CONF: Too much steel imports not healthy for Indonesia
The event, organized by the South
East Asian Iron & Steel Institute (SEAISI), did not begin on a positive
note, with opening speaker Karim – who is also ceo of PT Krakatau Steel (Persero)
Tbk – listing all the core issues Indonesia’s steel industry currently faces.
These include too high steel imports, too many steel investments, and too low levels
of existing steelmaking capacity utilization.
“Indonesia’s economy is in quite good shape compared with other countries now facing the downturn,” he said. “The country’s economy is estimated to grow 5.08% on year, which is lower than the 5.17% on year for 2018 but is still very good amid the slow-down in the global economy. Also, inflation has been maintained at round 3% instead of the 5-6% in the past years.”
Amid all these, however, “the country’s steel capacity utilization was only at 48% for 2018, while there are still many steel investments, why? Is something wrong with my calculator or my calculation? I do not think so,” he said. Indonesia’s crude steel capacity utilization in the past three years averaged 50% over 2016-2018, while the country’s crude steel capacity was at 11.5 million tonnes/year as of 2018, according to him.
Answering his own question, Karim cited high imports as the reason. While acknowledging that “people tend to import,” he nonetheless counselled caution. “We are all steel players, so be careful; if we can’t keep steel (industry) in good health, something will happen, just like if you eat too much, it is not good,” he told delegates.
“There is a big cake of steel consumption in infrastructure; our steel is more for auto steel or special steel, not for construction, so we import, but importing too much is not good, I am even thinking of changing (the company name) Krakatau Steel into Krakatau Trade,” he half joked.
In the first half of 2019, Indonesia’s apparent steel consumption totaled 7.2 million tonnes, up 6% on year, while domestic supply with exports deducted only obtained a market share of 49% of the total.
At the same time, all the major steel products in Indonesia are facing oversupply, with rebar said to be oversupplied by a huge 246%, wire rod by 133%, plate 132%, sections/profiles at 129% and HRC at 108%, according to Karim. This means, “in capacity, national steel producers are able to fulfill domestic steel consumption,” he told delegates.
Therefore, “no (local) steel mills have been profitable in the past 10 years. Do not persuade people investing in steel, it is not about quantity but about quality, and not only investment in but also investment out, as in what investments have been doing to the existing capacities,” he challenged, emphasizing that investments should be focusing on those products that Indonesia cannot produce yet and when new and repetitive investments are introduced, existing investments may be affected and forced out of the market.
“Overseas steel investments, many from China, are a new way for China to subsidize its steel industry, originally in exports, now through companies and investments. How fast and cleverly you respond to these, whether you want to be a watcher or competitor, your way will be different,” he commented.
Other than excess capacity, Indonesia is also faced with the presence of induction furnaces.
“Now my blood pressure is getting high…Such furnaces are gone in China, but they are getting very popular in Philippines and Indonesia now, with 50% of Indonesian long steel supply coming from induction furnaces,” he argued, adding “banning induction furnaces is prohibiting someone from earning money but in a good way.”
He finished his presentation in a big sigh, commenting, “to improve the steel industry (in Indonesia) is so difficult.”
Written by Hongmei Li, li.hongmei@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com
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