Mon, 16 Aug 2010

From: The Jakarta Globe

By Faisal Maliki Baskoro
Indonesia. Indonesia will see its dependence on imported steel fall and its exports rise with the completion of a new state-run steel mill in 2014, a Krakatau Steel official has said.

The government-owned Krakatau has formalized a $6 billion joint venture with South Korea’s Pohang Iron and Steel, known as Posco, to build a steel mill in Cilegon, Banten.

Posco, the world’s third-largest steel maker, will take a 70 percent stake, while Krakatau has an option to raise its stake to 45 percent from 30 percent as the project expands capacity.

Construction will start this year on a mill with an annual capacity of three million tons, with an aim to begin output in early 2014. The goal then is to double capacity to six million tons.

“Most of the output from the joint venture will be for local consumption,” said Wawan Hernawan, Krakatau’s vice president of corporate communications.

He said he expected the joint venture to boost Krakatau’s output to nine million tons from its current 2.5 million to 3 million tons.

Indonesia imports nine million tons of steel a year to help meet domestic demand of 11 million tons. Demand is growing about 10 percent per year.

Krakatau expects the new plant will allow it to expand exports and offer cheaper steel to domestic customers.

“Krakatau currently exports 10 percent of its output to Japan, Australia, England and India,” Wawan said. “We haven’t decided exactly how much we want to increase exports but it will be higher than now.

“We use the international market price as a benchmark, but with new technology from Posco we can reduce production costs and offer better prices.”

Wawan said Krakatau would need an extra five million tons of iron ore a year for the plant.

“Most of our raw materials are imported and that’s unlikely to change in the coming years because there isn’t an exact figure for the size of Indonesia’s iron ore deposits,” he said.

Krakatau and Posco signed the agreement on the steel mill earlier this month after more than a year of tough negotiations.

After construction is finished in 2014, Krakatau is expected to buy a further 15 percent of Posco’s share, bringing the Indonesian company’s share to 45 percent and Posco’s to 55 percent.

Analysts said the deal would help strengthen market sentiment about Krakatau, which, according to a report on Saturday, is set to launch an initial public offering on Nov. 10 with the aim of raising as much as Rp 3.5 trillion ($392 million).

Indonesia has put a lot of effort into the joint venture deal as it is expecting a surge in imported steel from China with the implementation of the Asean-China Free Trade Agreement.

The Ministry of Industry and Trade earlier predicted the trade agreement could increase steel imports from China 170 percent this year to 1.4 million tons, from last year’s 554,000 tons.

Despite the global recession, China increased its steel production by 13.5 percent to 567.8 million tons in 2009.