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ArcelorMittal plans to invest $5-10bn in Indonesia

Paris, May 8, 2008

The world's largest steelmaker, ArcelorMittal, said on Thursday it is looking to invest up to $10 billion in Indonesia as it taps into the country's steel and mining sector.

As part of its investment plans for Southeast Asia's top economy, ArcelorMittal has proposed an iron ore and coal mining joint venture with local mining firm PT Aneka Tambang Tbk and a joint venture with state-owned steelmaker PT Krakatau Steel to develop a new steel plant in Java.

ArcelorMittal, which accounts for about a tenth of world steel output, also said it is interested in buying a stake in Krakatau Steel, even if it is below 50 percent.

"The three proposals that we are making to the government, if all three will happen .... we expect the investment amount to be between $5-10 billion," ArcelorMittal's executive vice-president for finance, Sudhir Maheshwari, told reporters.

The head of the firm, Lakshmi Mittal, branched out from working with his father to set up his own steel plant in Indonesia in 1976, using cheap labour and state-of-the-art technology.

Mittal started work in his father's mill in Calcutta at a time when many had written the steel industry off.

He went on to make his fortune by transforming ailing steel mills around the world into money spinners by cutting costs, exploiting economies of scale, and selling higher-value products into a growing market.

"For him, there's nothing more critical, nothing more critical, nothing more sentimental than coming back to Indonesia, to fulfil a dream that the country has to have in terms of creating a much bigger domestic steel industry," Maheshwari told reporters.

But beyond the historic aspects of the investment, Ondra Otradovec, ArcelorMittal's vice-president for mergers and acquisitions, said the country offers a huge growth opportunity.

"It is obvious that Indonesia is very attractive in a demographic point of view with 235 million inhabitants, a growing economy and the availability of raw material," Otradovec told a news conference.

"We see a big gap in local supply of steel and local demand where it is yet to grow."         

Since its creation through the acquisition of Arcelor by Mittal Steel in 2006, ArcelorMittal has made a flurry of investments and acquisitions in developing countries such as Senegal, Liberia, India and Russia.

Indonesia is home to some of the world's top mines and is among the top producers of key commodities such as coal, natural gas and palm oil.

But it has not seen fresh investment for years due to issues such as graft, red tape and a complicated regulatory environment.

Several global mining firms such as Freeport-McMoran Copper & Gold Inc. and Newmont Mining Corp have operations in Indonesia.

ArcelorMittal is one of many firms interested in PT Krakatau, which is on a list of government firms to be privatised. Any stake sale has to be approved by parliament.

The government wants to retain a majority stake in the firm which produced 1.8 million tonnes of steel products in 2007, or 30 percent of Indonesia's total steel demand.

Separately, BlueScope Steel Ltd, Australia's largest steel maker, said it was interested in Krakatau Steel, but did not give details.

But Taufiqurrachman Ruki, head of the board of commissioners at Krakatau Steel, urged the government to reconsider its plan to sell a stake in the firm to strategic investors, suggesting the government float the company instead. -Reuters




Tags: Steel | Indonesia | Mittal |

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