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Oversupply hits earnings of Indonesian steel producers - IISIA
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Tuesday, 06 Nov 2012
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The Jakarta Post reported that low average selling price of steel resulting from an oversupply in the domestic market hit earnings of the country's major steel producers in the first nine months of this year.

Mr Edward Pinem executive director of Indonesian Iron and Steel Industry Association said last week that the influx of imported steel products had caused an oversupply in the country's steel market, which in turn led to a price slump.

He said that many foreign steel makers such as those from China had turned to Indonesia to sell their products due to the decline in demand from Europe. He added that "Steel products that were originally destined for Europe entered Indonesia instead. They flooded the local market."

Imported hot rolled coil and cold rolled coil from China are among the products that local businesses often fret over.

Based on data from the Industry Ministry, HRC imports from China grew more than twofold to USD 38.19 million in 2011 from 2009. CRC imports surged as well in 2011, up by 44.3% to USD 88.32 million from the previous two years. By 2011, overall steel imports from China reached USD 8.28 billion, 40.7% higher from 2009.

Indonesia's largest steel maker PT Krakatau Steel is among those affected by the oversupply. Krakatau saw a significant increase in its net revenues during the first nine months of 2012 on the back of higher sales volume, but the low prices had caused its net profits to plunge.

As of September 2012, Krakatau sold a total of 1.72 million tonnes of steel products, a 16.3% growth from the previous year. Krakatau's net revenues climbed 25.5% to IDR 15.88 trillion, but its bottom line dropped 99.2% to IDR 7.76 billion.

Krakatau investor relations head Mr Robby Janis said its products’ average selling prices had been declining since March 2011.

Between January and September 2012, the price of HRC dropped 5.6% to IDR 7,263 per kilogram compared to the same period last year, while that of CRC declined 6.3% to IDR 8,320 per kilogram from the same period last year. Bar price also fell, down 3.7% to IDR 6,365 per kilogram.

Publicly listed PT Gunawan Dianjaya Steel, which manufactures hot-rolled steel plates, also booked lower profits. The company’s net profits fell 64.4% to IDR 36.09 billion due to lower average selling price, which dropped 10% to USD 650 per tonne as of September 2012, from the figure recorded in March 2011

Gunawan Dianjaya corporate secretary Mr Hadi Sutjipto said the company also attributed its poor performance to the ailing European market. He added that "Ever since the economic crisis hit Europe, our exports to the region had been sluggish. Europe previously accounted for 40 percent of our foreign market. We rely on domestic projects to improve our performance, but there are only two months left before the year ends. It will be impossible to reach our targets."

Previously, Gunawan Dianjaya set its net revenues and net profits targets at IDR 2.1 trillion and IDR 100 billion, respectively. By September 2011, the Surabaya based company had a production capacity of 450,000 tonnes per year.

Meanwhile, PT Saranacentral Bajatama and PT Jaya Pari Steel, both listed on the Indonesia Stock Exchange, also suffered from a drop in their net profits. The net profits of Saranacentral, which produces various zinc coated steel sheets, slumped 13.8% to IDR 13.64 billion. Those of Jaya Pari, a steel plate manufacturer, fell 86.3% to IDR 3.66 billion.

Mr Edward of the steel association said that the steel industry hoped the new antidumping policy, issued by the government in October 2011, could help solve oversupply and low price problems.

The policy sets import duties for iron and steel hot rolled plates coming from China, Singapore and Ukraine at 10.47%, 12.33% and 12.5%, respectively.

Trust Securities stock market analyst Mr Reza Priyambada said that the global economic situation would remain a factor in the companies’ financial performances next year. He added that "Steel is an upstream industry, its supports other downstream businesses. If the latter improves globally, it will affect the steel sector positively."

Source - The Jakarta Post

(www.steelguru.com)

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