THE STRUCTURE AND PROSPECTS OF THE …

1 THE STRUCTURE AND. PROSPECTS OF THE. indonesian steel industry . DSTI/SU/SC(2013)13. 75th steel Committee Meeting Paris, 5-6 December 2013. A new player in the global steel market -The fastest growing market in ASEAN- Indonesia has experienced rapid growth in steel demand. It is ranked as the 4th fastest growth rate over the past decade.*. The country is the fastest growing market in the ASEAN region. In 2012, apparent steel use reached a new high level of mmt. steel consumption - top 20 fastest growing economies ASU. CAGR. (2002-2012). Evolution of GDP and finished steel consumption (2002-2012). Finished steel Crude steel ARE CHN. SAU. DZA TUR. IND. IRN IDN VNM. THA RUS.

2 CZE BRA. MEX PHL. World: (Finished steel ) EGY. KOR POL. : (Crude steel ) MYS. DEU. JPN USA AUS ZAF. ITA. TWN. FRA GBR. ESP. Real GDP (2002-2012). * Amongst those economies that consume at least 5 million tonnes of steel per year. Note: Bubble sizes represent the magnitude of finished steel consumption in 2012. Sources: OECD Secretariat based on GDP and steel consumption data from the International Monetary Fund and the World steel Association. steel demand drivers -Infrastructure and automotive playing a dominant role- Construction has been the largest driver of steel consumption. Demand for construction materials has expanded rapidly. Most of the demand for plate was to serve the construction sector.

3 Automotive industry is also playing an important role. 2002 = 100 Evolution of steel demand (Long Products) 2002 = 100 Evolution of steel demand (Flat Products). 500 500. Bars Plates Structurals Hot-rolled Sheets & Strips 400 Wire Rods 400 Cold-rolled Sheets & Strips Galvanized Sheets 300 300. 200 200. 100 100. 0 0. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012. Note: The consumption shown in the graphs are not adjusted for double counting of products. Sources: OECD Secretariat based on steel consumption data from World steel Dynamics and the South East Asia Iron and steel Institute. The STRUCTURE of steel supply and demand -A significant net importer of steel - Indonesia used to produce most of the long and flat steel products that it consumed.

4 The country has become an important net importer of steel . Apparent steel use is met largely by imports (import ratio: 63%). 1992 2012. 20% Self-Sufficiency 40% 60% Import 80% 20% Self-Sufficiency 40% 60% Import 80%. 250% 250%. 200% 200%. 150% 150%. 100% 100%. 50% 50%. 0% 0%. Pipes & Tubes Sections Wire Rods Plates Other Metallic-coated Sheets Wire Rods Bars Hot-rolled Sheets & Strips Cold-rolled Sheets & Strips Electrical Sheets Tinplates Sections Bars Other Long products Plates Hot-rolled Sheets & Strips Cold-rolled Sheets & Strips Electrical Sheets Galvanized Sheets Tinplates Other Metallic- coated Sheets Pipes & Tubes Galvanized Note: The consumption shown in the graphs are not adjusted for double counting of products.

5 Source: OECD Secretariat based on steel consumption and trade data from the South East Asia Iron and steel Institute. The STRUCTURE of trade -Growing needs for imports to meet steel demand- Asia and CIS regions are major sources of imports. Semi-finished products and flat products are main import items. The country needs steel products to meet its growing demand, particularly for high-value added flat products. Other Europe North Share Asia Middle East EU27 South America Africa Oceania Total (incl. CIS) America (%). Iron Products 372 149 4 113 0 53 5 12 709 Ingots & Semi-finished 745 0 23 2629 0 400 10 11 3818 Bars 488 0 9 2 1 0 0 14 514 Sections 555 0 3 1 1 - 0 1 560 Wire Rods 484 0 6 0 0 - - 0 489 Other Long Products 97 0 3 0 0 0 0 1 101 Plates (Carbon) 595 0 4 138 0 0 - 0 737 Hot-rolled (Carbon)

6 1602 - 3 42 0 0 0 0 1647 Cold-rolled 1275 - 2 1 0 - - - 1280 Galvanized Sheets 371 - 0 - 1 0 - 0 372 Other Coated Sheets 570 0 8 0 3 0 0 0 581 Alloy steel Flat 466 0 22 2 2 1 1 7 500 Pipes & Tubes 1038 0 85 1 9 52 2 7 1194 steel Wire 166 0 2 0 0 0 0 1 168 Total steel Products 8451 1 168 2816 17 453 13 44 11961 Cast Iron Pipe 43 0 6 0 0 1 0 0 50 Secondary Product 251 0 8 1 3 0 0 12 275 Total Iron & steel Products 9116 149 186 2930 21 507 19 67 12995 Share (%) 2012/2007 (% ). 300- 200-300. 100-200. 0-100. 0. Source: Indonesia trade statistics. The situation of steel supply -A potential to boost steel production- Indonesia's steel production has lagged compared with other ASEAN economies since the late 1990s.

7 However, it has the potential to boost its steel production thanks to the expansion of several projects. Thousand 1996 = 100 Evolution of crude steel production tonnes Crude steelmaking capacity in Indonesia 300 20000. Indonesia Gap (A) - (B). Malaysia Capacity (A). 250 Thailand 15000 Consumption (B). Philippines 200 10000. 150 5000. 100 0. 50 -5000. 0 -10000. 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015. Sources: OECD Secretariat based on steel production data from the World steel Association and the South East Asia Iron and steel Institute. OECD for crude steelmaking capacity.

8 Major steel projects -Construction of the largest blast furnace in ASEAN- Indonesia will soon have ASEAN's first large-scale blast furnace. This should have significant impacts on the STRUCTURE of steel supply and demand in Indonesia.. Operation Operation No Company Location Facility Capacity No Company Location Facility Capacity Date Date Bast furnace mmt 2015 5 JFE steel Galvanizing Bekasi West Java CGL mmt 2016. 1 Krakatau steel Cilegon West Java Hot strip mill mmt 2014 6 Gunung Bekasi West Java EAF mmt 2013. Blast furnace, BOF mmt 2013 Blast furnace mmt 2015. 7 Gunung Raja Paksi Bekasi West Java 2 Krakatau POSCO Cilegon West Java Phase 2 of project mmt - BOF mmt 2015.

9 Plate mill mmt 2013 8 Essar Indonesia Bekasi West Java Cold strip mill mmt 2014. 3 Krakatau Osaka steel Cilegon West Java Rebar/Small sections mill mmt 2015 9 Gunawan Dianjaya steel Surabaya East Java Plate mill mmt 2015. Blast furnace mmt 2012 Kalimantan South 4 Indoferro Cilegon West Java 10 Meratus Jaya Iron & steel Kalimantan DRI mmt 2012. Phase 2 of project mmt 2014 Tanah Bumbu 11 Sermani Indonesia Makassar South Sulawesi CGL mmt 2012. Source: OECD Secretariat. Several challenges -Rising trade protectionist measures- Protectionism has been on the rise in recent years. Indonesia is a relatively active user of trade remedy measures. Various efforts to curb imports, such as SNI (Standard National Indonesia), safeguard and antidumping duties.

10 - Antidumping : Six AD investigations have been initiated since 2008. - Safeguard: Four SG investigations have started since 2010. - Non-tariff measures (NTMs): Various measures ( Compulsory standard, Pre-shipment inspection, Labeling requirement). The lack and low quality of infrastructure ( roads, ports and electricity supply). Fuel subsidies*. Low capacity utilisation Low profitability * In June 2013, the indonesian government increased subsidized-fuel price. PROSPECTS for the indonesian steel market -A strategic industry in economic development- Numerous factors are expected to support its steel demand. Indonesia aims to reach ASU per capita to 100kg by 2025. Regarded as a strategic industry in economic development, the steel industry is one of the key industries of the Master Plan.