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teel giant PT Krakatau Steel (KRAS) plans to build a new hot rolled coil manufacturing facility in the Cilegon industrial estate, Banten, worth US$390 million (Rp 4.92 trillion).

According to Widodo Setia Dharmaji, the company'€™s director for technology and business development, the factory will have a capacity of 1.5 million tons of hot rolled coil per year and is expected to be operational in two years.

'€œThe factory will be completed by 2017. With this expansion, Krakatau Steel will have a capacity of 3.9 million tons,'€ Widodo said on the sidelines of a visit by Investment Coordinating Board (BKPM) chief Franky Sibarani, in Serang, Banten, on Friday. Currently, KRAS has a total production capacity of 2.4 million tons of hot rolled coil per year.

Meanwhile, regarding the company'€™s plan to continue the construction of its integrated steel mill facility with South Korean partner Pohang Iron and Steel Company (Posco), Widodo said no progress was being made.

Construction on the second phase of Krakatau Posco'€™s integrated facilities has stalled over discussions relating to current market conditions.

'€œWe [KRAS] are currently engaged in intensive discussions with Posco about when to start the construction of phase two. This depends on several aspects, including slowing demand for steel and the feasibility of investments,'€ he said.

According to Krakatau Steel, the downward trend in global steel prices has affected the joint venture'€™s decision to continue its initial plan of expanding its annual production capacity from 3 to 6 million tons.

As a result, the company needs to rethink what steel products are feasible to produce.

According to Krakatau Posco'€™s director of technology and business development, Marsidon Simanungkalit, high logistics costs and low global prices have prevented manufacturers from producing steel for the domestic market.

'€œThe price of steel continues to fall. Steel plates are now priced at $500 whereas they used to be $650, compared to domestic prices that fall in the range of Rp 7,100 per kilogram,'€ Marsidon said on Friday.

As a result of the price fluctuation, he said trade to the main export markets of China, Ukraine and Russia was heavily affected.

Meanwhile, BKPM chief Franky said the government would go all out to commence infrastructure projects, which would in turn increase the demand for steel.

'€œWe'€™ll follow up on how to tackle the second phase construction [of Krakatau Posco] even if the business side of it is slowing,'€ Franky said on Friday.

'€œThe government'€™s plans to develop the infrastructure sector, including [Krakatau Posco'€™s] electricity generation capacity, should be a potential market for steel.'€

Previously, Krakatau Steel'€™s South Korean counterpart signaled that the second phase of the project would likely commence at the end of 2015.