Posted on 10 Oct 2014
State-controlled steel producer Krakatau Steel has set a target to cut its costs by $173 million this year to reduce its losses and turn its financial performance back into the black, its chief said on Tuesday.
Irvan Kamal Hakim, president director of Krakatau, said Indonesia’s biggest steel producer is increasing efficiencies by, among other measures, cutting its manufacturing costs, reducing its workforce and also by revitalizing its plants to improve cost competitiveness.
“In simple words, if there is a job to lift a table, it can be done by two people, then there is no need to have four people to do the job,” Irvan said on Tuesday.
In a presentation to the media, which was distributed to the Jakarta Globe on Wednesday, Krakatau said it has turned into efficiency mode this year to minimalize its production costs, including by cutting the costs of raw materials and semi-finished products. The firm has also made efforts to reduce fuel, energy and manpower costs.
“The cost cutting is related to reducing the cost of goods sold and other general costs,” Krakatau said in the presentation.
The steel maker, 80-percent controlled by the Indonesian government, slid into the red in the first six months of this year after making a significant decline in revenue and recording operating loss.
Krakatau booked a loss of $88.7 million in the first half of 2014; a swing after making a $10.6 million profit in the same period last year.
Revenue at Krakatau declined 18 percent to $909.2 million as it suffered a 5.3 percent decrease in the average selling price of its key products of hot-rolled coil. Irvan did not elaborate how much profit the company expects by the end of this year.
Krakatau has already succeeded cost-cutting.
In the first half of this year, its cost of revenue declined nearly 12 percent to $881.8 million.
Still, it cannot compensate for the falling sales, which have caused the company to post an operating loss of $30.1 million in the first half of 2014, compared to an operating profit of $44.5 million in the same period last year.
Despite posting a loss, analysts said Krakatau is still poised to grow in future, thanks to projects worth billions of dollars it has completed last year. It is currently working on boosting its output of steel products.
Krakatau, an integrated steel company, operates seven factories in a manufacturing area of Cilegon, Banten province, about 94 kilometer from Jakarta.
The factory includes a billet steel plant, two slab steel plants, a wired-rod mill, a hot-strip mill and a cold-rolling mill.
The company plans a significant role in the country’s economy as the steel industry is considered as the “mother of industries.”
Its products are key for infrastructure development, the defence industry as well as manufacturing.
Krakatau has set a target of producing up to 7.15 million tons of steel products by 2017 compared to 3.25 million tons now.
