An overview of Indonesia's steel industry

The development of Indonesia's steel industry is closely related to the history of PT. Krakatau Steel as the state owned company. In turn, the establishment of PT. Krakatau Steel in 1970 in Cilegon based on Government Regulation No. 35/1970 is part of the national industry development or industrialisation in Soeharto era.1 policy Compared to other steel producing countries, Indonesia is considered a big country to export steel products. BPS data stated that much of the domestic steel production is directed to meet domestic market demand, and Indonesia is heavily dependent on steel imports. For instance, in 1999, national steel production recorded at around 3.4 million tonnes, and export value was 1.4 million tonnes. In 2000, import value rose by an almost 4.1 million tonnes, while domestic production slightly increase of around 3.7 million tonnes, and export value down a bit to recorded at 1.2 million tonnes. In the year 2003, domestic production was 3.7 million tonnes, import value at almost 4 million tonnes, and slightly above 1 million tonnes for export value. The industry was able to survive through exports, although facing stiff competition from its regional neighbours, Eastern Europe and Latin America, particularly. What recovery had been achieved in 2000, however, was cut off abruptly in 2001 when the United States, its biggest customer, placed dumping duties on Indonesian steel. Indonesia also faced strong competition from Thailand in steel export market. Based on a data from the Department of Industry, the consumption of steel end-products in Indonesia improved and reached nine million tonnes in 2008 and over 10 million tonnes in 2009. While the amount of steel products, which is produced domestically, is predicted to remain lower than domestic market need that is around an average of more than two million tonnes. According to the product categories, Indonesia will produce more HRC, of around 2.2 million tonnes in 2010.

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PT Krakatau Steel wants the government to set an export tax on iron ore in order to secure adequate supplies for its steel project with South Korea's POSCO. Indonesia is keen to increase revenue from the mining sector by boosting its domestic processing industries. Under a new coal and mining law passed in 2008,all mining products must be processed domestically. The government gives miners five years to adjust to the new domestic processing ruling, but Fazwar Bujang, Krakatau's president director, said the transition period was too long. "Exports of iron ore still continue. If we let this continue, we may lose out because the reserves will be quickly depleted by then," Bujang told reporters. Indonesia's iron ore mineable reserves were estimated at 22 billion tonnes and are scattered in different areas in the archipelago, Bujang said, which makes it crucial to maintain current supplies. Indonesia exported 10 million tonnes of iron ore in the first eight months of 2010, up from six million tonnes in the whole of 2009, said Ansari Bukhari, director general of metal and machinery at the industry ministry. POSCO, the world's No. 3 steelmaker, signed the joint venture agreement with Krakatau Steel earlier this month. Krakatau Steel has said it plans to import five million tonnes of iron ore a year from 2013 when its joint venture with POSCO starts production because Indonesia's domestic supplies were insufficient. There has been increased interest in investing in Indonesia's mining sector, including from the world's biggest steelmaker, ArcelorMittal, which said it is considering an investment worth $5 billion in Indonesia. (Reporting by Yayat Supriatna; Writing by Fitri Wulandari; Editing by Sara Webb)Nike