Monday, January 13 2014, 8:11 AM
Krakatau Steel to Cut Production of Slab Steel
JAKARTA— The weakening of global steel price urges PT Krakatau Steel (Persero) Tbk to decrease production by not fully operating its slab steel plant this year.
President Director of PT Krakatau Steel Tbk. (KRAS) Irvan Kamal Hakim said he has considered not running the slab plant which produces raw material for steel production in full capacity to maintain the company’s cash flow.
He argued the company must opt for effective and efficient way to minimize increasing production cost. “This (cut in production) is planned for 2014. We are responding to the low price of steel in global market, whether we would produce on our own or import semi finished steel. We must fight against relatively low steel price,” he told Bisnis on Friday (1/10).
At present, the final production volume from the company reaching the downstream business remains the same. Its supply to the market is at 200,000 tons/month, and so is upstream slab production, this month it reaches 30,000 tons/month to be processed into steel. “If we look at it, importing raw material is actually more efficient that producing on our own.”
He argued one factor to maintain cash flow is the stable IDR exchange value against USD. “The government should help maintain the currency. If there is indeed a new balance, it is alright, as long as it remains so. If it goes up and down, it would be difficult for us, making us doubtful, and the steel price is very supportive,” Irvan added.
IDR depreciation increases production cost. The effort to curb this is to include production cost in sales price since it is impossible for the industry to carry out production while suffering from losses. “Now it depends on the public’s purchase power, can they afford it? Obviously we increase sales price. The possible impact is the decrease in demand,” he said.
Since late June 2013, he has increased the price as an impact of IDR depreciation. It is around 10-15%. Irvan argued price increase does not only occur on steel industry, but in most industries still relying quite heavily on imported raw material.
To maintain stable growth in steel industry, Irvan hopes the government continues combining monetary and fiscal policies to curb decline in the industry’s growth. He asks the government, particularly Bank Indonesia, not to increase benchmark interest rate since it will significantly affect the industry.
Apart from that, on the termination of one of continuous casting machines in the company’s iron making plant, it id predicted to resume normal activity soon. “We fetch the original designers of the technology from Austria and Germany to handle it. This month production is normal, and so will the next month. We use another CCM,” he said.
FYI, inside KS’ iron making plant, there is steel making area with two plants, i.e. billet steel plant and slab steel plant. In steel slab plant there are three CCMs. In late December, one of the CCMs was terminated due to the spilling of liquid steel on installation cables. Two workers died in the accident due to lack of oxygen.