Indonesia’s largest steelmaker, PT Krakatau Steel (KRAS), plans to spend up to US$400 million on a new hot strip mill next year as part of its expansion plan.
The firm is conducting a feasibility study and should begin land acquisition gradually by the end of this year, president director Irvan Kamal Hakim said on Monday in Jakarta.
Krakatau had yet to pick a location for the new facility, but the firm expected to develop in a new area, in a possible exchange of a 40-hectare plot which it was ready to release to Asia’s second-largest petrochemical producer, Honam Petrochemical Corp., he added.
The South Korean petrochemical giant reportedly plans to invest around $5 billion to build a petrochemical complex in Cilegon, Banten, where major petrochemical plants are concentrated.
“We expect the new mill will be up and running in 2015 when it is set to process around 1 million tons of steel,” Irvan told reporters at the Industry Ministry’s office.
A hot strip mill reheats and rolls slab steels into hot rolled coils and plates, which are widely used for ship buildings, pipes, general structures and other applications.
The biggest share of the output from the new mill will go to the domestic market, which sees significant demand for steel as the economy grows, Irvan said.
At present, Krakatau’s hot strip mill has a capacity of around 2.4 million tons per year, while its overall rolling capacity is around 3.25 million tons per year, generated by a set of mills, including hot strip mill, wire rod mill, bar mill and section mill.
The planned hot strip mill is expected to help the firm to upgrade its total rolling capacity to 4.25 million tons per year.
To finance the new mill project, Krakatau will utilize funds generated from its initial public offering, according to Irvan. The firm raised Rp 2.68 trillion ($281.11 million) from floating its shares on the stock exchange in November 2010.
Apart from this expansion plan, Krakatau is building a blast-furnace complex in Cilegon, near its existing steel plants, with an anticipated investment of $601 million.
The construction is being undertaken by its subsidiary PT Krakatau Engineering and Chinese state-owned firm Metallurgical Group Corporation — Capital Engineering and Research Incorporation Limited (MCC-CERI), one of the world’s largest contractors.
The facility, set to kick off operations in 2014, will produce 1.2 million tons of metal annually.
The firm recently obtained a $200 million syndicated loan from Chinese banks — China Development Bank Corporation (CDB), the Industrial and Commercial Bank of China Limited (ICBC) and The Hong Kong and Shanghai Banking Corporation Limited (HSBC) — for the development of the blast furnace.
Earlier, it also secured similar syndicated credit totaling $250 million from state-owned banks — Bank Mandiri, Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia (BRI).
Krakatau has also entered the advanced stages of development of its $6 billion plant in Cilegon, establishing with South Korean steel giant Pohang Iron and Steel Company (Posco).
The plant, designed to produce 3 million tons of steel slabs and plates, will come into commercial operation at the end of next year.
As economy grows, the development of new steel-making facilities is crucial in Indonesia, Southeast Asia’s largest economy, as it will help improve the structure of the local industry that still relies heavily on imports, experts have said.