The Jakarta Globe reported that 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.
It may be noted that Indonesia imports 9 million tonnes of steel a year to help meet domestic demand of 11 million tonnes. Demand is growing about 10% YoY. Krakatau expects the new plant will allow it to expand exports and offer cheaper steel to domestic customers.
As per report, the government owned Krakatau has formalized a USD 6 billion JV with POSCO to build a steel mill in Cilegon. POSCO will take a 70% stake, while Krakatau has an option to raise its stake to 45% from 30% as the project expands capacity. Construction will start this year on a mill with an annual capacity of 3 million tonnes, with an aim to begin output in early 2014. The goal then is to double capacity to 6 million tonnes.
Mr Wawan Hernawan VP of corporate communications at Krakatau said that "Most of the output from the JV will be for local consumption." He added that he expected the JV to boost Krakatau's output to 9 million tonnes from its current 2.5 million to 3 million tonnes.
Mr Wawan said that "Krakatau currently exports 10% of its output to Japan, Australia, England and India. 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."
Mr Wawan said that Krakatau would need an extra 5 million tonnes of iron ore a year for the plant. He added that "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."
Analysts said the deal would help strengthen market sentiment about Krakatau, which is set to launch an initial public offering on November 10th 2010 with the aim of raising as much as IDR 3.5 trillion.
Indonesia has put a lot of effort into the JV 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 & Trade earlier predicted the trade agreement could increase steel imports from China 170% in 2010 to 1.4 million tonnes, from last year's 554,000 tonnes. Despite the global recession, China increased its steel production by 13.5% to 567.8 million tonnes in 2009.
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