Steel Imports from China into Indonesia Surged in 2015
Indonesia's steel and iron producers urge the government to limit imports of steel into Indonesia as these imports are a burden on the domestic steel industry. Data from the Indonesian Iron and Steel Industry Association (IISIA) show that steel imports from China - the world's largest steel producer - into Indonesia jumped 94 percent year-on-year (y/y) to 3 million tons in 2015. This surge is particularly caused by foreign contractors working on infrastructure projects in Indonesia.
Hidayat Triseputro, Executive Director at IISIA, said steel imports from China will not fall without some government intervention. It would help, for example, if the government were to force the use of domestically-produced steel in the government-led infrastructure projects, or, at least, make it more attractive. Such a move could raise the utilization rate of Indonesia's steel production capacity to nearly 100 percent this year, up from a utilization rate of 50 percent last year.
Indonesia's local steel industry has difficulty to compete with steel imports from China because of the quality and the price. Contractors engaged in infrastructure projects in Indonesia say it is cheaper to import steel from abroad than to purchase steel from Indonesia's steel producers. Moreover, foreign-made steel is considered higher quality.
China is not only the world's largest producer of steel (supplying about half of global output) but it is also the largest consumer of steel. However, as the world's second-largest economy is experiencing a harsh economic slowdown, steel consumption in China has declined over the past couple of years. Moreover, Chinese authorities have also been eager to transform the economy from growth driven by manufacturing (an industry that consumes plenty of steel) and investment to one that is driven by consumption and services. The resulting steel supply glut in China has put great downward pressure on global steel prices.
However, recent data from the China Iron and Steel Association indicate that China's (crude) steel production fell 5.7 percent (y/y) to 121.1 million metric tons in the first two months of 2016, while the country's steel products output declined 2.1 percent (y/y) to 162.3 million tons over the same period. China's full-year 2015 steel production contracted 2.3 percent to 804 million tons, its first annual steel production decline since 1981. Meanwhile, this year's steel consumption in China is expected to drop by a further 3 percent (y/y), after having fallen 5.4 percent (y/y) in the preceding year. These developments are giving rise to higher steel prices in the first quarter of 2016.
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