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Jakarta Post

Krakatau Steel losses surge on new operation, weak prices

  • Anggi M. Lubis

    The Jakarta Post

Jakarta   /   Fri, March 13, 2015   /  06:24 am

State-run steel giant Krakatau Steel saw its net losses plunge by more than tenfold in 2014, bringing its financial results into the red for three consecutive years, as the company'€™s latest factory continued to generate losses amid bleak prices.

Krakatau Steel, Indonesia'€™s largest steel producer, suffered net losses of US$149.8 million by the end of last year, the company'€™s audited financial report revealed. The figure is more than 10 times higher than the $13.98 million net loss the company jotted down in 2013.

With the latest financial result, the steel firm has now recorded net losses for the third year in a row, which began with $20.43 million in 2012.

Krakatau Steel'€™s official statement said that losses of associates -- mainly from newly operated integrated steel facility Krakatau Posco -- had contributed greatly to the company'€™s surging losses, coupled with market oversupply that resulted in plunging steel prices.

'€œKrakatau Posco contributed $71.6 million [in losses], which reflected Krakatau Steel'€™s 30 percent share in loss of the joint venture,'€ the statement read.

Krakatau-Posco '€” located in Cilegon, Banten '€” is a $2.66 billion joint venture between Krakatau Steel and South Korean steel giant Pohang Iron and Steel Company (Posco), with a production capacity of 3 million tons of steel per year.

Its output accounts for around 70-80 percent of Indonesia'€™s total steel production.

The company said that Krakatau Posco booked net loss of $238.7 million in 2014, due to lower-than-expected sales volume and net revenues as it could not meet its production target.

'€œKrakatau Posco'€™s learning process within the first two-and-a-half months of the year following operations startup at the end of December 2013 contributed to the low production. The decline in slab steel and plates selling prices, on the back of weak global steel market, also contributed to the below target net revenues,'€ the statement read.

Overall declines in steel prices have also put pressure on Krakatau Steel'€™s financial performance, the company continued, resulting in around 10 percent year-on-year (yoy) decline in its consolidated net revenue to $1.87 billion last year from $2.08 billion in the previous year, further squeezing the company'€™s revenue.

The company'€™s average selling prices (ASP) of hot rolled coil (HRC), which accounts for 57 percent of Krakatau Steel production, slid 2.5 percent last year. Cold rolled coil, the company'€™s second-biggest sales volume contributor with 23 percent, saw its ASP plunge by 5.3 percent.

Its total production, meanwhile, slightly declined by around 2 percent yearly to 2.32 million tons in 2014.

'€œThe ongoing steel oversupply in the global market caused a significant decrease in prices of steel products and flood of steel imports in the domestic market, which contributed to the company'€™s lower sales volume,'€ it added.

Steel oversupply continued as world crude steel production increased 1.1 percent, while output from China '€” the world'€™s biggest producer '€” was up by 0.9 percent. Elsewhere in Asia, South Korea'€™s output increased 7.5 percent yoy to 71 million tons, data provided by the company shows

Southeast Asian steel prices, according to the document, slumped by around 17.5 percent along last year to $460 per ton. Facing ongoing financing problems and fading demand, Chinese mills resorted to lowering steel prices in a bid to secure orders and cash flow for business operations. HRC price in China was marketed at around $405 per ton last year.

In September, Kratakatau Steel laid off 1,500 of its outsourced workers, to cut costs amid the company'€™s continuous net losses.

Shares of Krakatau Steel '€” listed under the code KRAS on the Indonesia Stock Exchange (IDX) '€” were down 1.08 percent to Rp 456 at Thursday'€™s close from the previous day.

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