Krakatau Trumpets 15% Boost to Steel Capacity as IPO Closes

By webadmin on 10:18 pm Nov 04, 2010
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Faisal Maliki Baskoro

Jakarta. With its initial public offering closing on Thursday, Krakatau Steel announced on the same day that the first stage of its expansion plan had been completed, adding 15 percent to its production capacity.

The nation’s largest steel maker said it had raised its total milling capacity to 3.15 million tons annually after refurbishing a factory last month.

“With this increase, Krakatau will be able to produce broader ranges of steel grades, as well as bridging the gap in national steel demand,” he said.

To achieve the overall gain in capacity, the Banten-based firm upgraded its hot strip operation.

“We have just finished increasing our hot strip mill facility’s production capacity from two million tons per year to 2.4 million tons per year,” said Fazwar Bujang, Krakatau’s president director.

Capacity for cold rolled coil, the company’s other main product, stood at 750,000 tons per year.

Fazwar said the hot strip mill expansion began in 2008 and had so far cost $230 million.

He said the upgrade would continue until capacity reached 3.5 million tons annually by 2013, with overall steel capacity expected to reach 4.25 million tons.

“To do that, Krakatau will need another $143 million” in investment, he added.

Higher steel output would allow Krakatau to tap increasing demand for the material in Indonesia as the country aims to more than double spending on infrastructure, including roads, ports and bridges, to $140 billion over the next five years.

President Susilo Bambang Yudhoyono has pledged to boost economic growth to an average of 6.6 percent annually by the end of his term in 2014.

With the nation short on locally produced steel, Krakatau’s prospects for growth are strong.

“The shortage in hot rolled coil, Krakatau’s major product, is significant. Around 40 percent of domestic HRC demand is imported,” Fazwar said.

According to CRU, a London-based consulting firm, Indonesia imported 1.4 million tons of HRC in the first half of this year, while domestic supply was 2.2 million tons.

Last year, 1.9 million tons of HRC was imported to cover about 30 percent of domestic demand.

The mill revitalization is part of Krakatau’s wider expansion scheme, which includes not only boosting capacity but building power plants to drive its operations.

The $1.3 billion program was expected to be completed by 2014, Fazwar said.

He said the next phase of the expansion would involve increasing its steel slab plant’s production capacity by 37 percent to 2.5 million tons annually over the next two years.

Krakatau’s production is also expected to receive a boost from a $6 billion partnership with South Korea’s Pohang Iron and Steel (Posco) to build a factory with six million tons of annual capacity.

Krakatau has a 45 percent stake in the venture.

The state-owned steelmaker’s IPO, which opened on Monday, aims to raise Rp 2.68 trillion ($300 million) from selling a 20 percent equity stake.

However, the relatively low offering price has raised concerns about possible graft.