Krakatau Steel suspends $600m hot coil project

JAKARTA (JP): State-owned PT Krakatau Steel has suspended the construction of its US$600 million hot-rolled coil plant due to the country's worst economic crisis, a company executive said here yesterday.

Krakatau Steel president Soetoro Mangoensoewargo said the suspension of the hot-rolled coil project had been approved by the minister of finance.

Soetoro said the company considered the project to be no longer feasible following the sharp depreciation of the rupiah against the U.S. dollar, and it finally pulled out of the joint venture.

The company announced last year the establishment of a joint venture with South Korea's Pohang Iron and Steel Co. Ltd, PT Nusamba and PT Korindo to build the plant.

Krakatau Steel, which owned a 40 percent stake in the joint venture, was to contribute a 50-hectare plot worth $30 million and $4 million in cash for the project, Soetoro said.

Its Korean partner, Pohang, owned a 40 percent stake in the joint venture while the other two local companies equally shared the remaining 20 percent.

Soetoro said the crisis, which caused a fall in the rupiah's value by 70 percent against the green back, had also forced the company to delay and cancel some other expansion projects.

These include a long-planned project worth US$130 million to double the company's capacity of hot-rolled coil (HRC) to 500,000 tons and wire rod to 600,000, and to increase the capacity of cold-rolled coil (CRC) to 900,000 tons from 500,000 tons, he said.

The project has been delayed due to financing difficulty, he said.

Referring to an earlier plan of Melbourne-based The Broken Hill Proprietary Company Ltd's (BHP) to buy shares in Krakatau, Soetoro conceded that the plan had also been canceled due to the economic crisis.

"BHP had told us since the beginning of October that they could no longer go through with the plan anymore because their stocks had collapsed."

Exports

Soetoro said Krakatau Steel's exports of steel products have more than doubled since the monetary turmoil hit the country's economy.

He said the crisis, which had significantly reduced the demand for steel products, had forced the company to change its business strategy from focusing on the domestic market to exporting most of its products.

He said the company expected exports to make up about 70 percent to 75 percent of its total sales this year, up from 11 percent to 13 percent in the previous years.

"The domestic market is really sluggish currently because almost all sectors using steel, including infrastructure, manufacturing, and property, have stopped."

The company sold 221,158 tons of HRC in the first quarter of this year, 68 percent or 151,221 tons of which were exported and the remaining 32 percent were sold domestically.

Its sales of CRC in the same period reached 98,177 tons, 20 percent of which were exported.

The company's exports of wire rod totaled 29,860 tons in the January to March period, or 48 percent of the total sales volume of 62,803 tons.

The total sales during the first three months of this year reached Rp 750 billion (US$88.23 million), Soetoro said.

Last year the company's exports of HRC accounted for 11 percent of the total 1.14 million tons, its CRC 12 percent of the total 550,170 tons, and its wire rod 13 percent the total 311,023 tons, he said

Its sales last year totaled Rp 2.4 trillion, while its operating income increased to Rp 250 billion from Rp 81 billion in the previous year.

The demand for steel products in the domestic market has dropped significantly this year due to a slowdown in property and construction projects.

Many property projects have been halted, and many large infrastructure projects have been canceled, while people's lower purchasing power has reduced the consumption of automotive and home appliances, he said.

Last year, domestic consumption of steel was estimated at about 4.7 million tons, made up of HRC 2.7 million tons, CRC 1.1 million tons, and wire rod 0.9 million tons.

Soetoro did not say how much the demand had declined, but said that if it would take about two to three years for the national economy to recover again, steel consumption would take the same length of time to reach 1997's figures.

The company's production last year was 2.038 million tons, including the production of slab steel of 1.5 million tons and the production of billet steel.

Its production of crude steel slid slightly by 3.8 percent to 81,309 tons last year. (das)