Krakatau Steel aims for growth next year

Posted on 21 November 2017

Source: The Jakarta Post

 State-owned steel producer Krakatau Steel aims to increase its sales volume and value by 10 percent in 2018 on the back of the expedited completion of infrastructure projects in the election year and higher steel prices.

The firm’s marketing director, Purwono Widodo, said he was convinced that infrastructure projects would be completed faster within the next two years with the simultaneous regional head elections set to take place in 171 regencies and cities next June and the presidential election scheduled to take place in April 2019. Election years are often a period during which administrations expedite the completion of projects to showcase their performance to voters.

“We’re convinced infrastructure projects will be completed faster during the election year,” he told The Jakarta Post recently.

The firm hopes to sell at least 2 million tons of steel products next year. However, Purwono declined to disclose the sales value.

Besides pinning hope on the more efficient completion of projects, the company’s sales value is expected to increase on the back of higher steel prices.

The steel price started to surge from July onwards after China cut its production capacity the previous month. Previously, the price of hot rolled coil (HRC) and billet remained low at US$400 per ton and $300 per ton respectively.  Their prices currently stand at around $630 per ton and $550 per ton.

“Next year, the price will be adjusted but it wont come down to the level seen in June again,” he said.

China is one of the world’s largest steel importers but previously found itself with a capacity oversupply, leading it to allegedly flood to the world market causing the price of steel to drop. The led to various countries and institutions – including the European Union Commission and the International Monetary Fund (IMF) – to call on China to cut its steel capacity.

China slashed its capacity by 65 million tons in 2016 and is scheduled to cut another 50 million tons this year, resulting in a steel price rebound. The price of raw materials, such as iron ore, also jumped. This led to higher production costs for Krakatau Steel, which imported ore from Latin America.

The surging price has had its drawbacks, especially in the fourth quarter. Some buyers have delayed purchases, and big buyers have delayed such as state-owned electricity operator PLN – which needs steel to build power plants – faced surging operational costs, according to Purwono. The adjusted steel price next year is expected to stabilize demand.

Separately, the government has urged the local Iron and Steel Industry Association (IISIA) to identify problems that have hindered the local industry from expanding, especially regarding the production of specialty steel necessary for local manufacturing industries.

“Demand for steel has outpaced supply. I asked IISIA to look at steel demand based on sectors. What has caused our supply and demand for steel to become unbalanced? There are so many factors and they’re the ones who understand it. Tell us, so we can decide whether or not to intervene,” said I Gusti Putu Suryawirawan the Industry Ministry’ director general of metal, machinery, transportation equipment and electronic industries.

National steel demand stands at roughly 18 million tons annually, 55 percent of which is fulfilled with foreign steel.

Putu emphasized that raw materials for manufacturing industries needed to be kept at sufficient levels, even if it meant temporary imports, saying “we can maintain imports, except for end products. We need to see our manufacturing industries grow and create added value and employment here.”

Nevertheless, preliminary data from the Central Statistics Agency (BPS) showed that iron and steel imports decreased by 208 percent to 10.4 million tons as of October, while exports were up by 30 percent to 2.6 million tons in the same period.  

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