Indonesian Steelmaker Giant Gunung Raja Paksi Eyes Low-Carbon Future

Jakarta, 14 March 2023 – FOUR years after going public on the Indonesian Stock Exchange, one of the largest private steel makers has steadied its ship and is now ready to invest heavily in green technologies that will help the company on its quest to become low-carbon.

Since its initial public offering in 2019, Gunung Raja Paksi (GRP) — a member of Gunung Steel Group – has undertaken some drastic steps to transform itself from a mainly family-run business to one that is managed by professionals.

These include injecting greater transparency into management decisions, moving more family members out of management positions and into executive roles, and hiring more external professionals to run the company.

When GRP announced its financial results for the third quarter of 2022 last December, revenue hit a record high of US$723 million – a 44 per cent year-on-year increase from the year-ago quarter in 2021. GRP also attained net profit of US$49 million in Q3, a 22 per cent rise year on year from 2021.

In 2019, the company posted a loss of US$12.5 million. Over the last four years or so, it reduced its debt burden by more than half, from US$700 million to US$300 million.

With the company now on a more stable footing, GRP executive committee chairperson Kimin Tanoto has his eye firmly on future growth, with a big push towards going green, in line with Indonesia’s ongoing transition from fossil fuels to renewable energy.

“We want to take full advantage of the ‘green era’. Going green is akin to a reset button that allows companies which have the foresight and courage to act to succeed. Hence, we must stay engaged, and if we see the opportunity we must jump in,” he said in a recent interview with The Business Times.

That process started with investing in new machinery to transform steel production by increasing yield by 10 per cent, and reducing waste to less than S per cent. GRP now has the capacity to produce 2.2 million tonnes of steel a year.

At the launch of its Net-Zero road map in February, the company noted in a statement that steel production accounts for almost 8 per cent of global carbon emissions. This figure is expected to rise as the global appetite for steel consumption increases.

The World Steel Association said that global steel consumption is on track to reach 1.8 billion tonnes this year, despite the current economic headwinds.

In Indonesia alone, steel consumption in 2023 is expected to register a growth of 3.5 per cent year on year. Finished-steel demand is expected to reach 20.1 million tonnes this year, mainly driven by new construction projects that account for 78 per cent of the country’s steel consumption.

“We are looking at producing coated steel for use in roofing and pipes, which is more environmentally sustainable,” said Tanoto. “Indonesia currently imports a lot of coated steel, with domestic usage at 3.5 million tonnes.”

GRP is one of a handful of steel manufacturers to receive the Environment Product Declaration, a type of “green certificate” that allows the company to export to developed markets such as Europe, the US, Australia and Singapore.

As indicated by data from Statistics Indonesia, only 0.2 per cent of the 29,000 medium and large-scale industrial companies in Indonesia have this green certification, as at 2021.

Tony Taniwan, a member of GRP’s executive committee, said that the future of trade will be impacted by green certification, under the guise of environmental, sustainability and governance (ESG) protocols.

“We can see the phenomenon coming, and steel mills will have to comply with carbon emission standards,” he said.

The cost of production will thus increase, and cheap imports from China and Indonesia will be impacted. Currently, China controls about half the global supply of steel produced by the dominant blast-furnace method, which has very high carbon emissions.

“We have an electric furnace, which is more costly, but has lower carbon emission,” said Taniwan. “When the day comes, we will be in a good position to capture greater market share, as the green premium will happen.”

The longer-term goal for GRP, however, is to move from merely steel production to transitioning into an energy-transition player.

“The reset button also applies to coal power plants as we move into green energy. There is huge demand for renewables and a lot of ways to do it,” he said.

“Most people see steel as a commodity with no premium,” Taniwan added. “But steel is slowly becoming more than just a commodity, and the energy sector has better margins and is also more stable.”

But as he surveys the horizon, Tanoto recognises the challenges that lie ahead. Apart from an uncertain global economic climate, he views constantly changing government policies in Indonesia as the company’s biggest challenge.

While President Joko Widodo’s government has firmly committed to green policies and reducing carbon emissions, there is still some resistance by companies on the ground, he said.

“In terms of the steel business, we are very comfortable, but we need clarity and stability in the policies,” said Tanoto, who is also the founder and chief executive officer of Gunung Capital, a Singapore-based private investment company focused on ESG-related impact investments.

“Many of the green standards are still confusing, so the harmonisation of standards will be critical for the growth of the sector.”