Indonesia: Steel makers to avoid prolonged downturn

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

29 Nov 2009

The metal, iron and steel industries expect costs to fall and demand to level up next year, helping manufacturers to avoid continued contraction triggered by the 2008 global economic crisis.
Given extremely poor sales conditions and sky rocketing production costs, the extent of the contraction reached 7.19 percent year-on-year in the third quarter of this year. But there is likely to be a turn for the better next year.
The industry ministry said it expects up to 2.75 percent growth in sales by the end of 2010.
"We expect conditions will get back to normal in 2010, with more balanced costs and production structures," said Ansari Buchari, the ministry's director general for metal, machinery, textile and miscellaneous industries.
Improvement in global market conditions, Ansari said, would help the basic metal, iron and steel industries to grow beyond 2 percent next year even though producers spent only limited amounts on new investment this year.
Ansari said investment made this year was mostly by smaller companies with a production capacity of about 100,000 tons a year, while the bigger players were more cautious over the poor market conditions.
Investment by the big players, he said, would soon start with the signing of an agreement next week between state-owned steelmaker PT Krakatau Steel and South Korean steelmaker Pohang Iron and Steel Company (Posco) to build a new US$5 billion steel factory in Cilegon, Banten.
The factory is expected to produce 2.5 million tons of steel slabs and steel billets pear year in the first phase of operations.
Indonesian Iron and Steel Industry Association (IISIA) executive director Hidajat Triseputro said the slump in global demand had forced many manufacturers to run on as little as 30 percent to 40 percent of their production capacity.
"Our utilized capacity has been only 30 percent to 40 percent since the third quarter of last year, in contrast to 70 percent of utilized capacity in the second quarter of 2008," he told The Jakarta Post.
Hidajat said apart from enjoying a positive trend towards favorable global market conditions, steel producers were also hoping to benefit from the government's increased support for infrastructure projects starting next year.
"That is where our hope lies. With infrastructure projects running, there will be many steel manufacturers *positively affected*. Infrastructure and toll roads need steel," Hidajat said.
However, he also warned of a possible rush of steel imports next year, when a free trade agreement between Association of Southeast Asian Nations (ASEAN) and China begins to come into effect, which will include steel (among other products).
He said the association was gathering information after recent indications of increases in steel imports.
The Central Statistics Agency (BPS) recorded that imports of iron and steel increased from US$279.6 million in July to $364.5 million in August and $434.1 million in September; and imports of iron and steel products stood at $237.5 million in July, $239.3 million in August and $184.4 million in September.
However, between January and September, overall imports of iron and steel declined from $6.6 billion last year to $2.7 billion this year and imports of iron and steel products declined from $2.4 billion last year to $2.1 billion this year, the BPS says.

Source: The Jakarta Post