The steel industry in Indonesia continued to record strong production in 2012 and is projected to continue growing amid the expansion of production capacity by several steel producers. According to the Ministry of Industry, crude steel production expanded by 13.7% year-on-year (YoY), its fourth consecutive increase since 2009, culminating in total steel production of 5.35 million tons during 2012. These growth rates were partially attributed to the expansion in production by some of Indonesia’s major mining companies. This includes the enhancement of PT Krakatau Steel (Persero) Tbk’s coke oven plant, which is in the process of improving production capacity to 555,000 tons per year from 500,000 tons per year; Persero’s expansion plan was conducted through its consortium with MCC-CERI and PT Krakatau Engineering this year. In addition, PT Krakatau Posco, a joint venture between PT Krakatau Steel Tbk and Pohang Iron and Steel Co (a South Korean multinational corporation), is completing a steel factory this year with an expected production capacity of 6 million tons per year.

However, despite increased crude steel production, current production levels remain insufficient to meet present steel consumption levels which rose faster than that of production last year, hence necessitating imports. Consumption of crude steel rose by a whopping 27.37% during 2012 to 9.16 million tons, after expanding by 9.30% and 6.92% during 2011 and 2012 respectively. Rising steel consumption was largely driven by the construction sector amid the realisation of several government construction projects related to the Master Plan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI), the growth of the oil and gas industry, and the expansion of an automotive industry that is projected to keep growing in line with car demand. Figures from the National Bureau of Statistics reveal that the total number of houses built rose by 9.1% to 10,555 units in 2012 from 9,675 units in 2011; construction activities are also expected to sustain strong steel consumption growth this year.

The inability of domestic steel production to meet consumption has driven domestic users to source crude steel from abroad. The import volume of crude steel escalated by 53% to 3.82 million tons in 2012. By contrast, the export volume of crude steel climbed 144% to 3.78 million tons in 2012 from 1.54 million tons in 2011. Nevertheless, export performance remains considerably weaker than its peak level observed in 2008 of 36.06 million tons.

Indonesia’s steel industry is clearly playing a pivotal role in sustaining business activities in various sectors such as construction, infrastructure, automotive, and others. However, the insufficient steel production in meeting domestic demand indicates that the structure of the steel industry is still weak and not scalable. Indonesia could do much to further improve its steel refining and conversion process and hence improve industrial productivity in burgeoning steel-intensive industries. Better industrial integration could hold down production costs, hence passing on cost savings to the end users. Moving forward, the steel manufacturers are expected to increasingly enhance their steel production capacity through expansion or investment by constructing new factories, in order to ease the dependence on imported steel and further improve on their competitiveness.