Cilegon Plant to Supply Steel for Car Makers in 2017

18 March 2016

Players in the domestic automotive industry can soon expect to enjoy more efficient supply chains for their operations with the anticipated commencement of a steel plant in Cilegon, Banten, which will produce galvanized sheets, the main material for car bodies, at a large scale starting from next year.

The steel plant, operated by PT Krakatau Nippon Steel Sumikin (KNSS), is currently under construction and once completed, will have a full annual capacity of around 500,000 tons, the Industry Ministry’s director general of metal, machinery, transportation equipment and electronic industries, I Gusti Putu Suryawirawan, said on Wednesday.

“The construction of the plant has currently already reached 60 percent,” he told reporters, adding that it would likely finish by the end of this year.

KNSS, established in late 2012, is a joint venture between Japanese giant Nippon Steel & Sumitomo Metal Corporation (NSSMC) and state-owned steel maker PT Krakatau Steel.

NSSMC is the world’s second largest producer of steel by volume, while Krakatau Steel is Southeast Asia’s biggest.

With the partnership, the two companies aim at manufacturing and marketing cold-rolled steel and hot-dipped galvanized steel products for the country’s automotive industry in Indonesia.

Investment for the KNSS plant is estimated to hit US$400 million with the company expected to hire at least 300 employees. Given the significant investment, KNSS has also been granted a tax allowance by the government.

Indonesia, which records sales of approximately 1 million cars a year, has so far imported galvanized steel sheets for car manufacturing as there is an insufficient domestic supply.

Putu said that the future operation of the plant would help the country reduce imports of galvanized steel sheets, which were mostly brought in from Japan’s Nippon Steel.

He said that demands for galvanized steel sheets and cold-rolled steel for both car and motorcycle manufacturing could increase to up to around 1 million tons annually.

In 2015, Indonesia’s car and motorcycle sales reached 1.01 million units and 6.4 million units, respectively. The country has maintained its annual car sales at over 1 million units since 2012, making it the largest auto market in the region.

Putu added that his ministry also encouraged KNSS to produce steel for electronic devices in the near future to shorten supply chains.

In a separate development, the Investment Coordinating Board (BKPM) announced on Wednesday that there was an investment commitment from Taiwan worth $50 million to develop an automotive components industry.

BKPM head Franky Sibarani said that the Taiwanese investor had expressed its intention to build a light car manufacturing plant in a 10-to-15-hectare plot of land.

“There’s a possibility that the plant will be located in Karawang as there are a number of existing car manufacturing plants in the area,” he said, referring to the West Java regency, located 70 kilometers east of Jakarta.

Mohamad Faizal, the investment head at the Indonesian Economic and Trade Office (KDEI) to Taipei, said that this commitment for a light car industry had been preceded previously by an investment commitment to the tire industry.

“We keep actively promoting Indonesia as an investment destination, including from Taiwanese investors in the automotive components industry,” he said in a statement.


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