The rapid growth of induction furnace mills in Indonesia is a concern for the Indonesian steel sector, Kallanish notes.

Many of the mills have set up quickly and without proper government supervision, Jakarta-based market sources say. Most of the IF mills are located in Tangerang, Bekasi or Surabaya. “The IF mills do not have a long-term plan. They are only operating for quick profits,” a Jakarta EAF mill manager says. "It is cheaper to invest in IF mills than other furnace steel mills and they still make good money," a Chinese trader based in Jakarta notes. 

Many of these mills are allegedly not paying the full 11% VAT nor do they adhere to air pollution controls. Most importantly, the steel produced at these induction furnace mills does not necessarily comply with local industry standards.

The Indonesian government has been informed about these IF operations, another Jakarta EAF mill manager says. But the prevalence of IF mills remains a perennial problem, he adds. The large number of IF mills in the country has exacerbated an already difficult market, a Surabaya mill manager observes.

EAF mills are also currently facing problems with getting payments from buyers of finished steel. “Buyers just don’t have credit now,” the second Jakarta EAF manager says. Most EAF mills in the country are suffering from weak demand and operating at 50% or lower of rated capacities. Mill sources report that several EAF mills have stopped operating in recent years.

“We are being phased out,” the first Jakarta EAF mill manager warns. He and others say that more than half of Indonesian rebar demand is being met by induction furnace billet.

Production of rebar in the country is around 4 million tonnes/year, according to the South East Asia Iron & Steel Institute. However, given the sheer size of the country, the figure is disputed. "Many IF mills are selling without the VAT; the number is bigger," says the first Jakarta manager. He knows of large users which switched to induction furnace rebar on "cost concerns”.

While EAF mills are adhering to proper tax payments and other business practices, their "market share is shrinking", he adds. However, combined with the capacity of blast furnace operator Dexin Steel, he believes there is sufficient capacity to meet Indonesia's steel demand because of the widespread under-utilisation of many EAF mills in the country.

Some EAF mill sources expressed optimism that the Indonesian rebar market will improve in April after the Eid holidays next year. But some say they are unsure because of issues related to the forthcoming Indonesian general elections in 2024 (see separate report).