Indonesia’s Krakatau Steel posts $70m operating loss in 2014

Krakatau Steel, Indonesia’s biggest steelmaker, has posted an operating loss of $70.44 million for the whole of 2014 on the back of lower steel prices and shipments, as well as the depreciation in the rupiah.

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The negative result compares with an operating loss of just $1.06 million in 2013, the state-owned company said in its 2014 financial report filed with the Indonesia Stock Exchange this week.

Net sales revenues fell to $1.86 billion in 2014 from $2.08 billion the year before, while the company’s net loss deepened to $156.89 million from $13.60 million the previous year.

In a statement published on its website late on Thursday March 12, Krakatau Steel president director Irvan Kamal Hakim said that average selling prices for all of the company’s main products dropped year-on-year due to external factors including global steel oversupply and import pressure.

Selling prices fell by 3.1% for hot rolled coil (HRC), 5.3% for cold rolled coil (CRC), 7.4% for wire rod, 6.2% for rebar, and 6.1% for sections, Hakim said, without disclosing any actual levels.

Lower shipments
At the same time, Krakatau Steel suffered a 2.5% drop in shipments, to 2.31 million tonnes from 2.37 million tonnes in 2013.

HRC sales rose 13.2% to 1.31 million tonnes, but shipments of rebar, section and pipe suffered decreases of 18.5%, 39.4% and 48.5%, respectively, to 200,074 tonnes, 50,464 tonnes and 42,525 tonnes.

The significant decline in section and pipe sales was particularly caused by a “flood” of boron-added steel imports in the first half of 2014 and a consequent drop in domestic selling prices for these products, the company explained.

Krakatau Steel did not disclose its CRC sales, but noted that CRC output went down 8.7% to 518,171 tonnes as it prioritised HRC sales.

The focus on HRC contributed to the company raising its local market share of the product to 44% from the 41% achieved in 2013.

Hakim also noted that the depreciation of the rupiah against the US dollar has “eroded” the company’s margins.

“The rupiah continued to weaken […] while [our] raw materials and energy [costs are priced] in US dollars,” the executive explained.

“In fact, energy and raw materials [account for] up to 80% of the total cost of production,” he said.

Krakatau Steel’s main imported raw materials include slab, billet and scrap.

The company also noted that its joint venture with South Korea’s Posco, Krakatau Posco, accounted for a $71.6-million loss, reflecting its 30% stake in the company.

Posco, which controls 70% of the joint venture, had already blamed a blast furnace accident at the company in January 2014 as the main reason behind the poor results, but said it expected a “profit upturn” for the unit.

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