AT a time when the domestic steel sector is reeling under oversupply pressures, Indonesia-based PT Essar Dhananjaya, an Essar Group company, says it would expand its capacity in a bid to cater to the automobile market in that country.

The 2-lakh tonne company, which makes thin gauge cold-rolled steel, will raise its capacity to 2.4 lakh tonne at a cost of $35 million. Of this, a major portion, about $26 million, will be raised as debt while the rest will come from the company's internal accruals.

"There will be no fund injection from our sister company Essar Steel," PT Essar Dhananjaya president and CEO Vikram Amin said.

Essar Steel has a 92 per cent stake in the company and the rest is held by the Grama Group, an Indonesian business house.

PT Essar Dhananjaya makes cold-rolled steel of various thickness which are used as a basic input for galvanized colour coated sheets, pipes and tubes, furniture and for general engineering sectors. With the current expansion, the company will also serve the domestic auto market.

Mr. Amin said the company's realisations from its cold-rolled steel is above the industry average, given its ability to make thin gauges from HRC. "While on an average we realise about $310 per tonne of cold-rolled steel, the thinner gauge products give us about $370 per tonne," he said. Moreover, with the recent depreciation of the rupiah against the dollar, the realisations can rise further.

The auto market in Indonesia is currently at 300,000 units. This is a far cry from the pre-Southeast Asian crisis in '97 when annual volumes were more than 400,000. "The crisis has affected the steel industry here severely," Amin said, adding the sector which had a demand of 1.2 million tonnes before '97, had shrunk to just about 800,000 tonnes.

The company sources 40 per cent of its hot rolled coil feed from Essar Steel and the rest is imported from Japan and South Africa. About 40 per cent of the company's production goes for exports, which translates into 65,000 tonnes. Its major markets Include Canada and the US, which have now been closed for its sister company Essar Steel, due to anti-dumping investigations.

"While there is no competition to us from Indian CR manufacturers, it is only in small markets like Bangladesh where there is some Indian presence in the form of Uttam Steel and Steel," the president added. Its other markets include the Philippines, China, Malaysia and Vietnam.

The company posted sales of $70 million (158,000 tonnes) in 2000 and an export tally of 59,000 tonnes. Its net profit for the same year was at $4.3 million, compared with $4.6 million in the previous year. Its employee strength stands at 300.