Posted on 16 Mar 2012
Indonesia’s biggest steelmaker, PT Krakatau Steel (KRAS), says it will increase capacity at existing plants and build a US$601 million blast furnace in 2012, despite a net profit decline last year.
Krakatau Steel saw its net profits fall 3.58 percent last year to Rp 1.02 trillion ($111.18 million) after suffering a 65 percent drop in operating profits to Rp 358 billion on soaring costs of production, according to the company’s financial statement released on Thursday.
“There’s a significant slide in operating profit because the increase in our selling price was not as high as the increase in raw materials that we expended,” Krakatau Steel finance director Sukandar told The Jakarta Post.
Meanwhile, the firm’s cost of revenues surged 28.76 percent to Rp 12.67 trillion, hurting Krakatau Steel’s sales growth. Net revenues rose 15.09 percent to Rp 17.2 trillion due to surging demand for steel amid corporate expansion in the rapidly growing economy.
“[Steel] prices increased, [sales] volume increased, but profits did not increase, because raw material prices increased 41 percent,” Sukandar said.
“Ideally, we should pass the cost increase on to customers. But it was impossible for us to do that because the world is in crisis now, so that would further disrupt demand.”
Prices of Krakatau Steel’s main product, hot-rolled coil, increased almost 9 percent to Rp 7,555 per kilogram in 2011, while sales volume also rose nearly 9 percent to 2.07 million tons. But the increase in iron ore prices was greater, 41 percent, leading to an average price of $232 per metric ton.
This year, Krakatau Steel targeted overall sales of its iron and steel products to reach between 2.3 and 2.4 million, potentially a 15.94 percent increase over 2011.
To boost production capacity in following years, Krakatau has planned expansion programs for its iron-making, steel-making and hot strip mill, and to build a new blast furnace to produce iron and other industrial metals, corporate secretary vice chairman Wawan Kurnawan said.
“The blast furnace plant will have a capacity of 1.2 million tons, and is scheduled to finish construction in 2014,” Wawan told the Post.
Krakatau Steel has selected Chinese state-owned firm Metallurgical Group Corporation (MCC), one of the world’s largest contractors, to build the plant, which will be located on a 160-hectare plot in the company’s industrial compound in Cilegon, Banten.
Krakatau Steel would increase capacity of its hot strip mill plant to 3.4 million tons by 2014, up from a current 2.4 million tons, and would also boosting its iron-making to 1.74 tons million from 1.5 million tons and steel-making capacity to 2.1 million tons, over 1.8 million tons, according to Wawan.
Sukandar said the company’s plan to boost capacity for its three existing plants would be funded by internal equity and bank loans worth $140 million.
Krakatau Steel’s liabilities, which include short- and long-term loans, climbed 36.75 percent to Rp 11.16 trillion in 2011.
“Our debts increased, but our total equity also jumped. Our equity was Rp 5.8 trillion before going public and it was at Rp 10.35 trillion as of December 2011. So it almost doubled,” Sukandar said.
Krakatau Steel raised Rp 2.68 trillion in an initial public offering (IPO) in November 2010, which politicians said was too low a valuation for a state-owned enterprise.
Share prices for Krakatau Steel fell on Thursday following the earnings announcement, dipping 2.17 percent to Rp 900, nearing the Rp 850 IPO price.
