Indonesia Investments wishes all Muslims a happy & generous Ramadan
25 May 2018 (closed)
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The price of steel has surged 20 percent to USD $365 per ton in April 2016 from USD $305 per ton at the start of the year. The primary reason for the higher steel price is China's plan to curtail the country's installed steel production capacity by a further 150 million tons over the next five years. In recent years the steel price has dropped significantly due to the global oversupply, mainly originating from the chronic steel oversupply in China where domestic demand declined amid the nation's economic slowdown.
Developments in China have sharply influenced the steel price over the past couple of years. China is not only the world's largest steel manufacturer with an estimated installed annual production capacity of 874 million tons but its domestic market is also the biggest consumer of steel (used in infrastructure and property development). Over the past 15 years global steel-making capacity has doubled led by growing production capacity in China (supported by generous government subsidies). However, in combination with the global slowdown (also led by China) demand for steel declined considerably. In 2008 the steel price had peaked at USD $1,100 per ton, a sharp contrast to the USD $305 per ton at the start of 2016.
In line with an earlier forecast of Morgan Stanley, Hidayat Triseputro, Executive Director of the Indonesian Iron and Steel Industry Association (IISIA), believes the steel price will continue to rise this year due to China's ongoing efforts to curb production capacity.
However, when ministers and top officials from steel-producing countries - including China - met in Brussels (Belgium) on Monday (18/04), a meeting hosted by the OECD, to discuss measures to tackle the global excess steel capacity further, the participants failed to reach a deal. At this meeting the United States blamed China for the chronic oversupply (which has allegedly led to some 12,000 US steelworkers to have lost their jobs over the past year), while China says such accusations are simply an excuse for protectionism. Zhang Ji, China's Deputy Commerce Minister, said China has already managed to cut 90 million tons of steel production capacity and has plans to curtail it by a further 100-150 million tons. As such, it is doing its best to seek a solution. All in all, the meeting showed a deep division between China and other steel producing countries (similar to the failed talks at OPEC's Doha meeting regarding crude oil production).
Regarding Indonesia's domestic steel market, Triseputro expects to see a 5 percent (y/y) growth figure in Q1-2016 on the back of accelerated economic growth and government-led infrastructure development (this should encourage domestic steel demand considerably). Another positive development is the implementation of the Domestic Goods Usage Intensification (P3DN) program through which the Indonesian government encourages the use of locally-manufactured goods (basically a protectionist measure although it is not compulsory). In the case of steel it simulates usage of locally-produced steel rather than imported steel. Without government requests to use locally-produced steel, companies prefer to import steel from China because this is cheaper and China's steel products are usually regarded higher quality products.
I Gusti Putu Suryawirawan, Director General of Metal, Machinery, Transportation Equipment and Electronic Industries at Indonesia's Industry Ministry, said - based on data from Indonesia's statistics agency (BPS) - that imports of steel into Indonesia declined 31 percent in February 2016. However, this decline can also be the consequence of various projects still being in the tender-process at the year-start.
.. new buy recommendations for ArcelorMittal - watching term price of copper, aluminum and silver (solar cells).