Krakatau steel delays construction of $405.9m Hot Strip Mill plant to January 2016

29 December 2015

Jakarta. State-controlled steel maker Krakatau Steel has postponed the construction of its $405.9 million hot strip mill until January next year, after its initial plans to start building before the year's end, the company announced on Monday.

Sukandar, president director of Krakatau Steel, said the company would first place a deposit for its $260 million local facility from Commerzbank AG in order to pay its contractor. "We can't delay any further. The construction has to start by mid-January," he said recently, without citing any reasons for the delay.

Once construction starts in January, the plant is projected to begin operations within the first half of 2018, according to Sukandar.

The hot strip mill plant will manufacture up to 1.5 million tons per year, lifting total production at Krakatau Steel to 3.9 million tons per year from the current 2.4 million tons per year.

It will be built by a consortium of German's SMS Siemag and subsidiary Krakatau Engineering on 48 hectares of land at the Krakatau Industrial Estate Cilegon in Banten.

Aside from the hot strip mill plant, Sukandar said Krakatau Steel is currently planning to convert its gas-fired generator into a 2 x 80 megawatt coal-fired steam generator next year.

The company is also building several new plants, including a $220 million steel plant with a capacity of 500,000 tons per year and a $405 million steel plant through its joint venture with Krakatau Nippon Steel Sumikin. They are set to be completed by 2016 and mid-2017 respectively, according to Sukandar.

Other ongoing projects include Krakatau Steel's $656.3 million blast furnace plant that is set to produce up to 1.2 million tons in annual capacity. The blast furnace plant, which is 93.2 percent complete, is expected to start operations in the second half of 2016, according to Sukandar.

"Because the blast furnace will likely complete soon, our capital spending next year could be lower than this year," Sukandar added.

The state-owned company earmarked approximately $550 million for its capital expenditure this year, yet only 45 percent of it has actually been spent so far this year due to technical issues at some of its new projects.