The Jakarta Globe reported that Indonesia's steel consumption growth is forecast to slow to 5% in 2012 to about 9 million tonnes from 32.5% in 2011 because of lack of raw materials to produce steel.
Mr Edward Pinem, an executive director at the Indonesian Iron and Steel Industry Association, said that "This growth will only be prompted by consumption, not because of the absorption of new investment realization."
The forecast was much lower than his earlier estimate of 10 million tonnes.
Mr Edward said that steel consumption grew by 15% in 2010 and by 32.5% in 2011 to 8.6 million tonnes. The growth is on par with the country's economic growth. He added that "If the GDP this year is only growing by 6.5%, that will mean that the steel sector will only rise by 5%."
He added that 5% was an optimistic estimate, because it did not take into account the effect of higher down payments for home and vehicle purchases.
Indonesian regulators raised the down payment for home purchases this month, a move that could curb loan demand.
Mr Edward said the housing, infrastructure, and oil and gas sectors were the country's largest consumers of steel, but although the local products met all standards, oil and gas companies usually had their own suppliers overseas.
He said another problem for the steel industry was a shortage of raw material in the form of scrap iron, which mostly had to be imported. He added that the government has been unable to guarantee a stable supply of gas for the industry, even though the price rose 55% to USD 10.13 per million British thermal units last month.
Mr Edward said that "We didn't have raw material, but in the end we were able to adapt by importing semi processed goods such as billets or slabs. Prices are rising in Indonesia, not because the prices are rising internationally, but because of high demand. They know that there are no raw materials, and therefore prices are increased."
Mr Edward voiced concerns that domestic steel production would only reach 4 million to 4.5 million tonnes in 2012 if the shortage of raw material was not resolved.
Mr Edward said that Indonesia's steel industry still imports 70% of the scrap material for its raw material. Only Krakatau Steel, a state controlled steelmaker, produces steel with 70% to 80% iron ore and the rest from scrap metal. Other industries rely entirely on scrap metal.
Mr Edward said that with steel production at only 4 million to 4.5 million tonnes, the country would need to import another 4.5 million to 5 million tonnes to meet the national consumption of the metal.
Source: The Jakarta Globe