IRON AND STEEL PRODUCT MARKET

Considered a vital industry to the country’s economy, the steel industry in Indonesia developed rapidly during the last 3 decades, a period of time, during which Indonesia experienced and enjoyed economic growth rates way above average. The economic and financial crisis, however, that hit the country since 1997/1998 dealt almost all industry a heavy set back; with no exception, the steel industry also suffered heavy losses following the collapse of the construction sector and drastic production decrease in the automotive industry, pillar industries also, that are crucial in determining the pace of a country’s economic growth and development. Overall economic and financial improvements expected for 2000/2001 have not taken place, causing sluggish demand for steel products. Only since 2002 has the situation on the domestic market slowly improved, especially with the building and construction sector as well as the automotive sector showing clear tendency of recovery.

The development of commercially large-scale iron and steel industry in Indonesia began at the late 60’s early 70’s with the construction and completion of PT Krakatau Steel, the first integrated iron and steel manufacturing plant, built with the technology and financial assistance from Germany and this government-owned enterprise remains until today the largest, integrated iron and steel manufacturing plant in Indonesia and at the same time also functions as the country’s steel industry barometer. The policy of the Indonesian government to open the door to foreign investors to boost the economic and industrial development at the beginning of the 70’s gave reason to investors to fund priority sectors such as the building and construction, infrastructure projects, mining and energy. Subsequently, respective steel manufacturing industries were also developed along the way with the establishment of the first steel pipe factories and steel structure plants.

Large occurrence and extensive exploration of oil and gas began since early 70’s and the oil and gas exploration and distribution remain until today the largest customer for the steel industry in Indonesia. The economic and financial crisis that hit Indonesia does not seem to have affected this particular industry sector negatively due the typical characteristics of oil being a world commodity. Overall current world political condition has even positively influenced the oil and gas production in Indonesia aiming at higher production output. Natural gas is another potential demand for future source of energy, whereby gas pipeline construction works are currently underway, not only within Indonesia but also connecting gas-producing areas with the neighboring countries such as Singapore and Vietnam. For the near future, the oil and gas industry will remain one of Indonesia’s pillar industries.

The Indonesian automotive industry revived distinctively since the year 2000 with total sales exceeding the sales figures of the previous years. Sales of cars and especially motorcycles are expected to further increase for the following years due to improved domestic financial market and the consumer’s purchasing power.

Another promising sector, the construction sector, is sluggish following uncertain current domestic political and security conditions. In 2002, however, overall condition improved and the construction sector clearly revived. The government-related projects such as infra structure projects (clean water, electricity) will for the time being remain slow due to tight government budget.

The weak iron and steel world market and the decreased sales in major iron and steel markets such as the USA and Europe forced steel producers to turn heavily to the Asian market including Indonesia. Influx of imports with cheap prices weakened additionally the domestic iron and steel industry causing a number of iron and steel producers to close down their factories completely. Although the Indonesian iron and steel industry has been confronted with many serious problems in the last few years causing a drastic decline in production and sales performance, the industry remains optimistic as to the future development of various economic sectors, which shall contribute positively to the development of this particular manufacturing industry especially with the overall expected economic recovery by the year 2004, after which period of time Indonesia will already have completed its most important political event, e.g. the general and direct presidential election, the first time ever in the country’s political life and history.