Steel Industry Indonesia: Local Steel Gaining Market Share
The Indonesian Iron and Steel Association (IISIA) predicts that steel sales in Indonesia will grow nearly 9 percent (y/y) to 12.5 million tons in 2016, from 11.5 million tons in 2015, on the back of new infrastructure projects. IISIA Director for International Relations Purwono Widodo adds that the market share of locally-produced steel is expected to rise from 40 percent to 60 percent. This is a positive development because the steel market in Indonesia has been dominated by imports (mostly from China).
Indonesia's steel deficit (that according to earlier reports may widen to USD $7 billion in 2016) has been a burden on the nation's trade balance. Moreover, by relying on steel imports Indonesia's steel industry cannot enhance its contribution toward the nation's overall GDP growth. Domestic steel production capacity in Indonesia remains limited. Moreover, China has been facing a chronic steel oversupply on the local market in recent years and therefore eagerly exports its steel to other markets at affordable prices. Project developers in Indonesia not only prefer Chinese steel due to the competitive price but also because foreign steel is usually considered to be better quality steel.
Currently, Indonesia's per capita steel consumption is still relatively low at 40 kilogram per year. However, by 2020 this figure is targeted to grow to 70 kilogram on the back of government-led infrastructure development. This means that Indonesia needs to upgrade its steel industry in order to avoid rising reliance on steel imports. Therefore, it is an encouraging sign that domestic steel is expected to account for 60 percent of total steel consumption in Indonesia.
IISIA Director Purwono Widodo hopes that the oil & gas and mining sectors of Indonesia will experience a better performance next year as this would boost demand for steel. Over the past two years steel demand in these sectors has been weak. Under normal conditions Indonesia's steel industry grows three percent higher compared to overall macroeconomic growth. However, over the past two years this "law" did not apply because of weak steel demand stemming from the nation's oil & gas and mining sectors.
Although the steel price has been rising this year due to a cut in China's steel production, concerns have risen about rising coal prices putting downward pressure on steel prices in the remainder of 2016.
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