S

tate-run steel producer PT Krakatau Steel is banking on rising demand from the country’s growing infrastructure development amid a sluggish recovery in global steel prices following a protracted supply glut.

Soaring local demand coupled with a string of efficiency measures has helped the company ease losses on its bottom line.

Among the noted deals are the supply of 200,000 tons of steel per year over a five-year period for the construction of 46,000 kilometers of power transmission circuits by state electricity company PLN.

The company will also supply 250,000 tons of steel per year for the development of the 36-km Jakarta-Cikampek elevated toll road run by state toll road operator PT Jasa Marga.

On top of that the company is involved in various overpasses and port projects across the country.

“The projects reflect the government’s commitment to further supporting the local steel industry,” Krakatau Steel president director Sukandar said on Monday.

Therefore, the company is upbeat local demand for steel will keep increasing in years to come.

Krakatau Steel started the construction of a new hot strip mill in Cilegon, Banten, in August. The mill, slated for completion in 2019, is expected to increase the company’s production capacity from 1.5 million metric tons per annum (mtpa) to 4.65 mtpa.

“It is in line with our plan to strengthen the industry. At present, Indonesia spends US$7.2 billion annually on importing semi-finished steel products and other raw materials. If it keeps happening, the figure could soar to $15 billion within the next 15 to 20 years,” Sukandar said.

From January to September, Krakatau Steel saw a 22.25 percent increase in sales to 1.68 million tons of steel compared to the same period last year.

The biggest sales came from hot-rolled coil (HRC) steel with 890,817 tons and cold-rolled coil (CRC) with 408,761 tons.

However, the company, which controlled a 43 percent share of the HRC steel market as of June, still saw a net loss of $114.7 million within the first nine months of the year, improving from a $160.24 million loss in the same period last year.

The loss in recent years was triggered by the downward trend in global steel prices, which plunged from $1,090 per ton in July 2008 to $400.50 per ton in September.

Krakatau Steel is undertaking several efficiency measures to improve its financial performance, including constructing a new blast furnace plant, which is slated for operations by the end of this year. The new plant is expected to reduce the company’s production cost of HRC steel by $58.20 per ton.

The company announced in August that it was aiming for Rp 1.8 trillion ($138.02 million) in proceeds from a mandatory rights issuance that will pave the way for government capital injections worth Rp 1.5 trillion.

In the rights issue, set to be launched in the fourth quarter of this year, the company will offer 4.9 billion of new shares to existing shareholders with a nominal price of Rp 500 per unit.

The funds from the rights issue will be used for the construction of the new strip mill in Cilegon and an internal 150-megawatt coal-fired power plant, which is also slated for completion in 2019.

“With our new blast furnace plant and power plant, we hope our production costs can be further lowered and eventually increase our profit,” Krakatau Steel finance director Tambok P. Setyawati said.