013||14.3 million tons|
|2012||12.5 million tons|
|2011||10.9 million tons|
|2010||8.9 million tons|