The Continuous Loss Faced By Krakatau Steel

KRAKATAU STEEL Tbk is the largest state-owned steel maker in Indonesia, headquartered in Cilegon, Banten. First established as Trikora Iron Steel by President Soekarno in 1970. Within 10 years its establishment, PT. KRAKATAU STEEL Tbk (KRAS) has shown significant progress with production of Sponge Iron, Slab Steel, Billet Steel, Wire Rod Steel, Hot Rolled Steel and Cold Rolled Steel. KRAS launched its initial Public Offering (IPO) on November 2010, since then, the company has been listed in Indonesia Stock Exchange (IDX).

Over these past six years, KRAS is continously  facing loss as stated in their financial statement report. The Managing Director of PT. Krakatau Steel Tbk, Silmy Karim, stated in Paparan Publik Krakatau Steel Event at Gedung BEI on 4/1/2018, KRAS loss around $37 Million on the  third Quartal of 2018.

This is quite interesting because on the first quartal of 2018, KRAS signed Memorandum of Understanding (MOU) with PT Wijaya Karya Industri & Konstruksi, a subsidiary of State Owned Company, to supply Hot Rolled Plate for their project in several city of Indonesia such of bridges and flyover and Jakarta-Cikampek II elevated road project. Besides that the forecast steel demand in Indonesia will be increased from time to time because the highest national steel consumption is in construction sector.

PERMENDAG 22/2018

PERMENDAG 22/2018 is Ministry of Trade Regulation concerned about the provisions on the import iron or steel, alloy steel and derivative products. This regulation has been changed three times. The change was intended to accelerate the process of goods flow at the port (dwelling time) for iron and steel products.

After President Donald Trump stated that he wants steep import tariffs on steel in a bid to strengthen the US steel industry because China is selling steel products on the US market below production costs (dumping), made possible by the structural steel oversupply situation in China. Thus, The Indonesian Industry Ministry is reportedly preparing a number of steps to anticipate a rising flow of Chinese steel imports into Indonesia by limiting the types of steel that are allowed to be imported into Indonesia using permendag 22/2018.

THE CORRELATION BETWEEN PERMENDAG 22/2018 & KRAS’s LOSS

By limiting the types of steel that are allowed to be imported, Indonesia government sets a tariff for HC (Hot Rolled Carbon Steel) and CC (Cold Rolled Carbon Steel) is 10%-15% and tariff for Alloy Steel (laminated with Boron or Chrome) is 0%-5% or zero import duties.

Chinese steel entered the Indonesian market using Alloy Steel. They replaced their HS (Harmonized System) Code Number from carbon steel to alloy steel. Thus, this import policy of the government is not tight enough and leads to a big flow of imported steel products into Indonesia. While imported alloy steel should be used in the automotive manufacturing industry, it can be found in construction projects across Indonesia which is donating the biggest steel consumption sector in Indonesia.

No wonder that The Managing Director of PT. Krakatau Steel Tbk, Silmy Karim, complained that this was one of the factor that caused the company continue to suffer loss because KRAS can’t compare the price (non healthy competition).

THE SOLUTION

The government changed the Permendag 22/2018 into Permendag 110/2018, effective date on 20/1/2019.  The difference in this new rule is to tighten the licensing process. The imported steels inspection process that was initially post border will be returned to customs process in order to prevent replacing HS code number by the importir.

Every local business steel industry in Indonesia, especially KRAS are hoping that this new regulation will push down the number of import steel in Indonesia and local business steel industry can reach up the total production as same as the domestic market’s need.

This discussion will be different if we talked in other sectors, such as Automotive Steel because the market and not all of mill maker can produce automotive specifications.

Disclaimer, because the information or opinion on this post are solely my own perspective and no guarantee of right or wrong, it should not be considered as professional investment advice. Please let me know if you have other’s perspective than mine in comment box below…..

I’m totally open. Thank you for reading.

SOURCE

[1]    https://finance.detik.com/industri/d-4370682/rugi-6-tahun-krakatau-steel-keluhkan-maraknya-baja-impor

[2]    http://www.krakatausteel.com

[3]    https://www.indonesia-investments.com/id/business/business-columns/can-trump-s-steel-tariffs-cause-rising-steel-imports-in-indonesia/item8640?

[4]    http://www.iisia.id

About Post Author

Dhaifina I. A. Naimi

Automotive & Electrical Steel Strategic Planning || Executive MBA ITB Student

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Dhaifina I. A. Naimi

Automotive & Electrical Steel Strategic Planning || Executive MBA ITB Student