Indonesia’s state-owned steel maker, Krakatau Steel, has joined forces with South Korea’s Posco to build a new US$6bn steel mill that will help reduce the country’s dependence on imports. Posco is the world’s third-largest steel producer.

The announcement also puts to rest talk of a takeover of the country’s only significant steel manufacturer, with both Tata Steel and Posco linked cited in the past as competing for a strategic stake.

The new mill is expected to be operational by 2014, with an annual output capacity of 3m tonnes per year. The aim thereafter is to double capacity to 6m. Posco will take an initial stake of 70% in the new company, but the Indonesian government will retain the option of increasing its stake from 30% to 45% in the second phase of expansion.

The mill will mainly supply steel for the construction, shipbuilding and automotive industries, targeting domestic and overseas customers. The current mill has the capacity to make between 2.5-3.0m tonnes per year, of which 10% is exported to Japan, Australia, India and the UK. With domestic demand currently running at 11m tonnes per year, Indonesia imports around 9m tonnes at present.

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