Steel to get costlier by 10-20% for auto firms

Steel for auto companies is set to get costlier by 10-20 per cent as they are in the process of concluding contracts.

JSW Steel has finalised some contracts and is working on others. JSW Steel Joint Managing Director and Group Chief Financial Officer Seshagiri Rao said prices will reset from October 1. “Average of last six months will be the price for the next months,” he said, while indicating an increase in prices by 10-15 per cent.

Tata Steel has concluded contracts with most auto firms, and the increase has been 15-20 per cent.

AM/NS India, too, will be effecting an increase of 10-15 per cent from October. Posco India concluded discussions for the April to September period last month.

Negotiations for auto contracts have stretched for the longest this time due to the pandemic. Prices for the contracts — that are halfyearly — were supposed to be revised from April but discussions were stalled. Negotiations gathered momentum from July-august.

Though steel firms had to wait to finalise prices, the wait may have proved advantageous for them. Prices have been on an uptrend since the country started unlocking. On a cumulative basis, steel mills have hiked prices of the hotrolled coil — a benchmark for flat steel — by ~7,000-7,500 since July.

The pick-up in demand for passenger vehicles has also come as a surprise and is better than anticipated.

Ranjan Dhar, chief marketing officer, AM/NS India, said auto has seen a Vshaped recovery. “One reason is the pent-up demand. Then BS-IV stocks were depleted till March and auto firms started building stocks from July-august, so sales from original equipment manufacturers to dealers saw a sharp increase. But, at the same time, retail sales have also been good,” he said. Rao said auto had recovered to almost 80 per cent of its best quarter sales which was Q4 of 2018.

For H2 of last year, steel firms dropped prices by 11-14 per cent to support automakers as sales were in the slow lane. In absolute terms, between November 2019 and March, steel prices increased more than ~5,000 a tonne, while steelmakers had dropped prices by ~6,000 a tonne for H2FY20. The contracts got over in March.

On a cumulative basis, steel mills have hiked prices of the hot-rolled coil by ~7,0007,500 since July

The roughly 10-million tonne automotive steel demand is largely met by Tata Steel, Tata Steel BSL, JSW Steel, AM/NS India, Posco, and some product producers.

Steel accounts for about 50 per cent of a car’s weight. On average, a car uses about 700 kg of steel, which is around 10 per cent of the total cost of an entry-level car.

Companies are also finalising contracts with appliance makers. Rao indicated that the increase there, too, could be 10-15 per cent. Dhar said that the appliances segment was seeing the same trend. Appliance contracts are typically quarterly and prices would be effective October.