Astra to buy local steel for own use

JAKARTA (JP): Car manufacturer PT Toyota Astra Motors has agreed to purchase steel products from PT Krakatau Steel for the manufacture of its Kijang van.

According to an agreement signed on Wednesday, Astra will initially purchase 160 tons of steel worth Rp 480 million (about US$51,000) a month from Krakatau.

"We can save about 20 percent of our costs by using locally produced steel," Astra's technical director Adi Rizal Nizar told reporters after the signing ceremony.

Before, he said, Astra imported all its steel requirements from Japan or Taiwan.

Adi said that buying locally produced steel allowed the company to reduce its steel inventory because of the shorter delivery time.

But he said the cost savings would not immediately translate into lower car prices since a large part of the Kijang's steel requirements were still imported.

He said for imported steel to be completely replaced by locally produced ones for the manufacture of the Kijang vans, Krakatau must be able to supply 3,000 tons of steel a month.

"Our goal is to use 100 percent locally produced steel to fulfill our steel requirements," Adi said.

He added that the steel company would have to upgrade its steel to meet Toyota's standards.

Costs and delivery assurances were the other factors Astra has to consider before choosing a steel supplier, he said, adding that Astra spent almost three years to decide whether to use Krakatau's steel.

"Supplying the 3,000 tons of steel for Astra is not easy," Krakatau director Sutrisno said.

He said Krakatau's research and development team spent two years conforming the quality of its steel to that of Astra's requirements. According to him, it would take at least another two years for Krakatau to supply just 80 percent of the 3,000 tons of steel.

"We are now only supplying some of the exterior steel parts for the Kijangs," he said, adding that the interior of the vans required higher quality steel.

Aside from supplying steel to Astra, the state company was also supplying some 5,000 tons of steel to other local car manufacturers.

These include PT Indomobil Sukses Internasional which manufacture the Hino trucks locally.

Krakatau, located in Cilegon, West Java, is the only integrated steel company in Indonesia.

The company has an annual production capacity of 2.6 million tons of crude steel, 60 percent of which are in the form of hot rolled coils, sheets and plates; 22 percent cold rolled coils and sheets; and 18 percent wire rod coils.

Sutrisno said his company begun supplying steel to car manufacturers because the demand for steel in its main market, the construction industry, was still low.

Last year the company sold 1.6 million tons of steel in the domestic market, he said.

For the same period, Krakatau's export sales reached 400,000 tons, of which 200,000 tons were to the United States.

However, he said, the United States was threatening Krakatau with import surcharges of 31 percent because the American steel industry had charged that Krakatau received subsidized fuel and electricity.

"With a surcharge of 31 percent on top of the import duties, we can't penetrate the U.S. market anymore," he said.

According to him, Krakatau will face revenue losses of $50 million a year if the import surcharge were imposed.

Sutrisno said the U.S. government would send a team here next week to investigate its subsidy charges against Krakatau.

Krakatau is among the first batch of state companies the government had earmarked for privatization last year.

Thus far it remains unclear whether the government will proceed with plans to privatize the steel company. (bkm)