Competitiveness in Indonesia's steel manufacturing industry can be strengthened if Indonesian steelmakers, especially the smaller ones, decide to engage in mergers and acquisitions (M&As). Mas Wigrantoro Roes Setiyadi, General Chairman of the Indonesian Iron and Steel Industry Association (IISIA), advises Indonesia's smaller steel producers to embrace M&A to make their business more economically and efficiently.
One of the biggest challenges in Indonesia's steel manufacturing industry involves the expansion of the nation's steel production capacity. The majority of Indonesian steel manufacturers have relatively limited steel production capacity. Moreover, they are spread across the country and therefore their businesses are not efficient. Setiyadi therefore advises these smaller players to engage in M&As to make their businesses stronger.
Another key challenge for Indonesian steelmakers is the large amount of relatively cheap steel that is imported from China where a structural steel supply glut emerged after the country's economic growth had slowed sharply in recent years. In an effort to restructure its steel manufacturing industry, China took measures. It encouraged small local steel manufacturers to engage in M&A as it threatened to close those companies that have a steel production capacity of less than 5 million tons per year.
Setiyadi would like to see the Indonesian government implement similar regulations in order to reduce the number of small steel producers and create bigger, integrated steel players that are characterized by stronger competitiveness in order to be able to compete with steel imports from foreign counterparts.
In 2016 Indonesia consumed 12.67 million tons of steel, while domestic manufacturers could only deliver 6.8 million tons (the remainder - nearly half of total Indonesian steel demand - was imported from abroad). This year, Indonesia's steel demand is expected to grow 7 percent (y/y) to 13.5 million tons.