Sales of steel in Indonesia are expected to grow 7 percent year-on-year (y/y) to 15 million tons in 2017, from an estimated 14 million tons of steel sales this year. This growth is attributed to rising infrastructure development in Indonesia and the lower gas price (which is expected to be a reason for the nation's steel manufacturers to boost output). Purwono Widodo, Director for International Relations of the Indonesian Iron and Steel Association (IISIA), said steel sales in Indonesia fell in 2015 but rebounded in 2016.
Over the past couple of years, the global steel industry has been plagued by aggressive dumping of imported steel products, mostly originating from China, the world's largest steelmaker and steel consumer (accounting for about 50 percent of total global demand). However, due to China's economic slowdown, steel demand fell rapidly hence leading to a major supply glut. As China started to export its excess steel reserves at very attractive prices, most steel millers in other countries - including Indonesia - became uncompetitive (resulting in widening losses, while operations at various manufacturers almost came to a complete standstill).
The steel price is expected to remain stable in 2017 (but with limited upside potential) as China had earlier signaled that it is committed to curtail domestic steel production through the consolidation of domestic steel groups. Upside potential is limited because of the structural oversupply in China. Measures taken by China's government are not enough to absorb this excess capacity and supply. In late-2015 and early-2016 the steel price touched distress levels. However, in recent months the price has rebounded to around USD $525 per ton.
Purwono Widodo said the Indonesian government has showed its commitment to protect Indonesian steel by encouraging usage of domestically-produced steel in the government-led infrastructure projects. Although it is impossible to refuse steel imports (after all Indonesia's steel demand is higher than production capacity), the government is eager to combat unfair trading, Widodo said.
Steel Production in Indonesia 2015-2017:
(in million tons)
Source: Investor Daily