Global excess supply, triggered by developments in China, means that the global steel price cannot rise markedly yet. The central bank of China has recently cut interest rates for the first time in over two years in an attempt to boost domestic consumption and economic growth (required to push the steel price back up). However, analysts are pessimistic about the direction of steel prices in the foreseeable future as manufacturing in China is still slowing.

Indonesia’s domestic steel production capacity is limited and therefore the country needs to import steel, mainly from China. In 2013, Indonesian steel demand was recorded at about 15 million tons, while annual domestic production capacity was only seven million tons. However, steel sales in Indonesia have risen strongly in recent years amid development of infrastructure, the defense industry, and manufacturing. These sales are expected to grow further in the years ahead as the Joko Widodo-led government is committed to boost the country’s infrastructure development. Furthermore, driven by Indonesia’s positive outlook for car sales, several foreign steel manufacturers have come to Indonesia. Mitsubishi Steel Manufacturing and Nippon Steel & Sumitomo Metal Corporation (NSSMC), invest USD $450 million for the acquisition of Jatim Steel Manufacturing as well as for the establishment of a special steel factory (for the production of automotive flat steel) in a joint venture with Krakatau Steel.

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

¹ forecast
Source: Mckinsey

Further Reading:

Steel Industry in Indonesia: Challenges and Opportunities
Why Do Japan’s Steel Giants Want to Invest in Indonesia’s Steel Industry?