POSCO targets Krakatau joint venture expansion

2019-11-29

Nov. 29, 2019 - South Korea's POSCO is expected to increase its investment in Krakatau Steel following the signing of the Comprehensive Economic Partnership Agreement (CEPA) between South Korea and Indonesia.

The two countries concluded seven-year negotiations on Monday and eventually signed CEPA. Indonesia will eliminate tariffs on some steel products and auto parts from South Korea. In addition, Indonesia also hopes to attract more South Korean investment. Indonesian President Joko Widodo met with a number of Korean companies last weekend, including POSCO, Hyundai Motor, LG Group, SK Global, Samsung Electronics, Samtan Gas, and Cheil Jedang.

POSCO said at this meeting that it will invest more than $4 billion to increase the steel capacity of PT Krakatau POSCO to 10 million tonnes by 2025. PT Krakatau POSCO is a joint venture company between POSCO and PT Krakatau Steel.

POSCO may also build a new joint venture plant locally to produce HRC and CRC, Indonesia local media reports. Krakatau POSCO plans to start marketing 750,000 tonnes of HRC steel products from next year, while CRC products are said to still be under discussion.

POSCO's local partner in Indonesia, PT Krakatau Steel, has been plagued by heavy debt and high production costs, which has led its net losses to deepen in the third quarter of 2019. In Q3 the company saw revenues fall -17.5% year-on-year to $1.05 billion, while net losses grew to $211.91 million from $37.38m the year before.

Even though Krakatau POSCO began to make an operating profit in 2018, it fell back into loss in Q3 2019. The plant saw losses of $6m in Q3 2019 as sales volumes fell to 713,000 tonnes in the same period. Krakatau POSCO reported that earnings had fallen due to blast furnace maintenance and weaker sales prices and demand.