JAKARTA (TheInsiderStories) – PT Krakatau Posco, an integrated blast furnace steel mill owned by PT Krakatau Steel Tbk (IDX: KRAS) and South Korean steelmaker Posco Iron and Steel Co. (POSCO), has reaped 10 million tons in cumulative sales volume since starting operations in December 2013.
Last year, POSCO has announced to invest around US$4 billion for second steel plant in Indonesia and opened to partnering with new partner to developed the new project.
In 2009, POSCO and state-owned steel maker Krakatau Steel agreed to build the first factory in Cilegon, Banten province. The factory has started its operation in June 2013 with output 3 million tons (MT) of slab and steel per annum with total investment $357 million.
The integrated steel facilities, which comprise a blast furnace, a sintering plant, a coke oven plant and a plate mill have 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 the widening of gap between domestic production and demand for steel products.
“I foresee, Indonesian steel industry will continue to grow. Indonesia needs 20 MT of raw steel,” Kyung Zoon said recently.
POSCO has been investing in Indonesia. In 2011, the company built blast furnace with a capacity of 3 MT and in May 2016 inked deal with Krakatau Steel to produce 10 MT of steel. The joint venture company 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 steelmaker 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 started 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.
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.