POSCO to Increase its Investment in its Indonesian JV following CEPA Agreement

Recently South Korea and Indonesia signed a Comprehensive Economic Partnership Agreement (CEPA) agreement following seven years long negotiations. As a part of this agreement, Indonesia will eliminate tariffs on some steel products and auto parts from South Korea and also hopes to attract some South Korean investment.

Following this agreement, South Korean steel major, POSCO has announced its intention to invest more than USD 4 billion to increase the steel capacity of PT Krakatau Posco to 10 MnT by 2025. PT Krakatau Posco is a joint venture company between Posco and Indonesian steel mill, PT Krakatau Steel.

POSCO also plans to build a new joint venture plant in Indonesia to produce flat steel products including HRC and CRC. 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.

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 USD 1.05 billion, while net losses grew to USD 211.91 million from USD 37.38 million 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 USD 6 million 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.