Steel Industry Indonesia Still Plagued by Chinese Competition
The overall capacity utilization of Indonesia's steel industry could grow to 80 percent from 50 percent currently. However, it will require government support. Hidayat Triseputro, Executive Director of the Indonesian Iron and Steel Industry Association (IISIA), is optimistic this target can be achieved as the government's push for infrastructure development is showing positive signs (in the second half of 2015 there have been more groundbreaking ceremonies for large government-led infrastructure projects across the country).
This year, the country's steel industry has not yet felt the impact of the government's push for infrastructure development. However, Triseputro stated that "provided the government orders the mandatory use of domestically-produced steel in these projects, then the capacity utilization of the Indonesian steel industry can reach up to between 80 and 100 percent in 2016".
The main problem why the Indonesian steel industry has difficulty to sell its output is the chronic oversupply of steel in China, the world's largest steel manufacturer. As China's economy is still in slowdown-mode, steel production in China cannot be fully absorbed domestically. It is estimated that the steel oversupply in China has reached about 400 million tons (per year). This is also the key factor why steel prices have hit record lows. A further problem is that China's steel is not only cheaper but is also believed to be of higher quality compared to Indonesian steel. Indonesia's steel manufacturers can only compete with their Chinese counterparts if they sell steel at prices that are below production costs.
Triseputro expects that steel demand in Indonesia will grow to 28 million tons in 2016 due to the country's infrastructure projects. In 2015, Indonesia's steel demand is estimated at around 14 million tons, while domestic steel production capacity is only around seven million tons, showing the need for steel imports. These steel imports mainly originate from China. Triseputro said China exports about 10 million tons of steel to Indonesia per year.
As the cheap price of China's steel is considered unfair trade (Triseputro also uses the term dumping), he advises the Indonesian government to enhance efforts to support the domestic steel industry. One of the easiest strategies is to force domestically-manufactured steel to be used for the construction of the country's infrastructure projects. Steel import procedures (for shipments from China) should also be made more complex through non-tariff barriers, he added.