Posco began works on its first overseas and Southeast Asia’s first integrated steelworks in Indonesia.

The steelworks, in Cilegon, 100km west of Jakarta, will be operated by Krakatau Posco, a joint venture between Posco and Indonesia’s state-run steelmaker Krakatau Steel.

The joint venture is 70% owned by Posco, but the agreement allows the Indonesian steelmaker to increase its stake to 45% once the plant’s operations are stabilised.

The works on the site are scheduled for completion on June 30 2011, and the company plans to begin the construction of the steelworks immediately once the site is ready with the aim of completing the first stage of the project by December 31, 2013.

The facility will initially be equipped to produce 3Mt/y of steel.

Estimated to require an investment of $2.7bn for the first stage, the project is the largest investment made by a foreign entity in Indonesia to date.

Posco chief executive Chung Joon-yang said expanding into Indonesia had the largest growth potential in Southeast Asia and prepared it against China’s expansion into the region.

Once complete, the plant will produce 1.5Mt/y of plate and an equal amount of slab.

About three-quarters of the plate will be sold domestically while about 1Mt of slab will be sold domestically with the remainder exported to neighbouring countries. According to plans, production capacity will be doubled to 6Mt/y at a later date but plans for the second stage have not been finalised.

According to the company, Indonesia has about 2.2bnt of iron ore and 93.4bnt of coal reserves.