INTERVIEW: Navigating the Chinese steel tide requires fortitude, grit
The global steel industry has never been an easy one to navigate but now the onslaught of Chinese steel production has affected many steelmakers around the world, Fastmarkets heard.
The surge in Chinese steel exports in the last few years and the expansion of Chinese steel companies into Southeast Asian countries, such as Malaysia and Indonesia, have led many companies to rethink their commercial and operational strategies.
Indonesia-based steel producer Gunung Raja Paksi is a key example.
The largest privately-owned steel mill in Indonesia is looking for more partners, especially Chinese ones, to drive its businesses forward in a time of market complexity and changing policies.
“We don’t see Chinese steel mills as competitors but rather as industry peers that are technologically advanced, which can work together with us to improve our business,” Gunung Capital’s strategic investments director Kelvin Fu said.
As one of Gunung Capital’s assets, Gunung Raja Paksi and Fu work hand in hand with the steelmaker’s board of directors and executive team to drive changes, especially in expansion projects and overseas partnerships.
The fast-changing ferrous markets in Asia, as well as increasing trend of Chinese companies planting roots in regional countries to sidestep industrial safeguards such as anti-dumping duties and anti-circumvention duties on China-origin steel is a very clear sign of trends to come.
Stainless steel producer PT Tsingshan Steel Indonesia and PT Dexin Steel Indonesia - a joint venture between China’s Delong Steel Group and Tsingshan Holding Group - Indonesia’s Morowali Industrial Park and Japanese trader Hanwa are key examples of Chinese steel investments in Indonesia.
“There’s no stopping the Chinese tide. We have to partner with them, especially as there is no state-supported financial backing for privately-owned steel mills like us and there’s no better place to invest in Indonesia than with an existing profitable business such as Gunung Raja Paksi,” Fu said.
Gunung Raja Paksi is actively seeking Chinese partners with experience running blast furnaces (BFs) and upgrading mills and in return will offer these partners a stepping stone into the Southeast Asian markets.
This is especially because Gunung Raja Paksi’s first major partnership with a Chinese company has been put on hold due to the Covid-19 pandemic.
Gunung Raja Paksi’s envisaged partnership with China’s largest steelmaker, Baoshan Iron & Steel, was disrupted when a team of Chinese experts - who were due to fly to Indonesia to work at Gunung Raja Paksi’s mills to handle certain aspects of the business, including operations and production management - could not enter the country due to lockdowns and travel restrictions.
Smaller but more ambitious
Gunung Raja Paksi prides itself in being small but ambitious.
Although it currently has only 2.8 million tonnes per year of steel production capacity, it has about 12% market share in Indonesia, Fu estimates, with a solid business performance in producing niche products.
“We have an advantage producing steel products such as steel beams, which our competitors don’t, as well as being in the prefabrication space. We also export regularly to over 40 overseas markets, such as Canada,” finance director Budi Legowo said.
This is also about half of the market share of Indonesia’s largest steelmaker, state-owned Krakatau Steel, which is able to depend on government support.
While some steelmakers deem the inflow of Chinese investments and the Covid-19 pandemic to be bad for businesses, Gunung Raja Paksi believes it to be an opportunity for local leaders to step up to the plate to drive the business.
“While Gunung Raja Paksi has always been a family-owned business, there’s now a new generation of professionals who bring about different perspectives when leading the company,” Legowo said.
The new company executives are banking heavily on technology, corporate governance and streamlining business practices to improve the business, Fastmarkets understands.
New leaders have also made it a point to make the business more agile and adapt to market conditions quickly, including investing heavily in new production capacities and increasing efficiency.
New leadership also identified new business opportunities such as capitalizing on Indonesia’s infrastructure push, including moving the capital to east Kalimantan, and adding more high-value product into their portfolios.
Gunung Raja Paksi has earmarked $850 million in a two-stage investment process, it said.
The company’s ongoing $370 million Phase-I expansion involves constructing a BF complex to increase production capacity and reduce costs, set up a new light section mill and modernize its medium section mill to produce H-beams and angles. The enhancements are estimated to save $5.3 million per month even while efficiency increases.
Gunung Raja Paksi’s $480 million Phase II expansion will develop a hot-strip mill, coil-slitting and cut-to-length facilities, as well as steel pipe production facilities. The compact strip plant will use steel slab as substrate.
The Phase II expansion will also allow the company to produce cold-rolled coil, galvanized coil and electric-resistance welded pipes, which the company estimates will save it at least $33.6 million per year, even as it starts to develop new steel grades and product mixes that are currently imported into Indonesia.