Indonesia iron and steel’s full potential hinges on low-carbon technologies

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Indonesia’s iron and steel industry has undergone a stark shift in recent years, with exports showing sharp growth while the national market remains reliant on imports, causing sustained underutilization of local production capacities. Between 2019 and 2023, the utilisation rate ranged within 40-60%, while 35-40% of this total domestic output was exported.

Total operational and planned crude steel capacities are  on track to reach over 45 million tonnes (Mt), exceeding the 2035 target of 25 Mt. The lack of strategic roadmaps for capacity and process technology leaves untapped potential to develop sub-sectors as well as to revive or review idle capacities.

Investments in Indonesia’s basic metals industry have rapidly increased, from USD 14.7 billion in 2020 to USD 37.7 billion in 2023. Ongoing and announced expansions that will double the country’s current crude steel production capacity, are tagged to a handful of major private steel players from Indonesia – Gunung Steel Group, China – Fuhai Group, Ansteel Group, and Delong Group, and South Korea – POSCO.

Once completed, these projects will increase steelmaking capacities by 125%. Out of 24.5 Mt capacity in the pipeline, 22.8 Mt are using blast oxygen furnaces (BOF), with only 1.7 Mt using electric arc furnaces (EAF). Meanwhile, Indonesia’s ironmaking capacities will increase by 55%. Out of 5.8 Mt of ironmaking expansion in construction, all use blast furnaces (BF). Currently, there is no operational direct reduction iron (DRI) furnace in the country.

Given the global pivot towards lower emissions technologies, namely the DRI-EAF route, Indonesia is instead backsliding to the traditional BF-BOF route. Furthermore, the regional insight shows significantly higher EAF investments in Vietnam (17.2 Mt) and the Philippines (12.8 Mt). Thailand, meanwhile, maintains 100% EAF capacity to date.

Overall, iron and steel investments in Indonesia may face higher risks of carbon lock-in as the industry is considered hard-to-abate. Setting roadmaps and enforcing binding climate targets would safeguard the industry’s competitiveness while showcasing Indonesia’s commitments towards industrial near zero and global net zero, giving a clear signal for climate-aligned investments.

From these findings, CREA recommends:

  • Given the abundance of renewables potentials, Indonesia should first and foremost unlock them, by prioritising power sector reform to realise ample availability of cost-effective clean electricity that would support steel transition. Decarbonisation of the iron and steel industry requires the greening of the grid, which implies the significant importance of national alignment towards accelerated and timely development for renewables deployment.
  • Strict enforcement of protective trade policies is the first step in restoring trade balance and ensuring a fair and competitive market for Indonesia’s iron and steel industry. Close collaboration between policymakers and domestic stakeholders is necessary to inform decision making as well as identify and address existing regulatory hurdles. 
  • As one of Indonesia’s national strategic industries, the policy framework for the iron and steel industry decarbonisation should be advanced, setting binding targets that link climate commitments and industrial growth. Strong ambition in the form of national roadmaps and regulations serves as a signal for investors, shifting investment decisions to better align with the targets and deterring new additions of technologies with high lock-in risks.


Abdul Baits Swastika; Katherine Hasan, CREA

Global, Indonesia