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JAKARTA (TheInsiderStories) – South Korean construction firm Pohang Iron and Steel Co. (POSCO) plans for new investment of US$4 billion for second steel plant in Indonesia. The company will invite new partner to developed the new project.

In 2009, POSCO and state-owned steel maker PT Krakatau Steel Tbk (IDX: KRAS) has set up joint venture company PT Krakatau Posco to build the first factory in Cilegon, Banten province. The factory has operated in June 2013 with output 3 million tons (MT) of slab and steel per annum with total investment US$357 million.

Senior Executive VP POSCO Kyung Zoon, Min said at the Indonesian Korean Business on Thursday (9/10) that the realization of the new plant is pending on the Indonesian government approval.

The integrated steel facilities, which comprise a blast furnace, a sintering plant, a coke oven plant and a plate mill has planned with an overall investment of $6 billion to create a total output of 6 MT of steel products.

Around half of the output will be allotted for domestic customers, while the rest will be sold overseas.

Kyung Zoon Min, Senior Executive Vice President of parent firm POSCO and also President of Krakatau Posco has said the plan to develop new plant is an anticipation of widening of gap between domestic production and demand for steel products.

In 2016, Indonesian domestic steel supply reached 5 MT, while demands of steel reached 15 MT. There is still gap between demand and supply. In addition, steel consumption remains low at 50 kg per capita, far lower than other ASEAN countries.

“I foresee, Indonesian steel industry will continue to grow. Indonesia needs 20 MT of raw steel,” Kyung Zoon said.

POSCO has been investing in Indonesia. In 2011, the company built blast furnace with capacity of 3 MT and in May 2016 inked deal with Krakatau Steel to produce 10 MT of steel. The JV firm has developed hot strip mill plant, which is now producing 2 MT of slate and 1 MT plate.

With the establishment of Krakatau Posco JV plant, Indonesia may no longer import steels. The problem being faced by local steel producers is the influx of lower price steel from China, which entered the nation through bonded zones, sometimes entered the nation unchecked.

“We hope the Indonesian government pays special attention on this issue,” he stated.

Posco, the world’s third-biggest steel maker which controls a 70 percent stake in Krakatau Posco, was recently in conflict with its local partner Krakatau Steel following the latter’€™s move last December to set up another joint venture with Japan’s Nippon Steel and Sumitomo Metal Corporation.

Nippon Steel holds a majority stake of 51 per cent in the JVC PT Krakatau Nippon Steel Sumikin has start operating its galvanized steel plant in Cilegon, Banten, last September. Krakatau Nippon established in late 2012 and the factory would have an annual production capacity of around 500,000 tons.

The two companies aim to manufacture and market cold-rolled steel and hot-dipped galvanized steel products for Indonesia’s automotive industry. Investment for the plant, which is expected to employ at least 300 people, is estimated at $400 million.

Indonesia, Southeast Asia’s largest economy, is expecting sizeable demand for steel for infrastructure projects, shipbuilding and the automotive industry in the coming years.

Domestic steel consumption is expected to surge by between 6 per cent and 9 per cent this year from the 10.4 million tons estimated last year, according the Indonesian Iron and Steel Industry Association. At present, the country imports between 35 percent and 40 percent of the total annual demand for steel due to limited capacity in the local industry.

According to the Investment Coordinating Board office data, in the nine months of 2017 South Korea ranked fifth in investment activities in Indonesia, with $1.4 billion in total investment. South Korean steelmaker POSCO will almost double its investment in Indonesia to $11 billion in the last five years.

Last year, Indonesia has signed nine major investment projects worth $18 billion with South Korean investors, during President Joko Widodo visit to Seoul. At that time, Indonesia signed up a $4-billion deal with Lotte Chemical for an integrated naphtha cracker project while it signed up $10-billion commitments with Korea Gas Corp. to develop gas infrastructure and LNG storage.

Other Korean firms that have committed investments in Indonesia include CJ Group, which is looking at investments of $2.1 billion in the creative industry. Daewoong Infion is looking at $100 million investment plans in the bio-pharma space.

Korea Midland Power Co., Ltd, Samtan Co. Ltd, PT Indika Energy Tbk (IDX: INDY) and Japan’s Marubeni Corp. consortium are looking at investing $1.27 billion in the third phase expansion in Cirebon power plant with capacity 660 MW.

Other projects include the consortium of KOMIPO, Posco Engineering and PT Putra Sulindo East for the 50 MW hydropower plant project in Southeast Sulewesi with an investment of $230 million. KOMIPO and Energi Mega Bali are investing $140 million for a waste to energy project in Bali.

KORBI Co., Ltd and PT Coffindo are investing $100 million in a solar energy project in North Sumatra while Parkland Co., Ltd will build a shoe factory in Jepara with additional investment value of $83.5 million.

New investment is key to achieving the country’s ambitious target of becoming a top 10 global economy by 2025 by selling more finished products rather than simply exporting raw materials.

Written by Linda Silaen, email: linda.silaen@theinsiderstories.com

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