South Korean steel giant POSCO and Indonesia's largest steelmaker PT Krakatau Steel have officially set up a joint venture for the construction and operation of an integrated mill in Indonesia.
The two companies will participate in the JV with shares initially standing at 70 percent and 30 percent for POSCO and Krakatau Steel respectively, with the option for Krakatau Steel to increase its share to up to 45 percent after stabilization of the business.
The integrated mill will be built in two stages with an overall capacity of six million metric tons annually. Construction on the first stage facility with a capacity of three million mt is to start in the second half of this year at the earliest, with completion in December 2013.
The expected construction site is the idle land next to the Krakatau Steel factory located in Cilegon, a harbor city on the northwest coast of Java island.
This project, unlike a green field investment where the investing company creates everything from the infrastructure to the manufacturing equipment, is a brown field investment where the existing infrastructure of the partnering company including its harbors, land, water, and electricity is utilized maximally, reducing initial investment costs while utilizing the construction and operation experience of the partner, achieving early normalization of operations.
Indonesia possesses a reserve base of approximately 2.4 billion metric tons of iron ore and 20.9 billion metric tons of coal, offering smooth supply of raw materials. In addition, steel demanding industries within the country and the neighboring India and Southeast Asia region are growing rapidly offering a bright market outlook.