REPUBLIKA.CO.ID, JAKARTA -- President Susilo Bambang Yudhoyono will commission on Monday PT Krakatau Posco, a steel making joint venture between state steel maker PT Krakatau Steel and South Korea's steel giant POSCO.

PT Krakatau Posco, which is 70 percent owned by POSCO and 30 percent by PT Krakatau Steel had been built with a total investment of US$2.7 billion (Rp23.94 trillion).

The new factory located in the Krakatau Industrial Estate in Cilegon, Banten, will produce steel materials including plates and slabs to feed heavy industries like pipe , shipbuilding and marine construction industries.

PT Krakatau Posco will start operation with a production capacity of 3 million tons a year to be doubled to 6 million tons in the next phase.

"Krakatau Steel and its 18 subsidiaries will back up the operation of Krakatau Posco," Krakatau Steel's president Irvan K. Hakim said here on Sunday.

Irvan said the subsidiaries such as PT Krakatau Bandar Samudera, PT Krakatau Tirta Industri, PT Krakatau Daya Listrik, PT Krakatau Industrial Estate Cilegon have increased their capacity utilization to help feed Krakatau Posco.

He said in order to sustain its operation Krakatau-Posco will need to team up with Krakatau Steel and its subsidiaries.

PT Krakatau Tirta Industri will provide support in clean water supply, port operator PT Krakatau Bandar Samudra has built three new quays, and power plant Krakatau Daya Listrik has a 200 MW capacity to guarantee power supply for Krakatau Posco, he cited.

Krakatau's subsidiaries has carried out a number of expansion projects in 2013 to meet all Krakatau Posco's requirements. he said.

"We hope the operation of the new factory would be able to meet an expected surge in demand for special steel materials in the country," he said.

He said demand for special steel materials is expected to rise 8-9 percent a year from 10.4 million tons in 2012.

He said the operation of Krakatau Posco is expected to reduce inventory cost and working capital of Krakatau Steel as the need to import slabs to feed its hot rolled coil (HRC) mill would be cut significantly.

"We hope Krakatau Posco could produce up to 2.6 million tons of slabs in the first year of its operation to better guarantee slab supply for the HRC mill," he said.

HRC division is currently the largest earner for PT Ktakatau Steel.

Based on the contract with POSCO, Krakatau Steel has an option to increase its 30 percent stake to 45 percent in Krakatau-Posco.

Krakatau Posco occupies a land plot of 388 hectares in the 2,300 hectare industrial estate, which is owned by PT Krakatau Steel.

Irvan said the prospects of steel industry will depend much on the prices of steel products in the world market such as in China and Europe.

"Based on the current economic condition which is showing an improvement, the prospects in 2014 look very encouraging," he said.

Demand for steel on the domestic market, however, would depend much on the rupiah stability, he added.

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