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Today's Headlines Krakatau Steel
Krakatau Bandar Samudera, a subsidiary of Indonesia's largest steel manufacturer Krakatau Steel, got the green light from shareholders to conduct an initial public offering (IPO) on the Indonesia Stock Exchange. Tonno Sapoetra, President Director of Krakatau Bandar Samudera, said the company plans to offer its shares to the public in November 2018.
State-controlled steel manufacturing company Krakatau Steel is optimistic that it will post net profit in 2018 after continuously being plagued by net losses since 2011. Tambok Setyawati, Finance Director at Krakatau Steel, said the company targets USD $24 million in net profit for 2018. This optimistic view is supported by its significantly declining net loss in 2017.
Steel manufacturers are concerned that the recent surge in steel prices may disrupt domestic infrastructure development projects. Purwono Widodo, Director International Relations at the Indonesian Iron & Steel Industry Association (IISIA), said the price of steel - particularly hot rolled coil - has continued to increase, especially in the last two months.
After a three-year slowdown, the steel industry of Indonesia is showing some positive developments supported by government-led infrastructure projects in Indonesia and the rising global steel price. The price for (benchmark) hot rolled coil has surged 47 percent since the start of 2016 to USD $485 per ton (May 2016 delivery). In late 2015 the price of hot rolled coil was as low as USD $265 per ton. Moreover, the mandatory usage of locally-manufactured steel for the infrastructure projects will have a positive impact on Indonesia's steel industry.
Demand for steel in Indonesia is expected to rise in 2016 on enhanced infrastructure development. However, the majority of steel - approximately 60 percent of total demand in Indonesia - is still being imported from abroad (primarily China). Gusti Putu Suryawirawan, Director for Base Metal Industries at Indonesia's Industry Ministry, said the government is eager to support the domestic steel manufacturing industry in order to avert further domination of foreign manufactured steel on the Indonesian market.
The government of Indonesia plans to introduce a 15 percent anti-dumping duty on steel to prevent massive steel imports thus supporting Indonesia’s domestic steel industry. Indonesia is not the first country to introduce anti-dumping import duties on steel products. China imposed anti-dumping duties on certain stainless steel tubes from Japan and the European Union (thereby increasing the global steel oversupply), while Malaysia imposed anti-dumping duties on hot rolled coils imported from China and Indonesia.
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.
Two giant Japan-based steel producers, Mitsubishi Steel Manufacturing and Nippon Steel & Sumitomo Metal Corporation (NSSMC), will invest a total of USD $450 million in Indonesia for an acquisition as well as for the establishment of a special steel factory. Mitsubishi Steel is to purchase a 34 percent stake (worth USD $37 million) in Indonesian special long steel producer Jatim Steel Manufacturing, while NSSMC and Indonesia's largest steelmaker Krakatau Steel agreed to form a joint venture to produce automotive flat steel in Indonesia.
Tata Steel Limited, the Indian multinational steel producer, recently announced its ambition to penetrate the Asia-Pacific region, including Indonesia. Although it remains unclear whether the company intends to establish a factory in Indonesia, an official of the company said that Tata Steel wants to enter Indonesia with downstream products in 2014 or 2015 as it sees potential in Southeast Asia's largest economy and aims to improve profitability by increasing efficiency in the operatives in the Asia-Pacific.
Indonesia Investments has updated the company profile of Krakatau Steel, Indonesia's and Southeast Asia's largest steel producer. The company, which is for 80 percent government owned, has a crude steel production capacity of 2.45 million tons per year. However, through a lucrative joint venture with Posco, the world's third-largest steel producer, it will expand production capacity significantly in the years ahead. Besides steel production, the company has expanded into other industries.
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After being in negative territory for quite a while, the benchmark stock index of Indonesia (Jakarta Composite Index) finished 0.13 percent higher at the end of the trading day. In line with the major stock indices in the Asia-Pacific region, Indonesia’s main index climbed although gains were limited as investors are concerned about failed discussions between the Greek government and its creditors in the Eurozone. However, positive sentiments were still felt due to capital injections in Indonesian state-owned companies.
Domestic steel sales in Indonesia are expected to rise 6 percent y/y to 15.1 million tons in 2014. Meanwhile, the global average steel price has been USD $536 per ton this year, implying that the market value of Indonesian steel sales is to reach USD $8 billion this year. In recent years, the country’s steel sales have been rising on development of infrastructure, defense industry, and manufacturing. The sales are expected to continue rising in the years ahead due to commitment of the government to boost infrastructure development.
