The 10 million ton-capacity steel industry cluster in Cilegon, which will take investment of between US$3.5 billion and $4.5 billion, is estimated to be completed before 2025. This year, both companies will focus on the completion of Hot Strip Mill 2 which will cost $515 million.

“We expect Hot Strip Mill 2 to operate in the first half of 2019,” said Silmy Karim, Krakatau Steel’s president director, on the sidelines of the 4th government task force team meeting on national steel industry development in Jakarta.

Hot Strip Mill 2, which will have a production capacity of 1.5 million tons per year, will be part of the Cilegon steel cluster. The completion of the steel cluster, Silmy said, would help reduce the country’s dependency on steel imports and would drastically reduce the country’s trade deficit.

The national steel industry is currently facing tough challenges primarily due to global oversupply in China, the United States, Japan and many other countries. Those countries have started to decrease production.

Investment Coordinating Board (BKPM) head Thomas Lembong, who attended the 4th government task force team meeting, emphasized that competition in the steel industry around the world was becoming more intense.

As steel prices tumbled, big countries, such as China, have continued to shift from a manufacturing economy towards a service economy, meaning that they have shift to less steel-intensive construction.

“I am worried […] gone will be the days when the US serves as consumer of last resort […] President [Donald] Trump is now contemplating big tariffs on car imports,” he said, indicating that other countries could not rely on exporting steel to the US in the future.

He also noted that an upcoming challenge in the steel industry would be the possibility of a steel substitution in the form of cross-laminated timber (CLT) made from wood. The use of CLT would become a more sustainable and an environmentally friendly construction option because it could reduce the carbon footprint.

Regarding the challenges laid out by the BKPM, Silmy said Krakatau Steel was aware of the threat of substitution of steel to CLT, adding that it was not a pressing issue at the moment as it might still take 10 to 15 years to come to fruition.

For now, the company, together with Krakatau Posco, will concentrate on increasing steel production to 6 million tons this year, up from 5 million tons last year.

To protect the country’s steel industry, Silmy urged the government to limit steel imports, especially those that come from Batam, which was not subject to antidumping import duties. This practice had hurt the domestic steel industry, he said.

“We are always talking about fairness. We want steel companies to compete fairly in Indonesia,” he added.

The company is also facing a challenge to reform its internal management. On Saturday evening, the Corruption Eradication Commission (KPK) named Wisnu Kuncoro, production and technology director at Krakatau Steel, and three executives from other companies suspects in a case of alleged bribery related to procurement projects within the country’s largest steel producer.

Wisnu allegedly received kickbacks to grant the projects to machinery supplier PT Tjokro Bersaudara (Tjokro Group) and engineering and manufacturing company PT Grand Kartech after executives of those companies agreed to pay “commitment fees” to him.

Wisnu allegedly received through an intermediary, businessman Alexander Muskitta, on Wednesday a check amounting to Rp 50 million ($3,494) from Grand Kartech president director Kenneth Sutardja, while Tjokro Group chief operating officer Kurniawan Eddy Tjokro allegedly handed $4,000 and Rp 45 million to Alexander at a coffee shop in South Jakarta.

In a press briefing on Sunday, Silmy said he regretted that the case had occurred amid the company’s internal reform attempt.

Silmy added that other support that the steel industry needs from the government would be from an infrastructure point of view. The construction of the Sunda Strait Bridge is deemed important to increase steel demand in the future.

“The construction of the Sunda Strait Bridge will have a lot of economic benefits such as creating employment. The logistic costs between Sumatra and Java islands would be greatly reduced as well,” he said.

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