Krakatau Steel Aims to Cut Costs Through Joint Venture

Falling prices in the Indonesian steel pipe market are ‘unlikely’ to have any material impact on large domestic manufacturers as they will still enjoy the benefits of stable operating profitability and adequate volume growth, Fitch Ratings said in a statement on Monday (14/03). (Reuters Photo/Beawiharta)

By : Jakarta Globe | on 8:43 PM March 09, 2014
Category : Business, Corporate News, Commodities

Jakarta. Krakatau Steel, a state-controlled steel maker, expects production from its joint venture unit, Krakatau Posco, to help reduce costs and mitigate risks of a weakening rupiah.

Krakatau Posco — a joint venture unit with South Korea’s Posco — has delivered its first production of steel slab last week, Krakatau Steel said in a statement released on Sunday.  Krakatau Posco has sent its parent company a portion of the 80,000-metric ton steel slab that will be used to make products like steel rolls.

Krakatau Posco will supply at least 1 million tons of slab per year to Krakatau Steel, which is equivalent to half of total steel slab demand in 2014, according to the statement.

“The slab from Krakatau Posco will increase the company’s competitiveness, reduce the cost of production and accelerative delivery. In addition, this supply will enhance the flexibility of order fulfillment,” Irvan Hakim, president director of Krakatau Steel, said in the statement.

He added that the steel slab delivery “will overcome the fluctuating value of the rupiah against the US dollar,” as Krakatau Posco will be able to deliver the slab in a shorter amount of time.

Last year, Krakatau Steel posted a net loss of $13.9 million due to declining steel prices and an unstable rupiah.

Irvan said in a meeting last week that the company calculates and sets its price in rupiah. Meanwhile, its costs are fluctuating along with the currency’s exchange rate since 80 percent of its expenses are denominated in US dollar.

With Krakatau Posco’s factory located next to Krakatau Steel’s plant, the company expects that cost calculation can be more predictable with a shorter lead time.

Meanwhile, Irvan said output from Krakatau Posco is also expected to fulfill the need for steel used in various infrastructure development through Krakatau Steel’s numerous units.

Through Krakatau Bandar Samudera, the company operates sea ports and is currently expanding its piers in Cilegon, Banten. Krakatau Tirta Industri, a water supply management company, is increasing its industrial water reservoir capacity, while Krakatau Industrial Estate in Cilegon, an industrial park developer, is working on adding 500 hectares of land to its estates.

This year, Krakatau Steel plans to boost sales of its steel products to 2.6 million tons from 2.38 million tons last year.

Shares of Krakatau Steel have gained 2 percent so far this year to Rp 505, while the main stock index has gained 9.6 percent.

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