World Steel Demand In 2020 Declines By 6.4 Percent, Krakatau Steel Worries

Illustration. (Photo: Krakatau Steel)

JAKARTA - The Indonesian Iron and Steel Industry Association (IISIA) said that the impact of the COVID-19 pandemic which has spread around the world has made steel demand decline to 1,654 metric tons or 6.4 percent this year. One of the contributing factors is changes in consumption from both the industrial sector and society.

In the steel industry, the calculation of the mass units of steel uses metric tons. The value in one metric ton is 1,000 kilograms (kg). This unit is also used in various other fields of physics.

Chairman of the IISIA Board of Trustees, Edy Putra Irawadi said, technological developments in the industry also affect the decline in demand in the steel industry sector.

"But it is estimated that in 2021 construction will grow and rebound by 3.8 percent or an increase of 1,317 metric tons," said Edy in a virtual discussion, Thursday, July 9.

As a result of the pandemic, said Edy, people's purchasing power for household goods made of steel has shrunk. This is because countries with high levels of consumption of household goods made of steel are currently the epicenter of the outbreak.

South Korea is the country with the highest consumption level, namely 1,039 kg per capita, Taiwan at 790 kg, Germany at 470 kg, China with 330 kg and the United States (US) at 297 kg.

"If there is an economic recession, demand for steel will also decline, as in 2018 and 2019. Now in the first quarter, world production has fallen by 18 percent," he explained.

According to Edy, this condition is exacerbated by the abundant supply of steel in the international market. World steel exports in 2019 amounted to 436 million metric tons, while imports were only around 374 million. This surplus of 62 million metric tons is then mostly consumed domestically.

Furthermore, Edy explained, steel production in 1950 was only 189 million metric tons, while in 2019 it was 1,869.9 million metric tons. According to him, this figure shows a very fast growth.

"The average world steel production continues to increase," he explained.

Krakatau Steel's worries

Previously, PT Krakatau Steel (Persero) was concerned that the recent spread of the corona virus (COVID-19) outbreak would flood Indonesia with steel imports. This is because the corona virus is predicted to suppress economic growth and demand for steel in various countries.

President Director of Krakatau Steel Silmy Karim said that if demand is depressed, the global steel supply will experience a surplus. When that happens, steel producing countries will guerrilla looking for a market to sell their steel.

One market that is easy to enter is Indonesia. Silmy said this was because Indonesia had not optimally used policies to protect imports.

Based on data from the Central Statistics Agency (BPS), imports of iron and steel reached 10.39 billion US dollars in 2019. This figure grew 1.42 percent on an annual basis and accounted for 6.98 percent of total imports.

Silmy predicted that a flood of steel imports would occur in the period from May to July. This is because the majority of steel import contracts currently in effect are contracts from the previous year.