Proposal Study of

CONDITION OF STEEL INDUSTRY IN INDONESIA

FACING THE FREE MARKET AC-FTA, 2010
June 2010

The condition of steel industry in 2008 had a spectacular achievement, but in the following year,
2009, it fell down to the extreme point. Although in 2008, in the first half, this sector was able to gain
significant profit from the steel price movement in the global market, but the profit gained by the producer
was vanished just in three months. Several upstream and downstream steel companies gained the profit
from the high price of global steel, such as HRC-hot rolled coil that reached the price of US$ 1,250 per ton
in July 2008, however, since September, the steel price was decreased rapidly to only US$ 450 per ton in
December of the same year. The price decrease of HRC steel was maintained almost during the year of
2009, even in May 2009, it reached the lowest point of only US$ 395 per ton.

Therefore, the performance of production and sales of domestic steel industry was drastically
decreased during the year of 2009. So, the utilization level of the installed capacity was recorded only 35%
- 40% of the normal condition of about 60%. Meanwhile, the consumption side tended to be stagnant
compared with the market absorption in 2008, which reached 10 million tons. The production decrease of
raw material utilization in form of iron ore and semi finished steel product, which mostly imported, was
decreased sharply. The decrement of the performance during the year of 2009 was caused by the impact of
the global financial recession that pressed down the steel price more than 50%.

Data that was released by the Central Bureau of Statistics (Badan Pusat Statistik - BPS) at 1
February 2010, indicated the import value of iron and steel products (tariff post group No. 72), during the
year of 2009 was decreased 47.37%, from US$ 8.282 billion to become only US$ 4.357 billion. On the other
hand, iron and steel goods import (HS No. 73) in 2009 was also decreased 16.55% compared with the year
of 2008, from US$ 3.335 billion to become US$ 2.783 billion. So based on this data, the Ministry of Industry,
during 2009, the growth of iron and steel basic metal industry was decreased to the lowest point during
the last five years to become -7.19% compared with the year of 2008, which was still grew about 1.3%.

The condition of global steel price was recovered to have a significant increase at the end of 2009,
in December 2009, the global HRC price reached US$ 585 per ton and in February 2010, it was increased to
become US$ 620 per ton. It is estimated that this year, the global HRC price could reach the highest point
of US$ 800 per ton, encourages by the increase of iron ore price and the global economic recovery since
November 2009.

World Steel Association (World Steel), revealed that the iron ore supplying countries, such as
Brazil and Australia, recently are raising the raw material price, because China, India, and Middle East
Region are still maintaining the stability of steel production at the highest point. Meanwhile, scrap price
that is the raw material of steel long product group, such as iron profile and infrastructure support, are
also increased at the lower range.

China as the largest steel producer in the world has overflowing steel supply in facing the current
year increasing demand. In the middle of the global recession, China is forcing steel production in mass, so
it increased 13.5% to become 567.8 million tons. Therefore, the business circle is worried of the impact of
the market liberalization implementation of ASEAN - China Free Trade Agreement (ACFTA), which could
encourage the steel import in huge amount from China. Moreover, the Ministry of Industry has predicted
that the implementation of ACFTA could cause the steel import from China in 2010 to increase 170.76%
compared with the import realization in 2009, from 554,000 tons to become 1.5 million tons.

The implementation of ACFTA would cause the component value of tariff duty of Chinese steel
product would be eliminated, whereas, China is still providing the facility of export VAT rebate of 9% -
13% in the steel sector. This condition could cause the Chinese steel price becoming more competitive than
the local steel product. Therefore, the global steel price could be controlled by them, while the domestic
producer would be difficult in competing with China because they are faced by the increment of the
production cost, raw material cost, and transportation cost, as well as the government expenditure that
absorbs local steel product is still low.

In facing the free market of ACFTA, the government plans to postpone the implementation
schedule, especially for steel product, which previously in this year, to become the year of 2018. Likewise,
the effort of the Ministry of Industry to tighten the steel product import from China by implementing the
compulsory SNI for some products that have not obtained SNI, such as CRC (cold rolled coil). Then the
regulation of Minister of Commerce (Permendag) No.21/ M-DAG/PER/6/2009, about iron and steel
product import, should be verified first at the originating loading port, starting 25 July 2009.

On the other hand, to improve the competitiveness, PT Krakatau Steel would accelerate the
development of upstream steel factory of PT Meratus Jaya in this year in South Kalimantan with the value
of US$ 250 million. Meratus is a joint venture company between PT Krakatau Steel and PT Aneka
Tambang Tbk. Then, cooperating with government owned company of South Korea, Pohang Iron and
Steel Company (Posco), in August 2010, PT KS would start the first phase development of plate mill
factory with production capacity of 3 million tons in Cilegon, Banten. This plan is the part of the integrated
steel factory development based on hot rolled coils (HRC), slab (plate and HRC raw material), and steel
plate with total capacity of 6 million tons, with investment value of US$ 6 billion. Even, to reach the target
of fund acquisition of Rp 1 – 2 trillion, PT KS would conduct initial public offering (IPO) in October 2010 at
the Jakarta Stock Exchange.

Therefore, the interesting condition of the recent steel industry dynamics, PT Media Data Riset as
one of the service companies of data and information provider, has prepared the study of “Condition of
Steel Industry in Indonesia in facing the Free Market AC-FTA. This study discussed the recent condition
of upstream steel industry (raw material and basic steel), slab and billet, intermediary steel of HRC/CRC,
and other various downstream products. This product covered the production capacity, production
development, new and expansion project, consumption, consumption projection, price development, and
its prospect.

This comprehensive study is very useful for the players in the steel industry sector, prospective
investors, financing institution, or other related industries. The book of study is prepared in two volumes,
the first volume consisted of upstream and semi finished steel industry, and the second volume consisted
of downstream steel industry. This book of study is offered with the price of Rp 6,500,000 (Six million five
hundred thousand rupiah) per copy (for two volumes) for the Indonesian version, or US$ 900 (Nine
hundred US Dollar) per copy (two volumes) for the English version. For those who are interested could
directly contact PT Media Data Riset, Jakarta, by telephone number (021) 809 6071,Mobile :0812 1031 5177
(Sumadi) or by facsimile number (021) 809 6071. The Order Form is attached. For overseas or outside
Jakarta order, delivery fee would be charged.

Thank you for your kind attention.

Jakarta, June 2010

PT Media Data Riset

Drh. H. Daddy Kusdriana M.Si

President Director
 TABLE OF CONTENT
CONDITION OF STEEL INDUSTRY IN INDONESIA
FACING THE FREE MARKET AC-FTA, 2010
June 2010
1. INTRODUCTION
1.1. Back Ground
1.2. Purpose
1.3. Scope
1.4. Approach and Research Method
2. MACRO CONDITION OF NATIONAL STEEL
INDUSTRY
2.1. General Description of Steel
2.1.1. Steel Manufacturing Process
2.1.2. Steel Classification
2.1.3. Steel Type
2.1.4 The influence of some combining
elements of steel
2.1.5. General Specification of Steel
2.1.6. Industry Structure
2.2. Problem Faced by Steel Industry
2.2.1. Dependency of Raw Material from
Import
2.2.2. Supply of Gas and Electricity Energy is
insufficient
2.2.3. Manipulating HS (Harmony System)
Number
2.2.4. Impact of Free Market ACFTA
2.3. General Condition of National Steel Industry
2.3.1. Production Capacity Development
2.3.2. Description of the Main Players
2.3.3. Production Development
2.3.4. Steel Price tends to be recovered
2.3.5. New Investment and Expansion
2.4. Steel Import of Indonesia
2.4.1. Import Development
2.4.2. Import Verification Obligation
2.4.3. Illegal imported steel rampant
2.5. Steel Export of Indonesia
2.5.1. Export boost does not have Added
Value
2.6. Consumption of Indonesia still low
3. STEEL MARKET IN ASEAN, 2008 - 2009
3.1. Economic Condition
3.2. Stimulus Packet
3.3. Steel Industry in ASEAN before and after the
global economic crisis
3.3.1. Supply and Demand of ASEAN Steel
3.3.2. Economic weakening – the impact on
steel demand
3.3. Consumption of ASEAN apparent steel was
sharply decreased after the global crisis
3.4. Global and ASEAN Scrap Supply
3.4.1. Global supply development of ferrous 5. BASIC STEEL METAL INDUSTRY
scrap and its impact in ASEAN
3.4.2. Consumption analysis of steel scrap in
ASEAN
3.5. Steel Industry in China
3.5.1. China Economic development
3.5.2. Steel industry grew moderately in 2008
3.5.3. Import and export of China steel product
in 2008
3.5.4. Revitalization of China steel industry
3.6. China steel industry and its impact in South
East Asia
3.7. China steel export and its impact in ASEAN
3.8. Impact on China steel price weakening in
South East Asia
3.8.1. Steel price in China decreased
3.8.2. Movement of steel price
3.8.3. Implication on steel price movement
3.9. Steel industry in India
3.9.1. Domestic steel needs in India
3.9.2. Domestic steel production in India
3.9.3. Iron ore and scrap
3.9.4. Nippon Steel and Tata built steel sheet
factory in India
3.10. Steel industry in Indonesia in the middle of
Global competition
3.10.1. Steel industry growth was conservative
3.10.2. Indonesia steel industry loss Rp 3.76
trillion as the result of CAFTA
3.10.4. Need to study Consolidation Strategy
3.10.5. IISIA Form
3.10.6. Implementation of SNI for steel
industry should be tightened
4. GOVERNMENT POLICY
4.1. Import Duty Tariff (BM)
4.2. Tariff Harmonization
4.3. Certain Steels are re-imposed by BM 0%
4.4. Hot Rolled Coil Steel Import from 5 countries
was imposed by BMAD
4.5. Special Steel Import Policy
4.5.1. BM 0% for 4 Industry sectors
4.5.2. 12 companies obtained Steel Import
Duty 0% facility
4.6. ACFTA steel would be postponed until 2018
4.7. National Standard Indonesia (Standar National
Indonesia - SNI)
4.7.1. Revision of compulsory Steel SNI
4.7.2. Kemenperin expanded the compulsory
steel product SNI
4.7.3. Import Duty Tariff of steel downstream
product is still low
4.8. Steel Import should be verified
4.8.1. Exception
4.8.2. Consumer protection
4.8.3. Steel import limitation is effective in
suppressing smuggling
4.9. Preparing wire safeguards 20 Jan 2010
5.1. Raw Material of Steel Metal Industry
5.1.1. Iron ore
5.1.2. KS seeks Raw Material
5.1.3. Iron Ore Import is still high
5.1.4. Iron Ore Export
5.2. Iron and Steel Making Industry
5.2.1. Description of Problems
 5.2.2. Product description and manufacturing
process
5.2.3. Development of Smelting Technology of
Steel Product
5.2.4. Pig Iron factory with Mini Blow Furnace
5.2.5. Economic Value and Investment of DRI
and Pig Iron Factories
5.2.6. Post Tariff
5.2.7. Producer and Capacity
5.2.8. New Investment
5.2.9. Production was decreased
5.2.10. Until 2008 Import was increasing
5.2.11. Import from Russia is still potential
5.2.12. Export 2008 was high, 3,581 tons
5.2.13. Export Destination Countries
5.2.14. Consumption tends to be negative
5.2.15. Market Development
5.3. Procurement of Scrap Iron
5.3.1. Scrap Needs
5.3.2. Export was Relatively Small
5.3.3. Scrap Import was very high
5.3.4. Scrap supply is limited
5.3.5. Domestic Scrap Consumption
5.3.6. Total Steel raw material Supply
5.3.7. Consumption Raw material Industry
Steel
6. SLAB INDUSTRY / INTERMEDIARY
PRODUCT (SLAB, BILLET/INGOT)
6.1. Flat Steel Products (Steel Making/Slab)
6.1.1. Product Description
6.1.2. Manufacturing Process
6.1.3. Product Specification
6.1.4. Post Tariff
6.1.5. Producer and Production Capacity
6.1.6. New Investment
6.1.7. Production tended to increase again
6.1.8. Slab Import-Export
6.1.9. Consumption increased 6.4% per Year
6.1.10. Market Development
6.2. Long Products (Billet)
6.2.1. Product Description
6.2.2. Production Process
6.2.3. Product Specification
6.2.4. Post Tariff
6.2.5. Billet Producer and its capacity
6.2.6. Production Development of Billet and
Ingot
6.2.7. Import-Export Billet/Ingot Steel
6.2.8. National Consumption of Billet and
Ingot Steel
7. HOT ROLLED COIL/PLATE (HRC/P)
INDUSTRY
7.1. Product Description
7.2. Production Process
7.3. Producer of HRC/Plate
7.4. New Investment
7.5. Production Development
7.6. Bakrie Pipe absorbs most of the domestic sales
of HRC from PT KS
7.7. Production Cost
7.8. Import-Export HRC/P
7.8.1. Import was decreased
7.8.2. Import HR-Coil According to
Originating Country
7.8.3. Import HR-Plate According to
Originating Country
7.8.4. Export HRC/Plate
7.8.5. Export According to Destination
Country
7.8.6. Price at the International Market
7.8.7. BMAD HRC has triggered the Price
increase and supply scarcity
7.9. Total Domestic Supply
7.9.1. Consumption by CRC/S Industry
7.10. Government Policy
7.10.1. Investment policy in HRC/P Industry
7.10.2. Import Policy of HRC (BM ACFTA 0%)
7.10.3. Prospect of HRC/P Industry in
Indonesia
8. STEEL COLD ROLLED COIL/SHEET (CRC/S)
INDUSTRY
8.1. Production Process
8.2. Producer and Installed Capacity of CRC/Sheet
8.3 Production Development of CRC/S
8.3.1. Influenced by the Global Steel Condition
and BM Policy
8.3.2. Production of Krakatau Steel is
increasing
8.3.3. Production of KS is mostly absorbed by
GI-sheet Product
8.4. Product Classification
8.5. CRC with special quality (special steel)
8.6. Development of CRC/S Import
8.6.1. Import of Non-Alloy CRC is rapidly
growing
8.6.2. Import of CRC with thickness of 1- 3 mm
is relatively stable
8.6.3. Silicon Electrolytic Steel Sheet/Plate
8.6.4. Japan is the largest supplier
8.7. Export Development
8.7.1. Tended to decrease
8.7.2. CRC Export is dominated by the
thickness of < 0.5 mm
8.7.3. Export of Silicon Electrolytic Steel Sheet
is still low
8.7.4. Export to China is the largest
8.8. Price is fluctuated
8.9. Production Cost
8.10. Market Size Development - Consumption
Trend
9. STEEL WIRE ROD INDUSTRY
9.1. Product Description
9.2. Production Process
9.2.1. Steel Wire Rod Mill
9.2.2. Ispatindo Steel Wire Rod Mill
9.3. Producer and Production Capacity
9.4. New Investment
9.5. Production Development
9.6. Import Duty Tariff
9.7. Wire Rod Import
9.8. Wire Rod Export
9.9. Price Development
9.10. Wire rod Supply and Demand
9.11. Projection
10. DESCRIPTION AND CONDITION OF STEEL
PIPE INDUSTRY
10.1. Introduction
10.1.1. General Condition
10.1.2. Capacity utilization is still low
10.1.3. Raw material problem
10.2. Product Description of Steel Pipe
10.3. Welded Pipe Industry
10.3.1. Product Description of Welded Pipe
10.3.2. Production Process
10.3.3. Technology used
10.3.4. Post Tariff
10.3.5. Production Capacity
10.3.6. New Investment
10.3.7. Production of Welded Pipe
10.3.8. Procurement of Raw material was
increased
10.3.9. Welded Pipe Import
10.3.10. Welded Pipe Export
10.3.11. Consumption of Welded Pipe
10.3.12. Demand
10.3.13. Condition of Market Development
10.3.14. Domestic Distribution of Welded
Steel Pipe
10.3.15 Projection
10.4. Industry Seamless Pipe
10.4.1. Product Description
10.4.2. Manufacturing Process
10.4.3. Post Tariff
10.4.4. Producer of Seamless Pipe
10.4.5. No New Investment
10.4.6. Production tended to increase
10.4.7. Utilization of Production Service of
Heat Treatment and Threading is still
low
10.4.8. Turn over of Citra Tubindo Tbk
reached Rp 781.9 billion
10.4.9. Seamless Pipe Import
10.4.10. Seamless Pipe Export
10.4.11. Seamless Pipe Consumption
10.4.12. Market Development
10.4.13. Price
10.4.14. Prospect and Conclusion
10.5. Gas Piping Project
10.5.1. Gas Pipeline in Indonesia
10.5.2. Gas Transportation System in
Sumatera and Natuna
10.5.3. Mater Plan of gas transmission and
distribution network in Indonesia
10.5.4. Absorbed Local Steel Pipe Product
10.5.5. Transmission of Kaltim-Jateng
10.5.6. Gas Pipe Network 2010-2025 would
be tendered soon
11. STAINLESS STEEL
11.1. Introduction
11.2. Product Description
11.3. Producer and Capacity
11.4. Raw material is fully imported
11.5. No New Investment
11.6. Production is increased
11.7. Utilization level is quite high
11.8. Stainless Steel Import Development
11.8.1. Import is increased again
11.8.2. India the largest Raw material
supplier
11.8.3. Import Duty 0% up to 15%
11.9. Stainless Steel Export Development
11.9.1. Re-Export
11.9.2. Brazil the largest Market
11.10. Downstream Stainless Steel Producer
11.11. Stainless Steel Consumption
11.11.1. Average increase of 12.9% per Year
11.11.2. Household equipment is the largest
11.11.3. Raw material Contribution Cost
11.11.4. Utilization is not optimal
11.11.5. Stainless Steel Pipe
11.12. Market Development
11.13. Projection
11.14. Prospect
12. GALVANIZED IRON SHEET INDUSTRY
12.1. Product Description
12.2. Producer and Production Capacity
12.2.1. Essar processes CRC
12.2.2. Kalisco operates new factory with US$
65 Million
12.2.3. National Capacity 1.3 million tons
12.3. Painted Coating Steel
12.4. BlueScope strengthened the market
penetration
12.5. Production in 2008 was decreased up to 19.1%
12.6. About half of them are the 0.20 mm product
12.7. Fumira Production was held
12.8. Revision of compulsory SNI started in
December 2008
12.9. Metal Coating Sheet Import
12.9.1. Import duty
12.9.2. Import is getting higher
12.9.3. Zinc-alum type is dominant
12.9.4. Export was decreased again
12.10. Domestic Consumption
12.10.1. Consumption grew average 3.4% per
year
12.10.2. Construction sector is the largest
absorber
12.10.3. Some are distributed to the roll
former companies
12.11. Distribution System
12.11.1. Raw material Procurement
12.11.2. CRC Import Duty
12.12. Prospect of Demand and Investment
Opportunity
13. STEEL SECTION AND PROFILE INDUSTRY
13.1. Introduction
13.2. Product Description
13.3. Manufacturing Process
13.4. Post Tariff
13.5. Capacity reached 1.3 Million Tons
13.6. Production is still drowning
13.7. Production of Gunung Garuda was the
largest
13.8. Steel Section Import
13.8.1. Import tended to increase again
13.8.2. Profile H Import is dominant
13.8.3. The largest is supplied by China
13.9. Steel Section Export
13.9.1. Average Export increase 42% per year
 13.9.2. The largest is exported to Malaysia
13.10.Analysis of Consumption/demand, and
Consuming Industry
13.10.1. Consumption increases averagely
8.1% per year
13.10.2. Construction Industry as the largest
consumer
13.11. Market Development Analysis
13.11.1. Price depends on US$ dollar
exchange rate
13.12. Projection
13.13. Prospect and Conclusion
14. REINFORCEMENT BARS
14.1. Reinforcement Bars
14.2. New Investment and Extension
14.3. Production increased averagely 8.5% per
year
14.4. Tariff of reinforcement bar and Light Profile
14.5. Concrete Steel Import is still low
14.6. Concrete Steel Export is still low
14.7 Concrete Steel sales is manipulated
14.8. Consumption Development
14.9. Projection of Demand (Needs)
15. CONDITION OF SUPPORTING SECTOR
(NATURAL GAS FUEL)
15.1. Energy Needs in Steel Industry
15.1.1. Needs Gas PT Krakatau Steel
15.1.2. 33 Steel companies utilizes Gas
15.1.3. KS built 320 MW power plant for
energy conversion
15.1.4. National Steel Industry has to save
energy
15.2. Development of Gas proven reserve in
Indonesia 1993 - 2009
15.3. Gas refinery in Indonesia (Existing)
15.4. Gas refinery according to operator
16. INFRASTRUCTURE PROJECTS
DEVELOPMENT PLAN IN INDONESIA
16.1. Land Transportation
16.1.1. Road development of economic
Corridor in Java and Sumatera
16.1.2. Bridge
16.1.3. Toll Road
16.1.4. Railway Track
16. 1.5. Strategic Program of Sea
Transportation Sub Sector
16.1.6. Strategic Program of Air
Transportation Sub Sector
16.2. Energy Sector
16.2.1. Electricity Project
16.2.2. Infrastructure of national gas (Status
2009)
16.2.3. Road Map of Gas Infrastructure
development for household
16.5. Conclusion
16.4. Clean Water Supplying Project
17. LPG STEEL TUBE
17.1. Introduction
17.1.1 Product Description
17.1.2. SNI Standard
17.1.3. Raw material requirement
17.1.4. Tube manufacturing method
17.1.5. Cost Structure
17.2. Review of Steel tube Industry
17.2.1. Review of 3 Kg LPG Steel tube
17.2.2. Review of Non 3 Kg LPG Steel tube
17.3. Condition of Liquefied Petroleum Gas (LPG)
17.3.1. Product Description
17.3.2. LPG Refinery Pertamina
17.3.3. LPG Refinery Private
17.3.4. LPG competing with Blue Gas and
My Gas
17.3.5. Development of LPG domestic sales
17.3.6. Projection of LPG Supply and
Demand
17.4.1. Producer and Installed Capacity
17.4.2. Raw material aspect
17.4.3. Domestic Raw material Procurement
of Steel tube 2008-2009
17.4.4. Estimated Production of 12 Kg Steel
tube
17.4.5. Production Development 12 Kg Steel
tube
17.4.6. Steel tube import
17.5. Demand analysis of Non 3 Kg LPG tube
17.5.1. Domestic Sales development of LPG
17.5.2. LPG Consumption and total Steel 12
Kg LPG steel tube
17.5.3. Export of LPG tube
17.5.4. Singapore is the largest absorber
17. 6. LPG Distribution Pattern
17.6.1. Infrastructure is met
17.6.2. LPG distribution facility in Indonesia
17.6.3. LPG Distribution is handled by
affiliated company
17.6.4. Fee SPPBE and Margin of Agent are
getting smaller
17.6.5. Supply pattern and LPG utilization
17.7. Analysis of Supply - Demand
17.7.1. Consumption is fluctuated
17.7.2. Supply Trend
17.7.3. Demand Trend
17.7.4. Market Potential Trend
17.7.8. Market Potential of LPG and City
Gas
17.7.9. Investment Cost of Kerosene to LPG
Conversion Program
17.7.10. Prospect and Conclusion
18. COMPANY PROFILE OF KRAKATAU STEEL
GROUP
- PT KS as the integrated steel Industry
- Gunung Garuda Group
19. CLOSURE
19.1. Demand Aspect
19.2. Development of Upstream Steel Industry
19.3. Demand (Needs) Projection
19.4. Conclusion and Recommendation
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Study of:
STEEL INDUSTRY CONDITION IN INDONESIA
FACING THE FREE MARKET AC-FTA, 2010

June, 2010
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