Why Indonesia’s steel industry needs to get on board the sustainability train – and do it quick

With 2050 fast approaching and the goal of Net Zero emissions still in the distance, there is an increasing need for the largest carbon-emitting industries to buck up and do their part in reducing greenhouse gas (GHG) emissions while continuing to build a sustainable future.

The global steelmaking industry – which produced almost 1.9 billion tons of crude steel in 2020 – contributes around 8% of the world’s total carbon emissions, making decarbonization a priority for industry players.

China, which itself accounted for just over 1 billion tons of crude steel last year, plans to reduce the emissions intensity of its gross domestic product (GDP) by over 65% by 2030 (from 2005 levels) and become carbon-neutral by 2060.

As China, the world’s largest producer, starts dialing back on steel plants in line with these efforts, the onus of sustainable steelmaking will fall on Southeast Asian countries, particularly Indonesia, which has such high demand for steel that it is in top 20 steel producing and importing countries in the world.

Despite the admittedly down year for the infrastructure and building sector last year due to Covid-19, Indonesia imported 9.3 million tons of steel products in addition to producing almost 12.9 million tons of its own steel.

The populous archipelago nation’s infrastructure needs have ramped up demand for steel, a permanent material that can be infinitely recycled and is 100% recyclable without loss of quality.

Regional Development Plans Continue Apace

The Covid-19 pandemic appears to have made just a slight dent in Indonesia’s ambitious infrastructure development plans to support its 270 million strong population.

Under President Joko Widodo (Jokowi), Indonesia’s 41 capital intensive strategic infrastructure projects are outlined in its five-year medium-term development plan (RPJMN) set from 2020 to 2024. Together, these 41 projects of ‘national priority’ will require $500 billion of investments.

The crown jewel among these projects is the construction of a new capital in East Kalimantan in the isle of Borneo by 2024. Concerns about developing a whole new city while preserving the rich biodiversity in the area will be closely watched, putting the construction sector – and by extension, steel producers – in the spotlight with regards to sustainability.

Other key projects under RPJMN include the development of metropolitan regions for Palembang, Banjarmasin, Makassar, Denpasar, which is aimed at boosting GDP growth outside the main island of Java (which accounts for 60% of Indonesia’s economy).

Indonesia’s effort to decentralize industry development outside Java is itself a move towards building a path to long-term sustainability. Connectivity also remains a huge concern in the archipelago nation, as other strategic projects include high-speed rail lines connecting different regions within Indonesia as well as the expansion of local public transport systems.

In tandem with this, the race is on to create 100 Smart Cities across Indonesia by 2045. City authorities will be considering green building and smart infrastructure, adding extra focus on steelmakers’ decarbonization efforts.

What Can Steelmakers Do?

On average 1.89 tons of carbon dioxide are emitted for every ton of steel produced, with the majority of emissions derived from the chemical reaction of steelmaking.

Over the past 50 years, advances in technology and a move from traditional blast furnaces (BFs) which can be charged with up to 30% of scrap, toward the electric arc furnace (EAF) which can be charged with 100% of steel scrap. This has effectively reduced energy use in steel production by 60%.

While this is a great leap forward, more needs to be done, and not just by large players but also smaller mills which may not yet be able to put in EAFs.

EY suggests that decarbonization can take on many forms, from deploying electric vehicles for logistics purposes to the use of biomass in kilns, rainwater harvesting and digitally-enabled plantwide steam management systems.

Reporting Emissions as a Differentiator

The importance of reporting emissions is not just a boon for shareholders but also potential foreign investors. There is a clear demand for steel in Indonesia as well as a solid supply pipeline, however what is needed to get many of these infrastructure projects going is capital.

Foreign and international funders have sustainability as a major part of their decision-making process, and steelmakers and construction players that actively report on their decarbonization efforts stand a better chance of winning contracts whilst giving the industry a fresh face.

Green buildings, smart buildings, and low-carbon or energy-efficient cities all derive their sustainability ratings from the sustainability of steel used throughout all their structures.

At the Crossroads of Opportunity

While the steel industry remains essential to connecting communities, driving incomes, and nation-building, tracking and monitoring sustainability also has the added benefits of increasing yields, reducing waste and improving process reliability across the steel value chain.

In the short-term, China’s pledge to reduce carbon emissions will see associated steelmakers in Southeast Asia switch to cleaner technologies, and renovate steel plants for EAF adaptability. Long-term, there may be increased pressure on steel scrap availability for furnaces as steel projects shift out of China into surrounding regions. Indonesian steelmakers are at the crossroads of opportunity, and there is no better time to marry economic ambition with sustainability.

The future of steel remains bright, but it is important that it be as green as possible. Building a better life for future generations extends beyond the rising superscale structures of today to the long-term impacts of industry down the road. All players across the steel industry — upstream, midstream and downstream, can participate in reducing the sector’s carbon emissions and pave a pathway to a net zero future. Whether it is steel businesss learning to embrace sustainability and explore decarbonization within their processes or project developers and construction firms looking to source carbon-neutral steel, Gunung Prisma’s holistic steel solutions helps steel players take the first green step towards sustainability.

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