KUALA LUMPUR (Bloomberg) – Indonesia’s PT Krakatau Steel, in talks with AccelorMittal and Tata Steel Ltd., is seeking $3 billion from a partnership to build a second plant to meet rising demand in Southeast Asia’s largest economy.

Krakatau, owned by the Indonesian government, plans to form a joint venture to build a 2.5 million metric ton-capacity plant next to its existing facility, Muhammad Lutfi, head of the Indonesian Investment Coordinating Board, said in an interview.
Global steelmakers are seeking to expand in Indonesia as the lowest interest rates in three years boost demand for houses and cars. The new plant will help Krakatau double output capacity.
A strategic partnership “can help Krakatau in terms of expertise and management,” said Siswa Rizali, who helps to manage $225 million in assets at PT NISP Sekuritas in Jakarta. “Krakatau can rely on its partner in getting funding.”
Interested parties, which may also include Essar Steel Ltd. and Australia’s BlueScope Steel Ltd., are expected to submit bids before the end of the year, Lufti said in Kuala Lumpur. The overseas partner will control a majority stake in the joint venture, he said.
Automotive industry
“We want to develop our automotive industry, we want to develop a lot of things from steel,” said Lutfi. Surging prices of iron ore, a raw material for steel products, mean Krakatau has to expand into higher-value products to improve margins. “We want to industrialize Krakatau Steel. We need to do this.”
The Cilegon-based company may also sell a 5 percent stake in an initial public offering, Lutfi said, without giving a time frame. The share sale is “minimal” because it is a way for the government to set a value for the company, he added, declining to say if it will take place before the strategic investment.
ArcelorMittal, the world’s largest steelmaker, plans to spend as much as $10 billion on projects in Indonesia, the government said last month. The Luxembourg-based company is seeking to buy a stake in Krakatau and set up a venture with PT Aneka Tambang, Indonesia’s second-largest nickel producer, State Enterprises Minster Sofyan Djalil said last month after meeting ArcelorMittal officials.
BlueScope, Australia’s largest steelmaker, is “obviously interested” in the Indonesian government’s plans for Krakatau Steel, the Melbourne-based company said last month.
The “outlook for the steel industry is still good, reflected with high prices and demand for steel products,” saidYusuf Winoto, an analyst at PT DBS Vickers Securities.
Demand for steel in Indonesia may rise 10 percent this year, following last year’s 12 percent gain to 7.1 million tons, according to a June 10 estimate from Jati Santiono, senior technical manager at the Southeast Asia Iron & Steel Institute.