The prices of steel shot up lately in the world market mainly as a result of large demand from China and India. The rising prices have put heavier pressures on Indonesia's downstream steel industry. The country's downstream steel industry is still dependent heavily on import for basic materials. Support from upstream industry is still very limited.
There was almost no progress made toward expansion of upstream industry since 2004. Based on official data at the industry ministry, the production of the country's iron making industry totaled only 3.5 million tons s in 2006 as against requirement of 6 million tons. The production capacity of the country's downstream steel industry totaled 24.4 million tons n the same year. Industries using downstream products of steel have expanded including automotive, shipbuilding, electronic, and construction industries. Limited supplying capacity and technology force consumers like automotive and electronic industries to use imported basic materials.
The high prices of steel materials, however, have caused a drag on the expansion of industries in the downstream sector. The prices of HRC in the world market reached US$ 1,050 per ton in April from US$ 710 per ton in January. The high prices of steel in the world market came with the increase in the price of iron ore, the basic material and the leapfrogging rise of the oil prices.
The surge in the prices of steel in the world market has affected development of industries in the downstream sector. Producers of zinc coated steel have been forced to slash their output by 50% and steel pipe factories are facing marketing problem as they could not immediately raise the selling prices of their product to counterbalance the rise in the price of their basic materials.
Meanwhile, demands for steel from various industries in the country such as automotive, electronic and construction industries have continued to increase. Currently property construction use more steel instead of wood as the prices of wood have already risen first. Demand for auto making industry grew with the increase in car production to 325,000 units in 2007 from 296,000 units in 2006.
The strong demand for steel in the world market has also turned investors to Indonesia seeing the potential availability of basic materials and market. The country's steel maker PT Kratatau Steel became a target of acquisition by world steel giants. They also want to take control of the sources of steel basic material to guarantee supply to their factories abroad. Recently three steel companies of the Gunung Garuda Group were acquired by three investors from Singapore with a total price of Rp 712.78 billion. Arcelor Mittal, currently the world's largest steel maker has shown it was keen to have a stake in Krakatau Steel, which is in the list of companies prepared by the government to be privatized this year.
Mittal pledged to invest up to US$10 billion in Indonesia if it was allowed to have only 40% stake PT KS. The ambition of the Indian giant, however, met strong opposition especially from the management of the state company. The management of the state steel company, backed up by a number of lawmakers, was strongly against selling its stake to a strategic partner fearing it would eventually fall to the control of foreign investor. Instead the management suggested initial public offering as the safe choice for privatization.
Mittal's choice of fighting for a stake in PT KS rather than expanding PT. Ispat Indo its subsidiary producing billet and wire rods in the country has been questioned. Mittal President Lakshmi Mittal, however, said, it was difficult to expand he factory of Ispat Indo in Sidoarjo because of limited space.
PT Jaya Pari Steel, which produces HR plates is also a target of acquisition by foreign investors. PT Jaya Pari is a public company and partly owned by foreign investors. Foreign steel giants prefer to acquire factories already in operation to take advantage of the strong market in the world.
Producers and production capacity
The country's production capacity of flat steel including slab has not changed since 2004. The only producer, state-owned steel maker PT Krakatau Steel has not increased its production capacity. There was no new investment in this sector. Increase, however, has been recorded in the country's production capacity for hot rolled coil (HRC/Plate) and cold rolled coil (CRC/Sheet) in 2007. The country's production capacity for HRC/Plate rose to 2,300,000 tons annually from 2,200,000 tons. The increase was contributed by KS and Gunung Raja Paksi.
The CRC/Sheet industry has also expanded. Currently the country's production capacity for that steel material has reached 1,680,000 tons annually, from 1,610,000 tons annually earlier.
The only producer of slab in Indonesia is PT Krakatau Steel. PT KS has two units of slab production facility SSP-1 using the technology of MAN GHH from Germany and SSP-2 using the technology of Voest Alpine from Austria. Total slab production capacity of KRakatau steel is 1,850,000 tons p.a
HRC/P (Hot Rolled Coil/Plate)
Indonesia has two producers of HRC PT Krakatau Steel and PT Gunung Raja Paksi, and three producers of HR plates PT Krakatau Steel, PT Gunung Raja Paksi Jayapari Steel and Gunawan Dianjaya Steel in Surabaya.
The country's largest producer of HRC/plate is PT Krakatau Steel with a production capacity of 1,950,000 tons of HRC annually, up from 1,850,000 tons earlier. Its HR Plate production capacity is 150,000 tons annually,
Hot rolled plates produced by PT KS, used mainly by ship building steel structure and pipe manufacturing industries, have met international standards, such as American Petroleum Institute (API) especially for oil and gas industry, and American Society Testing Material (ASTM), British Standard (BS), British Standard Europe Norm (BSEN) and Japan Industrial Standard (JIS),
CRC/S (Cold Rolled Coil/Sheet)
Indonesia has 5 companies producing CRC/S, formerly the five companies are PT Krakatau Steel, PT Essar Dhanajaya, PT Little Giants, PT Baja Berlian Utama, and PT Intan Nasional Steel all with a total capacity of 1.61 million tons a year, The factories are located in a number of areas in Banten, West Java, Central Java and North Sumatra. ..............