T

he government plans to impose a reference price for steel entering the Indonesian market in a bid to protect local steel products amid surging imports of cheap steel.

The Industry Ministry'€™s director general for metal, machinery, transportation equipment and electronic industries, I Gusti Putu Suryawirawan, said recently that his ministry was studying the possibility of determining a reference price for steel to protect the local industry.

'€œTo prevent our steel industry from bankruptcy due to cheap imported steel, there has to be a reference price, a fair price,'€ he said.

The local steel industry faces threats from low-priced overseas products, particularly from China, the world'€™s largest steel producer.

Suryawirawan said that this year alone, China was forecast to have excess steel output of around 100 million tons despite possible production cuts.

China produced 738.38 million tons of crude steel in the January-November period of last year, according to World Steel Association data.

The East Asian country'€™s crude steel output is predicted to drop to about 783 million tons this year from an estimated 806 million in 2015, the China Iron and Steel Association has estimated.
_________________________________

'€œTo prevent our steel industry from bankruptcy due to cheap imported steel, there has to be a reference price, a fair price.'€

Indonesian Iron and Steel Industry Association (IISIA) executive director Hidayat Triseputro welcomed the government'€™s plan, saying it would help create fair competition between local and imported steel.

'€œHowever, it needs a thorough review on what the pricing mechanism will look like, as it will involve interests of both upstream and downstream industries,'€ he said.

The government and the association had to further calculate and review the fair prices, he added.

State-owned steelmaker PT Krakatau Steel previously stated that it had to bring its steel price in line with a low market price of between US$380 and $390 per ton, almost half of its production cost of $600 per ton.

According to Putu, the price gap between imported billets and local steel was unreasonable at present, for example $300 per ton for billets and $350 per ton for steel.

Putu said the steel reference price would also be aimed at helping state-owned electricity firm PLN decide on steel suppliers for its transmission projects.

While PLN was required to use steel products with a certain amount of local content for its transmission projects, the company could be confused in making a decision, as a lot of imported steel was priced lower, he said.

'€œThe reference price will help PLN firmly decide, without having to worry about future questioning on why it choose to buy more expensive [local] steel products, for example,'€ he went on.

In a bid to support the government'€™s 35,000-megawatts (MW) power plant projects, PLN needs to build a total of 46,000 kilometers of transmission lines.

Some 13,000 km of transmission lines were reportedly under construction last year.

PLN previously announced that 11 steel companies had been chosen for pre-qualification bidding for the transmission project. Progress on the bidding, however, has not been announced yet.