Steel Production Indonesia: Government Targets 5% Growth in 2017
The Indonesian government targets to see domestic steel production rise by 5 percent year-on-year (y/y) in 2017. Strategies to encourage Indonesia's steel output include tighter supervision on steel imports and offering energy price incentives to domestic producers (in an effort to boost the competitiveness of Indonesian steel).
I Gusti Putu Suryawirawan, Director General of Metal, Machinery, Transportation Equipment and Electronic Industries at Indonesia's Industry Ministry, is convinced that Indonesia's steel industry will grow this year, in line with estimations of accelerating macroeconomic growth.
Last year domestic demand for steel in Indonesia was 12 million tons, with demand especially originating from infrastructure and construction projects. However, domestic steel producers could only supply 6 - 7 million tons, the remainder coming (mainly) from China, the world's biggest steel producer (and consumer). But it is interesting to note that Indonesia's total annual installed production capacity is currently estimated at 8 - 9 million tons, implying there are plenty of developers in Indonesia who prefer to import steel from abroad for their projects, rather than using locally-made steel.
The main reason behind this situation is the structural steel oversupply that has been ongoing in China for the past couple of years. The world's second-largest economy can therefore export steel at low prices, hence becoming more attractive than Indonesian steel. Moreover, Chinese steel is considered to be higher quality steel.
Through Trade Ministry Regulation No. 82/M-DAG/PER/12/2016 on Provisions on the Import of Iron or Steel, Alloy Steel and its Derivative Products the Indonesian government restricts imports of products of iron or steel, alloy steel, and its derivatives into Indonesia as the importer now has to obtain Import Approval and the Surveyor Certificate prior to shipping. However, the Import Approval is only awarded for two types of companies: (1) Import ID number as Producer or (2) Import ID number as General Importer.
Secondly, Suryawirawan said the government is still focusing on trying to lower energy costs (especially gas prices), thus making Indonesian steel more competitive by curbing production costs. Steel production costs in Indonesia are expensive due to the USD $9.2 mmbtu gas price. Moreover, logistics costs in Indonesia remain high and undermine the competitiveness of local businesses.
Another threat comes from Vietnam that is now producing around 5 million tons of steel per year while the country's domestic consumption only stands at 2.5 million. Considering shipments between Vietnam and Jakarta cost the same as shipments between Jakarta and Surabaya (both cities located on the island of Java), it explains why many project developers prefer to import steel.
By 2025 Indonesia should be able to produce at least 10 million tons of steel per year.
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