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PT Krakatau Steel, the only integrated steel maker in Indonesia, will put to tender its project to build a replacement for an old plant in 2001. The new facility is expected to increase its steel production to 2.4 million per annum from 2.4 million tons currently. The production capacity will be further increased to 5 million tons per annum in 2004.

The project is predicted to cost around US$350 million. According to State Minister for Research and Technology AS Hikam, some 30% of the total investments will be raised from domestic sources, while the remainder will come from overseas syndicated loans. Two financial syndicates from Japan and Germany are reportedly interested in financing the project.

PT Krakatau Steel needs the replacement because several production facilities must be upgraded. Moreover, the capacity of several production facilities notably those producing steel plate/sheet has been almost exhausted. Its CRC factory, for example, operated at 80% of its installed capacity in 1999 and the utilized capacity is expected to reach 100% in 2000.

The company in cooperation with China Steel Corp, the largest steel maker in Taiwan, also plans to build a steel factory in Cilegon, West Java, with a production capacity of 3 million tons per annum. The facility to cost around US$1.4 billion will produce billet and slab and a larger portion of the output will be exported to Taiwan. China Steel in cooperation with Yieh Loong Co. imports around 3 million tons of steel sheet per annum, while other Taiwanese steel markers need around 3.5 million tons of semi finished products, including billet, per annum.

According to the President Director of PT Krakatau Steel, the operation of the factory will be separated from PT Krakatau Steel. Production facilities belonging to the company will be improved and upgraded according to the above mentioned plan. The joint cooperation is in the process of negotiation and final evaluation.

Exports 89% of total sales

Demand for steel products decreased sharply in the country over the past three years, but PT Krakatau Steel could survive because it succeeded in raising exports of its production. The exports were 296,200 tons or 15% of the total sales in 1996. They reached 89% of the total sales or 899,841 tons last year. The increase was boosted by the rise in competitiveness of the product, as a result of the rupiah depreciation.

Steel products exported by the company consisted of cold rolled coil (CRC), hot rolled coil (HRC) and wire rod. Exports of HRC increased more robustly, from 133,700 tons in 1997 to 696,919 tons last year. They are estimated at 796,000 tons in 2000. Exports of CRC fluctuated, but they tended to increase, from 66,500 tons in 1997 to 181,114 tons in 1999.

Table - 1 Growth of sales of PT Krakatau Steel's products, 1994 - 1999
Product 1994 1995 1996 1997


Hot Rolled Coil 272.5 246.3 163.0 133.7
Cold Rolled Coil 74.0 88.4 118.0 66.5
Wire 10.9 13.8 15.2 42.0

Total 357.5 348.5 296.2 242.1


Spons iron 4.9 - - -
Slab 1.1 1.7 8.6 3.3
Hot Rolled Coil 726.9 765.8 870.4 1,006.6
Cold Rolled Coil 452.1 538.7 496.0 483.8
Billet 142.1 222.1 259.3 172.4
Wire and others 282.2 295.3 267.9 273.3

Total 1,609.2 1,823.6 1,902.2 1,939.5

 (000 Tons)

Product 1998 1999(*) 2002(**)


Hot Rolled Coil 458.1 696.9 796.1
Cold Rolled Coil 223.5 183.1 227.3
Wire 68.5 19.8 190.0

Total 750.2 899.8 1,213.4


Spons iron - - -
Slab - - -
Hot Rolled Coil 259.9 333.5 586.0
Cold Rolled Coil 272.7 323.5 357.7
Billet 104.9 119.6 290.0
Wire and others 158.7 195.8 8,197

Total 796.3 1,013.3 1,241.9

(*) tentative

(**) Estimates;

Source: PT KS

The change in market orientation of PT Krakatau Steel from domestic market to export market is clearly seen in HRC and CRC. Exports of HRC were only 13% of the total production in 1997. The proportion rose to 58% in 1998 and 68% last year. The change in the market orientation can be understood because its main industrial consumer (construction sector) in the country was virtually stagnant in the past three years.

PT Krakatau Steel faced an obstacle to boost exports to the United States, because the US administration imposed anti dumping duty (BMAD) on steel products produced by PT Krakatau Steel and other Indonesia's steel makers as from December 1999. During the period, the steel products exported by the country's largest steel producer were subjected anti dumping duty of 54.42% and additional anti dumping duty of 47.71%. The tariff of anti dumping duty on steel products produced by PT Gunawan Dianjaya Steel and PT Jayapari Steel was set at 42.36%. To follow the removal of the import duty barrier, PT Krakatau Steel planned to raise its exports to US$24 million per annum from US$16 million previously.

Several industrial consumers, like GI sheet industry, complained about the change in the marketing strategy, because they have so far purchased CRC from the company. The portion of domestic sales started to increase this year because many companies preferred to use local raw materials for producing steel products.

PT Latinusa producing tin plate is the main consumer of TMBP produced by PT Krakatau Steel. Supply of TMBP to PT Latinusa previously came from imports because PT Krakatau Steel had not yet produced the raw material which was suitable to the technical specification needed by the consumer.

Some 65% of TMBP used in PT Latinusa came from PT Krakatau Steel in 1998. PT Krakatau also has succeeded in marketing steel sheets to automotive industry, mainly Toyota manufacturer, since last year.

Production relatively stable

The success of the company to boost exports enabled PT Krakatau Steel to maintain its production capacity in the past three years. The company has produced 2.4 million tons of steel products, including sponge iron and iron wire, per annum. The utilized capacity is recorded at 50.2% in the iron wire production unit and 81.6% in the slab production unit.

Out of the production units owned by the company, only steel sheet production unit could operated at a high production capacity during the crisis. Its utilized capacity reached 80% of the installed capacity.

Table - 2 Production growth of PT Krakatau Steel, 1995 - 2000(**)
Item 1995 1996 1997

Spons iron 1,713.7 1,682.1 1,524.8
Slab 1,589.4 1,504.6 1,504.5
Hot Rolled Coil 1,794.7 1,776.4 1,879.6
Cold Rolled Coil 649.1 640.1 624.4
Billet 547.6 545.6 473.9
Wire 285.3 281.5 301.9

 (000 tons)

Item 1998 1999(*) 2000(**)

Spons iron 1,552.5 1,664 1,700
Slab 1,332.6 1,485.5 2,000
Hot Rolled Coil 1,212.5 1,604.9 2,040
Cold Rolled Coil 508.5 594.2 585
Billet 305.5 317.6 500
Wire 238.9 171.2 480

(*) tentative

(**) estimates

Source: PT Krakatau Steel
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Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Oct 10, 2000

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