opportunities and challenges in indonesia’s - platts and challenges in indonesia’s steel market...

Opportunities and challenges in Indonesia’s steel market

Bimakarsa Wijaya PT Krakatau Steel

12th Annual Platts Steel Markets Asia Conference, Mumbai - No 17-18, 2016

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Table of contents

Macroeconomics Key market dynamics and trends Past, present and future drivers of Indonesia’s steel demand:

Infrastructures Automotives

Conclusion

12th Annual Platts Asia Conference, Mumbay Nov 17-18 2016 2


Macroeconomics Historical Indonesian GDP Growth Rate (%), GDP per Capita and GDP Forecast

Source: World Bank, IMF, 2016


Ministry of Finance has revised the target of 2016 GDP growth from 5.2% to 5.1% . Now it is believed that this new number will be achieved by the in of the year.

One of the reason of the steady growth is because of low government spending until Q3. The government spending especially in infrastructure sector will be heavily accelerated in Q4 to recover and chase the target of 2016.

Source: Bank of Indonesia, Indonesia Statistic Center, Coordinating Ministry of Economic * Actual number of Q3 – 2016 released by Head of Indonesia Statistic Center on Nov 7th

Macroeconomics

Growth y-o-y 2015 2016E 2017F

GDP (%) 4.8 5.04 * 5.1

Inflation (%) 3.4 4.0 4.0

Import (%) -4.9 -3.9 5.2

Export (%) -1.3 -6.0 6.3

Exchange Rate (IDR to USD)

13,390 13,500 13,300

In 2017 Indonesia State Budget, Indonesia is expected to grow 5.1% y-o-y by keeping the inflation rate as low as possible at 4.0% and by continue the fiscal reform program i.e: - Increase spending - Reduce subsidy - Provide more fund & incentive - Focus on mid-term income


Economic Sectors 2015 2016E 2017F

Agriculture, Forestry 4.0 3.4 3.3

Construction 6.6 7.2 7.3

Electricity, Gas and Clean Water 1.6 3.7 3.9

Mining and Quarrying -5.1 -4.0 -3.0

Manufacturing Industry 4.2 4.8 5.0

Transport and Communication 8.5 9.6 9.0

Services 6.5 7.4 7.4

The agriculture & forestry and mining sectors are still not growing, while the construction, manufacturing industry, electricity & gas sectors have been increased significantly during 2016. Those sectors expected to growth continuously in 2017 and forth.

Major Economic Sectors

Source: Bank of Indonesia, Indonesia Statistic Center, BMI report 2016

Construction & infrastructure project has been played as fundamental role in economic growth in the last 3-5 years.

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Manufacturing industry especially automotive and autopart industry are the second key sector.

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Key Market Dynamics & Trends

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• The Apparent steel consumption in 2016 estimated to increase about 10% y-o-y (seemingly rebound to the 2014 level). The demand expected to continue to grow with CAGR 10% to reach 13.6 million tons in 2017.

Source: SEAISI statistic, PTKS, 2016


12th Annual Platts Asia Conference, Mumbay Nov 17-18 2016

• The import portion of the apparent steel consumption has been decreased continually from 60% in 2013 to only 45% in 2016.

• In the global over-supply condition and import floods from China, it is really a solid prove that the local steel producer can increase their production and compete with imports.

(million tons)

Key Market Dynamics & Trends

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• The key drivers are :

• construction with many big infrastructure projects

• more stable automotive demand, and

• potential pick up of shipbuilding and pipe.

ASC of each product 2016

(million tons)


Infrastructure budget

% of total budget

Trillion IDR

2013 2014 2015 2016 2017

Government would like to continue the structural reform in 2017 i.e. : - More investment in infrastructure by

increase government budget and private fundings

- Business recovery policy - Better logistics - Improve in education and training - Policy in land and agriculture - Industrialisation to down-stream - Deregulation and license policy

Indonesia’s 5 Years State Budget for Infrastructure

Infrastructure Total Budget (trillion IDR)

Transportation (Road, Railway, Airport, Seaport)

2,300

Power Plant & Transmission

980

Residential House 530

Oil & Gas 510

Drinking Water and Sanitation

500

Water Reservoir and Dam 400

Telecommunication 280

Source: Indonesian National Development, 2015

Source: Ministry of Finance, 2016

Indonesia Infrastructure Development

Indonesia Infrastructure Development


The goverment has identified 35 zones accross the islands as for the focus of the infrastructure development program: to create the anchor zone, integrated industrial center, bridging for continuous multiplier effect and bigger impact for the national economic development

35 Strategic Infrastructure Development Zone Road Bridge Airport

Sea Port Railway Bus Station

Source: Ministry of Public Work and Housing, 2015

Global Competitiveness Index


Year World Rank

2010-2011 44

2011-2012 46

2012-2013 50

2013-2014 38

2014-2015 34

2015-2016 37

Indonesia’s GCI Rank

Year World Rank

2010-2011 90

2011-2012 82

2012-2013 92

2013-2014 82

2014-2015 56

2015-2016 62

Indonesia’s Infrastructure Rank

Year World Rank Score

Japan 5 6.21

Taiwan 12 5.87

Korea Rep 13 5.82

Malaysia 24 5.51

China 39 4.73

Thailand 44 4.62

Indonesia 62 4.19

Vietnam 76 3.84

India 81 3.73

Phillipine 90 3.34

Indonesia’s 2016 Infrastructure Rank amongst Asian Countries

Indonesia’s GCI rank constantly increased in the last 5 years, especially for infrastructure sector The Infrastructure score and rank persistenly increased

among the developing and developed countries in Asia, a very good sign for infrastructure significant growth in the coming years.

Source: The Global Competitiveness Report, World Economic Forum, 2015

Automotive Industry as a strong key driver


Following the incredibly high growth in period 2010-2014, Indonesia automotive industry facing a major drawback in 2015. But it expected to grow again in 2016 and 2017 with a slower growth rate (CAGR ~7%).

Source: Gaikindo, 2016 * Estimation and forecast by PTKS

External factors Internal factors

• Unstable exchange rate

• Global economic growth

• AFTA (ASEAN Free Trade Zone)

• Indonesia's Economic Growth

• Regulatory down payment

• Interest rate and liquidity

• Incentives to promote LCGC


Using 2014 auto production as a calculation base, the auto steel demand can be estimated around 2.0 million tons per year and will continue to grow 7-8% in the future Total auto steel : 2.0 million ton (2014) 1.7 million ton (2015) 1.9 million ton (2016) est

Source: Gaikindo, 2014

Auto Production Thousand

Unit

Passenger Car 1,013

- Sedan 205

- Low MPV/Minibus 455

- SUV/MPV 352

Commercial Car 285

- Pick Up 166

- Heavy Truck 23

- Bus 4 - Light Truck 92

Total 1,298

Auto Production in 2014

Automotive Industry as a strong key driver

Source: Gaikindo,PTKS, 2016 * Other steels incl. pipe, shaft, bar, forged & steel cast for engine

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Steel demand has already been recovered in 2016 after big drop in 2015. Apparent steel consumption estimated to be at least 12.6 million ton (10% y-o-y). This result and supported with strong macroeconomic policy shall give a potential success also in 2017.

The net-import portion has been succesfully decreased, from 60% in 2013 become only 45% in 2016 (est). This is really a good sign in the competitive market situation, but at the same time it stands as strong challenges.

Construction & infrastucture and automotive sectors continue to be the key driver of the economic growth as well as for opportunity for steel industry in Indonesia. Many government infrastructure project with the allocated budget more than 20% of total state budget will certainly be a challenging target and very good opportunity in 2017. Automotive industry also will grow 7-8%.

Government has already decide to reduce the natural gas price down to 6.o USD/MMBTU in November 2016. This decision will give good impact for local producer to be more competitive compare to import materials.

Conclusions: Outlook in 2017


Thank you


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