Indonesian Steel Market Woes Complicate Krakatau’s Restructuring

The Indonesian steel market, once a beacon of growth, is now grappling with a perfect storm of challenges that threaten to derail the restructuring efforts of its largest player, Krakatau Steel. Rising input costs, infrastructure development pressures, and international trade policies are all conspiring to make the road to recovery a bumpy one.


Rising chrome ore and ferrochrome prices have significantly impacted the cost structure of Indonesian stainless steel producers like Krakatau Steel. Chrome ore prices have surged by up to 6.2% since mid-May 2024, driven by high demand from China and the stainless steel industry. This increase, coupled with a similar trend in Turkish chrome ore prices, has led to a rise in Asian ferrochrome prices, which recently climbed by more than 2.2% in China. These price increases are reflected in Europe and North America, where ferrochrome benchmark prices have ended, leaving producers to navigate a new pricing landscape.


The Indonesian government's push for infrastructure development has put additional pressure on steel demand, exacerbating the challenges faced by Krakatau Steel. President Joko Widodo's (Jokowi) administration has been actively building new infrastructure, such as toll roads and railways, which has led to increased demand for steel. However, this increased demand has not been enough to offset the impact of cheaper imports from China and elsewhere, which have put significant strain on local producers like Krakatau Steel.

International trade policies, such as Europe's Carbon Border Adjustment Mechanism (CBAM), are also affecting the competitiveness of Indonesian steel producers in the global market. The CBAM, set to come into effect in 2026, will force importers to pay a levy on steel products depending on their carbon dioxide emissions. While this policy may level the playing field for high-carbon steel producers like Krakatau Steel, it also presents new challenges in the form of higher production costs and potential market disruptions.

In conclusion, the Indonesian steel market is facing a complex web of challenges that threaten to complicate Krakatau Steel's restructuring efforts. Rising input costs, increased demand from infrastructure development, and the impact of international trade policies are all factors that the company must navigate in order to secure a sustainable future. As the market continues to evolve, it will be crucial for Krakatau Steel and other Indonesian producers to adapt and innovate in order to remain competitive in the global steel market.