KRAS, Japanese company to make automotive steel

December 28, 2012, 12.50 PM | Reporter: Rika Theo

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JAKARTA. The country’s largest steel maker PT Krakatau Steel (KRAS) and its Japanese partner will set up a new factory to produce cold-rolled coil (CRC) and galvanized CRC to meet the steel demand from the country’s fast-growing automotive industry.

KRAS and Japanese partner Nippon Steel and Sumitomo Metal Corporation (NSSMC) signed an agreement on Wednesday to set up a joint venture to run the steel factory, which will be built with investment of US$378 million.

KRAS will have a 49 percent stake in the joint venture, while NSSMC will control the remaining 51 percent. The new company will built its factory in KRAS’ industrial estate in Cilegon, Banten. It will produce and sell CRC and galvanized CRC for the domestic automotive industry.

In the automotive sector, CRC and galvanized CRC are used to produce a variety of automobile parts, such as body panels. Automotive manufacturing in Indonesia has developed rapidly in recent years thanks to steady increases in car sales in the country. The Indonesian Automotive Industry Association (Gaikindo) expects that the number of new cars sold will top 1 million for the first time this year.

“The new joint venture will enable Krakatau Steel to increase its competitiveness in galvanized technology and to provide raw materials for the domestic automotive industry,” Krakatau Steel president director Irvan K. Hakim said.

From January to September, publicly listed KRAS sold a total of 385,795 tons of CRC, a 42.4 percent increase from the same period last year. The products mainly went to the construction sector, according to the company’s financial statement. Sales of CRC accounted for 22.3 percent of KRAS’ total sales volume in the first nine months of the year. During the period, sales were dominated by hot-rolled coil (HRC) products at 49.1 percent.

Tokyo-based NSSMC, a merger between Nippon Steel Corporation and Sumitomo Metal Industries Ltd., manufactures and processes iron and steel products in Africa, Asia, Central America, Europe, the Middle East, North America and South America. Its annual production capacity currently stands at around 50 million tons of
crude steel.

Both companies will discuss detailed terms and conditions of the joint venture in the first half of 2013, with the aim of entering into a definitive agreement, NSSMC wrote in a statement published on its website.

Besides partnering with NSSMC, KRAS also signed a joint venture agreement on Wednesday with Osaka Steel Corporation (OSC), a subsidiary of NSSMC, to establish PT Krakatau Osaka Steel. Krakatau Osaka Steel, whose investment value stands at $216 million, will produce steel beams and long products for the domestic construction industry.

KRAS will own a 49 percent stake in the joint venture, while OSC will hold a 51 percent share, with an option for both companies to increase their ownership in the future. Similar to Krakatau Nippon Steel Sumikin, Krakatau Osaka Steel will also be located in KRAS’ industrial estate in Cilegon.

At the moment, OSC manufactures steel billets, steel beams and long products, with a total production capacity of 950,000 tons per year. According to Irvan, the joint venture will help KRAS strengthen its position in Indonesia’s long-products market. KRAS corporate secretary Andi Firdaus said KRAS would use its own funds to finance both joint ventures.