Pohang Iron forms venture to make stainless steel

JAKARTA (JP): PT Metro Dwiwidjaja and South Korea's Pohang Iron and Steel Co Ltd (Posco) signed an agreement yesterday to establish a joint venture company to produce cold rolled stainless steel.

President Commissioner of Metro Dwiwidjaja, Sudwikatmono, said his company owned 30 percent of the joint venture, and the Korean partner 70 percent.

The joint venture, called PT Posnesia Stainless Steel Industry, would build a stainless steel mill with a US$122.56 million investment, he said.

The mill, which will be built on 13.5 hectares in Cikarang, West Java, will be the largest stainless steel mill in the country.

Construction will start on Dec. 1 this year. The mill is expected to begin commercial production in the third quarter of 1999.

In the first phase, the mill will be able to make 75,000 tons a year, which will increase to 130,000 tons a year by 2001.

"This agreement is a continuation of a memorandum of understanding signed last November between Metro Dwiwidjaja and Posco," Sudwikatmono said at yesterday's press conference which was attended by Posco President Kim Chong-chin.

Sudwikatmono, also president of PT Indocement, said feasibility studies conducted last year showed that demand for stainless steel in Indonesia increased 30 percent a year.

In 1995, Indonesia imported 60,000 tons of cold rolled stainless steel from Japan, Korea and Europe. This equaled Indonesia's total demand that year.

Imports increased to 66,000 tons last year, worth about $140 million.

Sudwikatmono said the demand for cold rolled stainless steel in Indonesia was projected to exceed 80,000 tons by 2005.

"The projection is based on the economic growth rate, Indonesia's gross national product and the fact that per capita consumption of stainless steel in Indonesia is still at a low 0.3 kilograms," he said.

Sudwikatmono said 70 percent of Posnesia's products would be sold on the domestic market and 30 percent would be exported.

Protection

He said Posnesia was planning to request government protection to develop its industry.

Metro Dwiwidjaja's executive director, Sudhamek Agoeng, said it was "normal" for the industry to be protected by high import duties, because other countries had similar barriers to protect their stainless steel industries.

"We hope the government imposes import duties on finished import products," he said.

He said Japan currently imposed a 4.6 percent import duty, Taiwan, 11 percent, India, 85 percent, and South Korea eight percent on their stainless steel industries' raw material imports.

But Minister of Industry and Trade Tunky Ariwibowo, who attended the signing ceremony, said it would be "difficult" for the government to approve the request.

"If an industry is established, it must follow the existing tariff rates. We understand that some new or infant industries may need help, and we will consider their requests. But if we protect them through tariff policies, it would disrupt the whole (tariff) structure," he said.

Tunky said his ministry might "help" the industry. He refused to say how, but said he needed to assess "what fields should be supported, in relation to what the government could do".

He said the standard facilities the government gave new industries included zero tariff levels for all machinery and raw materials for the first two years.

"But after two years, the industry must follow existing tariff levels, which are bound to come down anyway in line with World Trade Organization rules," he said.

Import tariffs on hot rolled coil, which is the raw material for the stainless steel industry, are 5 percent.

Another stainless steel project underway is being built by PT Maspion Stainless Indonesia. It will be able to make 50,000 tons a year and has a total investment of about $60 million. The Gresik, East Java, mill will start trial production in October. (pwn)