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February 21, 2009

Indonesia steel giant faces slump
Indonesia’s largest steel maker PT Krakatau Steel forecasts a 16.8 percent drop in revenue this year from a year earlier as demand slumps, according to a report in the Jakarta Post.

The company is forecasting 15.8 trillion rupiah ($1.33 billion) in revenue this year, down from last year’s estimated revenue of 19 trillion rupiah, president commissioner Taufiqurrahman Ruki said Thursday.

“We will struggle to meet domestic steel demand,” he said.

He said the slowing of domestic and foreign markets, the weakening exchange rate, declining national economic growth, high inflation rates and surplus stocks caused by the cancellation of orders, were among the main factors contributing to the forecast significant drop in company revenue.

In addition there were contributing internal factors, as well as other external threats to revenue, he said.

“International steel manufacturers have abundant stocks as orders have declined. This can lead to illegal imports into the country that will eventually hurt us even more.”

“The whole steel industry is in crisis, if the government does not support us, it will be like ‘suicide’.”   

Taufiqurrahman expected  the firm would benefit from the government’s infrastructure program as the steel industry slowed down.

“We hope the government would promote the use of domestic steel products to support the infrastructure program as it will benefit us,” he said.

The government has said it will provide incentives to the infrastructure sector by allocating a stimulus of 10.2 trillion rupiah, in addition to more than 90 trillion rupiah already allocated under the 2009 state budget, for the needs of the sector.

However, the company will be taking a more cautious stance in increasing its production capacity.

“We are still unable to fully utilize Krakatau steel production in the first and second quarter this year because we estimate that domestic demand for steel will be low, and to avoid over-capacity,” he added.

He said that this year’s production will depend on demand, but would likely be around the same as last year’s.

Last year, KS managed to produce 1.6 million tons of raw steel such as slabs and billets.

KS had a production capacity of 2.5 million tons of steel per year. Domestic demand for steel is around 6 million tons per year.

The company forecasts 462.5 billion rupiah in unaudited profits last year, a 6 percent increase on targeted profits in 2008.

As the company revenue is forecast to go down, it will do its best to avoid layoffs.

“Layoff is our last resort,” Taufiqurrahman said, adding that the company would not for now increase salaries or provide other incentives to its employees, as an alternative to layoffs.

Fazwar Bujang, president director, said that Krakatau would diversify its services to help boslter

“We will no longer just sell steel. Customers can also order engineering and construction support through our one-stop service,” Fazwar said, adding that KS will make full use of its subsidiary, Krakatau Engineering to meet such demands.
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