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Firms insecure amid infrastructure boost

Jakarta Post - October 13, 2016

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Stefani Ribka, Jakarta – Local steel producers are calling on the government to provide a mechanism that will protect domestic players from unequal competition from overseas firms seeking market slices in the country.

Amid President Joko "Jokowi" Widodo's plan to push for massive infrastructure development over the next few years, the Indonesian Iron and Steel Industry Association (IISIA) predicted that the annual local demand for steel would soar to 27 million tons by 2020 from the current 17.5 million tons.

Data from the association, meanwhile, showed that the local steel industry can only supply 7 million tons, leaving a huge gap that has been filled by imported steel.

Speaking to reporters on Tuesday, IISIA standard and certification committee member Basso Datu Makahanap acknowledged that local steel makers must invest more to expand their production capacity to meet the increasing demand. He, however, also stressed that the government must maintain the competitiveness of local steel products to help guarantee their investments.

"Protection against imports is the best weapon to deal with inflows of imported steel. This will ensure that the sector will grow well," he said on the sidelines of a press briefing on the International Metal and Steel Trade Fair for Southeast Asia, which will be held late this month.

The government had plans to build 8,200 kilometers of national roads, 1,000 km of toll roads, 3,258 km of railways, 172 new seaports and 15 new airports between 2015 and 2019. All of these need steel for construction.

Steel demand would also traditionally come from particular sectors, like automotives, electronics and telecommunications and yet Indonesia's steel consumption per capita was still 45 kilograms per year per person, much lower than in Malaysia where it was 327 kg last year.

However, the national capacity for producing steel and iron as its raw materials and its semi-finished and finished goods are still limited.

In 2015 only, the country's annual iron-making capacity stood at 4.5 million tons, steel-making at 9.2 million tons, rolling mills at 14 million tons of steel sheets and processed steel products at 4.9 million tons.

"Iron is needed to make steel and steel to make sheets and so on, but the capacity is unbalanced so we need more producers," Basso said.

Among industry players, state-owned steelmaker Krakatau Steel has the biggest production capacity of 3.15 million tons a year, with the utilization rate expected to reach about 70 percent this year.

The Industry Ministry recently said that it was considering imposing anti-dumping import duties for a number of steel products, including hot rolled coil (HRC), cold rolled coil (CRC) and cold rolled stainless.

Steel producers, meanwhile, are still concentrated in Java, with 78 percent of total national output produced there, followed by Sumatra, Kalimantan and Sulawesi.

However, to attract investment in remote areas, Indonesian Foundry Industries Association (Aplindo) president A. Safiun said the government needed to lower the price of industrial gas, a key component to run steel factories.

Indonesia's gas prices are currently about US$9 per million British thermal units (mmbtu), higher than in most of its ASEAN neighbors. The government is in the process of pushing gas prices down to $6 per 1 mmbtu from an average of $9.50 per mmbtu.

Source: http://www.thejakartapost.com/news/2016/10/13/firms-insecure-amid-infrastructure-boost.html.