Indonesia’s steel makers are not ready to compete with cheaper products from China, which are
expected to flood the local steel market as a result of the Association of Southeast Asian Nations (ASEAN)-China Free Trade Agreement officiated early last month, an industry source said.
Indonesia’s steel production costs are still far higher than those of China, where most steel and iron products are manufactured by large-scale factories, Indonesian Iron and Steel Industry Association chairman Fazwar Bujang said in Jakarta on Wednesday.
With its large-scale operations, China is able to reduce its production costs while in Indonesia, except PT Krakatau Steel, many iron and steel products are mostly produced by medium-scale companies.
Fazwar said it would take time for local iron and steel makers to reduce production costs equal those of China, because besides a lack of investment in the local industry, it also had poor infrastructure to expand business.
“We need a large amount of investment to increase production capacity, and to improve cost efficiency and quality,” he said as quoted by detik.com.
The weakness of the country’s iron and steel industry was also caused by its reliance on imported raw materials, and because of uncertainty in power and gas supplies, which were among the biggest costs in the iron and steel production, he said.
“Illegal imports are also a big problem,” Fazwar said.
Demand for steel and iron products had begun to pick up with the many new large infrastructure projects, and this trend will likely continue in coming years, he said.
Fazwar estimated that this year steel demand in Indonesia would increase to 7.2 million tons from around 5.9 million tons in 2009.
Under the free trade agreement between China and ASEAN, which came into effect in January, import tariffs on steel-related products are reduced to between 0 and 5 percent, from a range of 5 and 12.5 percent previously.