T

he growing Indonesian automobile sector is slated to become one of the largest industrial users of high-end and high-strength steel, behind basic infrastructure and construction, recent research has found.

Indonesia needs large volumes of a wide variety of steel products as the emerging country, the world’s 18th largest economy with the fourth-largest population, has yet to build much basic infrastructure or many factories, according to research papers on the Indonesian steel industry by Indonesian and South Korean analysts presented at the Indonesian session of a global steel forum in Seoul last week.

Choi Bu-Sik, a POSCO researcher based in Jakarta, predicted car production in Indonesia, the second-largest automobile producers in the ASEAN region after Thailand, would grow by 5.5 percent a year from around 1.1 million units in 2015 to 2.4 million in 2025.

“Since multi-purpose vehicles account for more than 61 percent of the car sales in Indonesia, compared to 31 percent in China and 28 percent in South Korea, Indonesian demand for automotive steel will grow much faster than many other countries,” Choi noted.

He observed that since an increasing number of Japanese car makers in Thailand have or plan to make Indonesia another regional production base, due to the extensive damage caused by the massive floods in Thailand in 2011, Indonesia is poised to become a major car exporter within the ASEAN free trade zone.

Choi said Indonesian car exports increased steadily from 170,000 units in 2013, to 200,000 units in 2014 and 210,000 units in 2015, dominated by Japanese car makers.

These developments, Choi added, would generate a larger demand for automotive steel, which was estimated at 2.1 million tons in 2014, increasing to 3.1 million tons in 2015. Imports from Japan fulfilled 46 percent of this demand, South Korea (mainly POSCO) 35 percent and other countries the remaining 20 percent.

Thomas Lembong, chairman of the Investment Coordinating Board (BKPM), noted in his address at the global vendor forum of South Korea’s largest steel company POSCO that even though the world market was now awash with a huge steel surplus as a result of the market slump caused by the steep decline in China’s economic growth, the long-term future of steel remains bright.

Indonesia’s US$450 billion infrastructure development for the 2014-2019 period certainly requires a lot of steel while domestic production is barely sufficient to meet 50 percent of the total demand, Thomas told the forum, which was attended by more than 1,000 steel vendors and POSCO executives from around the world.

TM Zakir Machmud, head of the Economic and Industrial Research Group at the University of Indonesia, who was also another panelist at the forum, said since steel consumption in Indonesia was among the lowest among ASEAN members, there was great room for growth.

Zakir added that Indonesia still needed to depend on imports for more than 60 percent of its steel needs, notably for upper and mid-stream products, thereby causing a steel trade deficit of $6.8 billion in 2015. In fact, users of high-strength steel sheets for car production still rely almost entirely on imports.

But the 2015 steel trade deficit represented a significant decline from the $8.9 billion deficit in 2014. The 2015 steel import decline was attributed to the startup in early 2014 of the $3.50 billion Krakatau Steel-POSCO (KP) joint venture integrated steel plant with a capacity of 3 million tons in Cilegon, Banten.

Kenneth KJ Rhee, the marketing director of POSCO Indonesia Inti, the POSCO holding company for its seven subsidiaries in the country, confirmed that automotive steel and other world premium high-end products would be included in the production stream of the KP plant’s expansion project that is now under preparation. (vin)