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September 4, 2008

Robust demand boosts Indonesia steel import
Steel imports reached a record high during the first seven months of the year due to limited production capacity and soaring demand driven by government-sponsored infrastructure projects, reported local daily the Jakarta Post Wednesday.

Imports of iron and steel were higher in the period than in the whole of last year, leading analysts to predict total imports this year will double last year's.

According to the Central Statistics Agency (BPS), imports of iron and steel and their products in the seven-month period reached almost $7 billion, or equivalent to 7.5 million tons, up by 127 percent from $3.08 billion, or 3.5 million tons, in the same period last year.

The figure for this year's period is about 1.5 million tons more than the 6 million tons received in full in 2007.

The BPS revealed that $5.12 billion worth of the raw materials were received in the form of sponge iron, pig iron, scrap, hot rolled coils and cold rolled coils, while $1.88 billion-worth came in the form of iron rods, sections, iron angles, wire rods and zinc-coated steel sheets.

The Industry Ministry's director general for metal, textile and miscellaneous industries, Ansari Bukhari, said Tuesday the jump in the import might be have been prompted by numerous government-initiated infrastructure programs.

As an example, he cited construction work under the government's 10,000-megawatt power plant program, and the conversion of kerosene to liquefied petroleum gas which has demanded steel for cylinders.

He also cited the on-going construction of 1,000 subsidized apartment tower blocks.

"These programs require a huge volume of steel," Ansari said. "The soaring import may also have been made possible by the huge demand from the automotive sector, shipyard and electronic devices businesses," he said, adding that the demand was likely to remain strong in the next few years.

Local steel producers only have the capacity to produce between 4 million and 4.5 million tons annually compared to an estimated demand of 12 million tons this year.

Ansari said he believed domestic steel demand would grow 10 percent annually.

A recent drop in crude oil prices on the global market is expected to lower international prices of iron and steel price, thus increasing the attraction of importing.

However, Ansari said the leap in the import was unusual as the ministry had in recent years recorded total imports of the materials ranging between 2.5 million and 3 million tons per year.

The ministry's metal industry director I Gusti Putu Suryawirawan said he would investigate the cause of the rising imports.

"We don't know yet why such huge imports occurred. It could be from the massive project or the BRR (Aceh-Nias Rehabilitation and Reconstruction Agency) projects or the Suramadu bridge project," he said.

The BRR is still building houses and infrastructure for victims of the 2004 tsunami in Aceh and North Sumatra's Nias. The Suramadu bridge will connect Surabaya with Madura Island, both in East Java.

However, Gusti Putu said he was suspicious the country's major steel producers, state-owned PT Krakatau Steel, PT Essar Indonesia and Gunung Garuda Steel Group, had been raising their exports since last month and would continue to do so through October.

The companies have claimed the exports are aimed at offsetting weaker demand during the fasting month of Ramadan in September.

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