State steel producer Krakatau Steel on Thursday signed a deal which will pave the way for the company to secure a $260 million loan agreement from German lender Commerzbank to build a new steel processing plant in anticipation of greater domestic demand for steel ahead.

“This investment will keep Krakatau Steel ahead of the national market in hot rolled coils,” the company’s president director Sukandar said in a statement on Thursday.

The loan facility, which will be disbursed through an export credit agency, will be used for the construction of a hot strip mill in the Cilegon Industrial Estate, according to a statement.

Hot strip mills processes steel slabs into hot rolled coils, a material that’s often used in automotive components, general construction as well as oil and gas pipelines.

The plant, which would be Krakatau Steel’s second hot strip mill, which is scheduled to start operations in September 2017, producing up to 1.5 million ton of hot rolled coils annually in the first phase.

This would total the company’s production capacity to 3.9 million ton per year.

The 48-hectare plant will also be supported with steel slabs from a subsidiary of Krakatau Steel, Krakatau Posco, according to the statement.

As global demand for steel remains weak, Sukandar said he’s looking to tap into local steel demands with the new plant, citing greater support from the government.

“The government has given more attention to the steel industry in Indonesia with its plan to increase the entry fee of steel,” he added.

Ralph Lerch, the director of export finance at Commerzbank, echoed the sentiment, emphasizing that the Indonesian market remains a promising market for steel.

“We will continue to support Krakatau Steel in investing and expanding its market to become the top regional player. This agreement also signifies Commerzbank’s role towards infrastructure development in Indonesia,” he said in a statement.

Krakatau Steel will build the plant under a consortium of engineering, procurement and construction firm, which consisted of its subsidiary, Krakatau Engineering, and German plant construction and mechanical engineering firm SMS Siemag.

 

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