Steel Producers in Indonesia to See Better Earnings in 2017
The price of hot rolled coil (HRC) steel in Indonesia jumped 20 percent to USD $600 per ton in the first quarter of 2017, from USD $500 per ton in the same quarter one year earlier. This price growth is encouraged by the rising global steel price, a trend that is expected to continue in the remainder of 2017. Based on data from MEsteel, a Middle East b2b steel portal, the price of the benchmark HRC stood at USD $545 per ton in March 2017, up 49 percent from USD $365 per ton in the same month one year ago.
The key reason why global and domestic steel prices have been on the rise is China's commitment to cut its steel production capacity by up to 100 million tons. Earlier, the structural steel oversupply in China - caused by the combination of the nation's rising production capacity and slowing steel demand amid rapidly easing economic growth - caused sliding global steel prices (China is the world's largest manufacturer and consumer of steel). In December 2015 the steel price touched its lowest level of the past decade. Meanwhile, various countries around the world, including Indonesia, complained that the profitability of their domestic steel manufacturing industries was being undermined because China was able to export cheap steel. For example in Indonesia many infrastructure developers preferred to import steel from China because it is not only cheaper but also of higher quality.
Purwono Widodo, Director of Foreign Relations at the Indonesian Iron and Steel Association (IISIA), stated that despite the still high degree of steel imports into Indonesia at the start of 2017, domestic steel producers are now seeing better earnings due to the higher steel price.
However, he added that in terms of domestic demand for domestically-produced steel there remains much room for improvement. The industry particularly needs to wait for the start of new government-led infrastructure development projects. Widodo hopes to see the groundbreaking of various infrastructure projects in either the second or third quarter of 2017. This should then, ideally, result in more demand for Indonesian steel products.
Widodo also urges the government to curtail imports of steel, especially those steel types that can be produced domestically, in order to support the domestic steel manufacturing industry. However, if steel is imported to be further processed in Indonesia, then Widodo sees no problems. A positive development is that the government encourages developers to use domestically produced steel in the infrastructure development projects.
Steel consumption in Indonesia is expected to rise to 15-16 million tons in 2017, up significantly from 12 million tons in the preceding year, supported by the government-led infrastructure projects.