MUMBAI: Indian auto companies will have better bargaining power while buying automobile grade steel as over a million tonnes of additional material will be available from Essar Steel, which was until now restricted to manufacturing hot rolled coils.

On Friday, Essar Steel commissioned its new 1.2m tonne cold rolling mill at Hazira. The mill is equipped to produce auto grade steel. Essar Steel also supplies steel to construction equipment manufacturers, JCB and Caterpillar, besides car manufacturers such as Maruti and commercial vehicle manufacturer Swaraj Mazda.

The downstream steel industry is witnessing large-scale capacity expansion with another 2 mt of value-added steel expected to hit the market in the next year and a half. Besides Essar, which may further increase its value-added steel capacity, JSW Steel is also adding 1.5 mt of value-added steel capacity at its Bellary unit.

Non-integrated steel manufacturers such as Uttam Galva Steel and Bhushan Steel are also increasing capacities. This is expected to increase the availability of value-added steel exponentially in India.

But Essar Steel director, marketing, Vikram Amin, said that the domestic auto sector and other users of value-added steel are growing at a pace that is good enough to absorb the increased steel capacities.

Essar Steel managing director Prashant Ruia said the value-added steel capacity will add significantly to the company's bottomline, while further improving its margins. Mr Ruia added that the supply of hot rolled coils to the market from Essar is unlikely to reduce as the hot rolled coil is used for producing cold rolled and galvanised steel.

Mr Ruia said Essar is currently producing 3 mt tonnes of hot rolled steel per annum, which will be increased to 4.6 mt. Essar Steel is setting up an additional electric arc furnace at its steel melting facility in Hazira.

The facility is currently witnessing hectic construction activity as part of its capacity expansion programme. The new cold rolling complex at Essar Steel includes two pickling lines, a batch annealing furnace, skin pass mill, shearing and slitting line and electrolytic cleaning line.