UPDATE 1-Indonesia's Krakatau eyes coking coal supply deals

* Sees coking coal demand at 2.65 mln T by 2014

* In talks with Borneo, Marunda on long-term coal deal

* Considering option to buy stakes in Borneo, Marunda

* Sees 2011 steel output at 2.8 mln T vs 2 mln T in 2010

PT Krakatau Steel, Southeast Asia’s biggest steelmaker, is in talks with 

miners PT Borneo Lumbung Energi and Marunda Graha Mineral to help 

feed coking coal demand that it sees at 2.65 million a year by 2014. 

This would be the first use of coking coal by Krakatau, which currently 

uses natural gas to produce steel. Armed with $301 million from a listing 

on the Jakarta stock exchange last month, it said it would consider taking 

equity stakes to secure the coal supply.      

“We are discussing with the two companies about security 

of supply,” Fazwar Bujang, Krakatau’s president director, said on the 

sidelines of a mining conference in Bali.  

“One of the options...is to have a participating stake. If we have some 

portion of shares, we will have better security of supply.”

Krakatau expects to consume 2.65 million tonnes of coking coal by 2014 

to fuel steel mills for its own projects in Cilegon, West Java, as well as 

its $6 billion joint venture project with South Korea’s POSCO.

The company expects to produce 2.8 million tonnes of steel next year, 

including 2.2 million tonnes of hot-rolled coil, compare to an estimated 

2 million tonnes this year. 

Prices for coking coal could climb next year, amid growing demand for 

steel as economic growth accelerates and the relative rarity of metallurgical 

or coking coal, worrying steelmakers. Anglo-Australian miner BHP Billiton  

plans to increase prices of coking coal for Japanese steelmakers by about 

8 percent from the current quarter for the January-March period.       

SOURCING IRON LOCALLY           

Krakatau is also trying to source more iron ore locally and is in talks with 

the local government in western Aceh province about developing iron ore. 

Bujang said indications were that the mine deposit was of good quality 

and sufficient quality, without giving details. Krakatau expects to produce 

300,000 tonnes a year of sponge iron from 2011 from a project in southern  

Kalimantan together with state miner PT Aneka Tambang.

“It will the first iron material that we source locally,” Bujang said, adding 

that the sponge iron will be processed in southern Kalimantan and brought 

to Cilegon to be melted down.            

“We are also working on a long-term supply agreement with adjacent iron 

ore miners in south Kalimantan,” he said.      

Krakatau needs a total of 9.58 million tonnes of raw material in 2014 for 

steel processing, including iron ore and pellets. It currently depends on 

imported raw materials, mostly from Australia and Brazil, Bujang added. 

Source: Reuters