Krakatau Steel, Posco of Korea set up steel venture
JAKARTA (JP): State-owned PT Krakatau Steel, Pohang Iron and Steel Co. Ltd. (Posco) of South Korea and two other firms agreed yesterday to establish a joint venture to produce hot rolled steel coils in Cilegon, West Java.
"The new venture will begin operating its manufacturing plant in the second half of 1999 to produce high quality steel coils for pipes, tubes, construction structures and automotive parts," Krakatau Steel's president, Soetoro Mangoensoewargo, told the press after a signing ceremony for the agreement.
Soetoro said the joint venture, to be called PT KS Posco, will be 40 percent owned by PT Krakatau Steel, 40 percent by Posco, 10 percent by PT Nusantara Ampera Bhakti -- controlled by business tycoon Mohammad (Bob) Hasan -- and 10 percent by the Korindo Group of South Korea.
He said that the plant, to be constructed with an investment of US$800 million, will have an annual production capacity of two million tons of hot rolled coils.
The construction of the plant will be completed in two stages. The first stage will start production in September 1997, with a capacity of one million tons per year and an investment of $500 million. The second, to cost $300 million, will double the capacity to two million tons per year.
Soetoro said that about 25 percent of the new plant's steel production will be exported.
"With the operation of the new plant, Krakatau Steel's total production capacity will reach 4.5 million tons per year," he said, adding that the production will be enough to meet the local need.
He noted that Indonesia's demand for steel now stands at four million tons per year, with an annual growth rate of 8 percent.
"To meet the local demand, we still have to import about 1.5 million tons of steel per year," he noted.
According to Soetoro, the world demand for steel is more than 50 million tons per year, with a growth of only 1 percent.
He said that the Cilegon-based Krakatau Steel currently produces 2.5 million tons of hot rolled coils and wire rods, of which between 20 percent and 25 percent are exported to Japan, Malaysia and China.
When asked about steel prices, he said that his company sells its steel at $340 to $350 per ton. The prices of imported steel are about $325 per ton, excluding an import tariff of 5 percent.
"The domestic market can absorb our products, although they are more expensive. That means we're still competitive," he said.
He added that the new steel plant will be able to minimize its production costs because it will employ a more advanced technology.
"We hope that with the advanced technology, we'll be able to compete by the year 2003 when the ASEAN Free Trade Area (AFTA) arrangement becomes effective," he said.
Krakatau Steel, which claims to be the first integrated and largest steel company in Southeast Asia, plans to sell shares to the public next year. The company saw its net profit rise sharply to Rp 240 billion ($105.26 million) last year.
Posco, with a production capacity of 22 million tons per year, is the world's second largest steel making company after Nippon Steel Corp. of Japan, which has a capacity of 25 million tons per year.
Posco's chairman, Kim Mahn-Je, noted that KS Posco will be his company's largest steel venture outside South Korea. Posco has other smaller ventures in China and Vietnam. (13)