Indonesia's Steel Industry in 2006

Posted on 22 November 2007

Source: SEAISI
The Indonesian economy has picked up gradually after the economic crisis in 1997. In a Country Report paper presented at the recently concluded ASEAN Steel Conference in Kuala Lumpur, Malaysia, Mr. Fazwar Bujang from GAPBESI reported that the overall economic prospect for Indonesia is looking good with a GDP growth rate of 5.5% in 2006 and a projected growth rate of 6-6.3% in 2007.

Growth of construction sector in 2006 stood at a satisfactory level of 9% compared to 7.4% in the previous year. Transport and communication sector maintained its high growth rate at 13.6%, up slightly from the 13% registered in the previous year. National Private Consumption has picked up steadily, especially for consumption in electricity and motor vehicle. 

For the steel industry, apparent steel consumption has expanded rapidly after the economic crisis with an average yearly growth rate of 10%. However, consumption in 2006 slowed down to 6.25 million tonnes from 7.24 million tonnes a year ago. This was due to a decline in the consumption of bar, wire rod and flat products.

Consumption of semi finished products has expanded over the last few years, largely met by increase in imports. Domestic production seems to have stagnated since 2004. This is despite of the underutilization of the capacity. Although Indonesia has the capability to produce scrap-substites such as HBI/DRI, the output has slowed down since 2000. Production in 2006 was recorded at 1.2 million tonnes, representing 52% capacity utilization. The import of billet has not changed much. The figure in 2006 was recorded at 0.7 million tonnes. However, slab import surged up from 0.98 million tonnes in 2005 to 1.2 million tonnes in 2006. This is in line with the increase in hot rolled sheet production. The bulk of the import of semi-finished products came from Russia and Ukraine. However, for the last quarter of 2006, China has replaced the above two countries as the major source of supply.

The country's bar and section consumption slowed down in 2006. Bar consumption dropped from 1.88 million tonnes in 2005 to 1.59 million tonnes in 2006. The consumption of section was recorded to have declined by 12.6% to stay at 463,572 tonnes. This is in contrast to the growth rate of construction sector. However, Mr. Bujang expected the long product consumption to pick up again in 2007 and continue to grow throughout year 2009. On the other hand, wire rod consumption registered a strong growth at the rate of 41% with total volume of 866,248 tonnes in 2006.

Indonesia's hot rolled plate consumption has witnessed little upward movement. However, domestic producers are ramping up their output mainly to serve export market. Domestic production has recorded a strong average annual growth rate of nearly 20% to reach 835,493 tonnes in 2006. Export rose sharply in 2006, from 254,777 tonnes in 2005 to reach 480,778 tonnes in 2006. Indonesia exported hot rolled plate to many countries, including Netherlands, Singapore, Vietnam, Saudi Arabia and Australia.

Hot rolled coil consumption dropped moderately in 2006 to stay at 2.06 million tonnes. However, domestic output rose at the rate of 15% to hit 1.66 million tonnes. Import, on the other hand, decreased at the rate of 18% to stay at 871,273 tonnes. The bulk of the imports were from China, India, Japan and Taiwan. Export of hot rolled coil registered a significant growth rate of 66% to reach 464,183 tonnes. The major export market was India. Other export destinations include Netherland, Canada, Belgium and Singapore.

Cold rolled coil consumption also moved downward to stay at 1.14 million tonnes in 2006, representing a 18% decline over 2005. Domestic output decreased slightly to 801,974 tonnes. Meanwhile, import dropped significantly at the rate of 28% to stay at 538,728 tonnes. The main export destinations were Malaysia, Vietnam and USA while export to China dropped sharply in the second half of the year.

The Indonesian domestic steel producers have been adversely affected by imports from China for almost all kinds of steel products. Import of semi-finished product from China rose sharply from less than 100,000 tonnes in 2003 to 500,000 tonnes in 2004 and continued to rise to 650,000 tonnes in 2005. It only started to slow down after the Chinese government instituted measures to control the export of semi-finished steel from China. The figure for 2006 showed a slight increase of 3% compared to the previous year. The import of wire rod from China had similarly increased substantially from 30,000 tonnes in 2003 to 125,000 tonnes in 2005 and moved up slightly to 130,000 tonnes in 2006. For hot rolled plate product, Indonesia is quite self-sufficient and import volume had not been significant. However, the import from China rose sharply from 9,000 tonnes in 2005 to 50,000 tonnes in 2006. Hot rolled coil import from China also jumped strongly in 2005 to reach 170,000 tonnes and remained stable in 2006. Going forward, Indonesian steel producers will be watching closely the movement of imports of steel products from China.

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