(TIS) - A consolidation phase is likely the most viable option for growth in the steel industry during the current global demand downturn, according to Southeast Asia's biggest steelmaker,  PT Krakatau Steel (IDX:KRAS).

With Posco - Krakatau's investment partner in Indonesia - along with global giants Baosteel and ArcelorMittal cutting revenue and profit forecasts, the steel industry appears to be in the grip of the current bust cycle of the global economy.

But according to Krakatau Steel President Director Irvan Kamal, Krakatau Steel is in a sweet spot.

Situated in Indonesia, the world's fastest-growing major economy after China, Krakatau has a unique buffer – while local consumption in Indonesia  has slowed recently, most analysts forecast that the massive domestic demand story has yet to be told.

A population approaching 250 million, with a rapidly growing middle class, translates to a unique demand paradigm for steel in the construction segment, as well as a large unrealized infrastructure demand, Kamal says.

To meet this vast untapped demand, Krakatau is building capacity in a big way - its KS-Posco joint venture has broken ground, and will be in operation by the end of 2013. KS-Posco - based in West Java province - will double Krakatau Steel's output capacity to more than 6 million metric tons a year from 3 million tons a year currently.

It is anticipated that this will supply well over half of current domestic steel consumption of 10 million tons a year.

The Krakatau Wajatama-Natsteel venture - a joint venture by subsidiary PT Krakatau Wajatama with Natsteel Asia (S) Pte. Ltd. and PT Marubeni-Itochu Steel Indonesia - is also being brought onstream to supply huge unrealized infrastructure needs, as Indonesia's government launches an ambitious, 10-billion-dollar infrastructure program to develop land, air and sea transport including airports, bridges, toll roads, flyovers and harbours.

Consolidation is the ideal strategy for steel makers looking to ride out the current downturn and position for a likely rebound in demand in years to come, according to Krakatau Steel.