I

ndonesia'€™s biggest steel maker, PT Krakatau Steel (KS), will team up with German firm Siemag AG to build a hot strip mill this year, in a bid to tap further into the rapidly growing domestic steel market.

KS corporate secretary Iip Arief Budiman said Tuesday that the construction of the new plant, to be located at the Krakatau Industrial Estate Cilegon, Banten, was expected to be finished by 2017. It was slated to produce 1.5 million tons of hot-rolled coil (HRC) each year.

'€œWe will sell the output to the domestic market as the demand for HRC is growing,'€ he said.

The new project is aimed at meeting KS'€™ target to expand its hot strip mill capacity by more than 60 percent to 3.9 million tons, from 2.4 million tons at present.

The construction will be financed by the US$105.6 million raised in KS'€™ 2010 initial public offering (IPO).

KS signed the contract to construct the plant with a consortium comprising Siemag AG and its engineering subsidiary, PT Krakatau Engineering, on July 4.

Apart from the planned hot strip mill, KS is also working on several expansion projects, including a blast furnace, port upgrade and a power plant. The company has set aside a total of $508 million to finance the projects.

Separately, KS president director Irvan Kamal said on Monday that it had made progress with its blast furnace project, completing half of the overall planned construction.

'€œSo far it is on track with our schedule to complete the construction by July or August next year,'€ he told reporters at the Industry Ministry'€™s office.

The blast furnace, built with an investment of more than $500 million, is designed to produce 1.25 million tons of hot metal, which will serve as intermediary materials to make a variety of finished steel products.

KS, traded at the Indonesia Stock Exchange (IDX) under the code KRAS, has a long term target to double its output to 7.15 million tons of steel annually by 2018.

As part of its efforts to meet that goal, the company is also partnering with other firms, particularly foreign firms.

At the end of last year, KS began construction of its steel plant in Cilegon, built jointly with South Korean steel giant Posco.

The plant, designed with a production capacity of 3 million tons of steel, mostly steel plate, is reaching 80 percent of its utilization rate, according to Irvan.

In its latest move, KS is also working on a partnership with Japanese steel makers Nippon Steel Trading Co. Ltd. and Osaka Steel Co.

The state-owned steel maker aimed to conclude joint venture agreements with the two firms by the end of this year, Irvan said.

KS posted a net loss of $46.4 million in the first quarter of this year, down from a net profit of $9.1 million in the same period last year, driven by shrinking revenues and rising foreign-exchange (forex) losses.