Japanese firm invests in automotive industry

Posted on 20 December 2017

Source: The Jakarta Post

Japanese automotive spare parts manufacturer Sango Corporation has invested US$40 million in steel production for automotive purposes, set to begin operation early next year.

Founded in 1928, the company first entered Indonesia in April 2012 with an investment worth $53 million to build its automotive spare parts factory in Karawang.

Speaking on behalf of Sango, George Halasi, president director of Sango’s subsidiary TSIG Holding Pty. Ltd., said Sango planned to increase local content in spare parts manufacturing by absorbing locally sourced raw materials.

“The plan to increase local content would require an additional investment worth $40 million to $50 million. However, the total amount of investment will depend on Indonesia’s ministerial regulations and our customers needs,” said Halasi, adding that the company is currently negotiating prices with some of its customers, such as major automotive maker Toyota Astra, which still imports automotive components.

To meet its target, Sango teamed up with state-owned steel maker Krakatau Steel to supply domestically made wire rod.

Last week, a memorandum of understanding was signed in Jakarta by Krakatau Steel president director Mas Wigrantoro Roes Setiyadi and board director of Sango Corporation Hashiguchi Tomoya. Among those attending the ceremony was Industry Minister Airlangga Hartarto.

Under the agreement, Sango committed to supplying raw materials to Krakatau Steel for wire rod production, which Sango will subsequently use to produce automotive spare parts.

Krakatau Steel is set to upgrade its machinery to be standard requirement for automotive wire rod.

“We plan to invest $10 million from our internal cash to upgrade our machinery,” Mas told reporters recently.

Using the upgraded machinery, the company will have the capacity to produce 40,000 tons of wire rod each year.

According to data from the Industry Ministry, around 1,800 Japanese companies have business interests in Indonesia. Japan is the second largest foreign investor in Indonesia, with total investment worth $17 million in the third quarter of this year, of which more than 50 percent was allocated to the electronics, food and beverages and automotive industries.

Indonesia’s automotive sector has long relied on imported wire rod given the inadequate specification of locally sourced products. Meanwhile, national demand for wire rod has reached 150,000 tons annually.

Industry Minister Airlangga Hartarto, who attended the ceremony, said the government expected the project to help curb the volume of imports from abroad. “Through this [project] the country will be able to save at least $24 million a year in foreign exchange reserves,” he said.

The plan had been discussed earlier at a meeting between Airlangga and Sango’s chief executive officer in October 2016, which led to a joint on wire rod supply and a market survey on automotive spare parts made using wire rod.

Wire rod production has recently come under the spotlight after the Anti-Dumping Committee (KADI) recommended on Dec. 1 that the Trade Ministry impose a 10.2 to 13.5 percent tariff on wire rod imports for a five year period.

However, the Indonesian Steel Wire Industry Association (Gipkabi) has estimated that the tariff would increase production costs by 7 to 10 percent, consequently harming competitiveness and forcing businesses to import from China.

The steel industry in Indonesia is expected to grow at an average of 6 percent per year until 2025, on the back increasing demand for raw materials, including a 8.5 percent increase in the construction sector and a 9.5 increase in the automotive sector.

With domestic supply at 6.8 million tons of crude steel per year, Indonesia needs to import 5.4 million tons to fulfil the 12.94 million tons a year demand for steel products. 

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