Indonesia’s Steel Industry Affected by Oversupply in China
Irvan Kamal Hakim, Director at Krakatau Steel (Indonesia’s largest steel manufacturer), said that the domestic steel industry is still affected by prolonged concerns about excess steel supply in China, the world's largest steel producer. Amid slowing economic growth in the world’s second-largest economy, domestic steel demand in China has declined resulting in a global oversupply of 525 million tons. Each 1 percent decline in GDP growth in China results in an additional oversupply of 24 million tons of steel.
Global excess supply, triggered by developments in China, means that the global steel price cannot rise markedly yet. The central bank of China has recently cut interest rates for the first time in over two years in an attempt to boost domestic consumption and economic growth (required to push the steel price back up). However, analysts are pessimistic about the direction of steel prices in the foreseeable future as manufacturing in China is still slowing.
Indonesia’s domestic steel production capacity is limited and therefore the country needs to import steel, mainly from China. In 2013, Indonesian steel demand was recorded at about 15 million tons, while annual domestic production capacity was only seven million tons. However, steel sales in Indonesia have risen strongly in recent years amid development of infrastructure, the defense industry, and manufacturing. These sales are expected to grow further in the years ahead as the Joko Widodo-led government is committed to boost the country’s infrastructure development. Furthermore, driven by Indonesia’s positive outlook for car sales, several foreign steel manufacturers have come to Indonesia. Mitsubishi Steel Manufacturing and Nippon Steel & Sumitomo Metal Corporation (NSSMC), invest USD $450 million for the acquisition of Jatim Steel Manufacturing as well as for the establishment of a special steel factory (for the production of automotive flat steel) in a joint venture with Krakatau Steel.
Indonesian Domestic Steel Sales 2010-2014:
| Year | Steel Sales Volume |
| 2014 | 15.1 million tons¹ |
| 2013 | 14.3 million tons |
| 2012 | 12.5 million tons |
| 2011 | 10.9 million tons |
| 2010 | 8.9 million tons |
¹ forecast
Source: Mckinsey
Further Reading:
• Steel Industry in Indonesia: Challenges and Opportunities
• Why Do Japan’s Steel Giants Want to Invest in Indonesia’s Steel Industry?