Posted on 18 Sep 2017
Steel firm PT Krakatau Posco (KP), a joint venture between state-owned steel maker PT Krakatau Steel (KS) and South Korean giant Posco, are in talks to develop a new plant worth US$450 million.
Posco Indonesia Inti (PII), Posco’s holding company in Indonesia, said the plant would mostly cater to significant rising demand from the domestic automobile industry. PII’s marketing managing director Kenneth KJ Rhee said his firm was talks with KS about the feasibility of building a coldrolling mill, which will mainly produce automotive steel, early next year.
“We are still in discussion with Krakatau Steel about how we can invest in this cold-rolling plant for high quality steel,” he said on Tuesday after the Seventh Asia Steel Forum.
Rhee further revealed that the construction of the facility would run in two phases, with the first phase set to require $250 million of the overall $450 million investment.
It would have annual production capacity of between 1.2 and 1.5 million tons of cold-rolled steel, he added.
Posco, the world’s biggest steel maker, now holds a 70 percent stake in KP, while the remaining 30 percent is owned by KS, Southeast Asia’s top steel producer.
The joint venture has invested $3.28 billion to build integrated steel facilities in Cilegon, Banten, that produce steel slab and plate, among other products. That is in line with the government’s target to create a steel cluster that can produce 10 million tons of steel each year.
Krakatau Steel president director Mas Wigrantoro Roes Setyadi confirmed the plan, saying that his firm was discussing it with Posco and separately with another KS partner, Nippon Steel.
Japan’s Nippon Steel, along with another partner, Sumitomo Metal Corporation, has set up a joint venture with KS and built a $378 million steel plant to produce galvanized steel, mostly used bu the automotive industry. Previously, Posco was once in conflict with KS following the latter’s joint venture with the two Japanese firms.
“If the condition are agreed, the three of us [KS, Posco, Nippon Steel] may build the plant together,” Wigrantoro told the Jakarta Post. “If one of us can’t agree, we can go with the other. Otherwise, we [KS] will go ahead alone.
The automotive sector accounts for around 8 percent of national steel consumption, according to data from the Industry Ministry.
The fast growing sector may absorb a huge amount of the base material as automobile production is projected to grow at a compound annual growth rate of 5.5 percent to reach 2.3 million units by 2025.
The construction sector, meanwhile, uses the most steel, with 78 percent of domestic consumption, followed by the oil and gas sector with 7 percent.
Related to the future of the KP joint venture, Wigrantoro explained that in the shareholders’ agreement, there was an option for KS to buy 15 percent of Posco’s shares.
“If we buy the shares the Posco will only control 55 percent, while KS will have a 45 percent stake. However, the plan has yet to be executed,” he said.
One of the key issues hindering KS upgrading its stake in KP is the losses recorded by the latter.
KP posted $56 million in losses last year.
“Unlike a private company, as a state-owned company that still suffers from losses,” he said.
