Osaka Steel Exits Indonesia Joint Venture as Infrastructure Cuts Crush Demand

Osaka Steel announced Friday it will cease operations at its Indonesian subsidiary, Krakatau Osaka Steel, marking a full withdrawal from a market that once promised steady growth. The decision comes after a sharp decline in demand caused by the Indonesian government's significant cuts to infrastructure spending, which have crippled steel consumption in the region.

The Japanese steelmaker established the joint venture with state-owned Krakatau Steel in 2012, aiming to tap into Indonesia's infrastructure boom. The partnership initially showed promise, turning profitable in 2021. However, the business has been unprofitable since 2022, culminating in a net loss of 1.3 billion yen ($8.5 million) on sales of 25.3 billion yen ($161 million) for the year ended December 2024.

Osaka Steel's attempts to create steady profits ultimately failed, and the company was unable to sell the business. Production at the facility is scheduled to end on April 30, with shipments and sales concluding on June 30. The financial impact of the withdrawal remains undetermined and will be recorded as a loss.

Market Context: Indonesia's Infrastructure Pivot

The closure reflects a broader shift in Indonesia's economic policy. After years of heavy infrastructure investment under former President Joko Widodo, the current administration has prioritized fiscal consolidation and redirected spending toward social programs and energy subsidies. This policy change has directly impacted construction activity, reducing demand for steel products used in roads, bridges, and building projects.

For Osaka Steel, this represents a significant setback in its Southeast Asian strategy. The company, like many Japanese steelmakers, has been expanding overseas to offset stagnant domestic demand and counter competition from cheaper Chinese imports. Indonesia, with its large population and development needs, was seen as a key growth market.

Strategic Implications for Japanese Steel Industry

The withdrawal from Indonesia adds to the challenges facing Japan's steel sector. The industry is grappling with global overcapacity, particularly from Chinese producers, which has depressed prices and margins. According to industry data, Japan's steel output fell to a 56-year low in 2024 due to an influx of cheap Chinese imports.

Osaka Steel's experience in Indonesia may influence other Japanese steelmakers' approach to emerging markets. The case demonstrates how political decisions in host countries can quickly undermine long-term investments. State-owned partners like Krakatau Steel may also face scrutiny over their ability to sustain joint ventures during economic downturns.

What Comes Next

Osaka Steel will now focus on its core operations in Japan and other markets where demand remains stable. The company's parent, Nippon Steel, has been pursuing a different strategy—investing in the United States and India for growth. Nippon Steel recently stepped up its overhaul of U.S. Steel, seeking hundreds of improvements after its acquisition of the American company.

For Indonesia, the loss of the Osaka-Krakatau joint venture means reduced local steel production capacity and potential job losses. The government may need to reassess its infrastructure spending cuts if it aims to maintain industrial development and employment levels.

The broader lesson for multinational corporations is the importance of political risk assessment in emerging markets. While infrastructure projects offer substantial opportunities, they are also highly vulnerable to policy shifts. Companies must build flexibility into their investment strategies and consider diversification across multiple markets to mitigate country-specific risks.

Osaka Steel's withdrawal from Indonesia underscores a challenging period for the global steel industry, where traditional growth markets are becoming less reliable and competition from low-cost producers continues to pressure margins worldwide.