Active Stocks
Mon Mar 18 2024 15:55:53
  1. Tata Steel share price
  2. 149.60 5.69%
  1. Tata Motors share price
  2. 972.20 2.75%
  1. ITC share price
  2. 417.40 -0.51%
  1. State Bank Of India share price
  2. 730.70 -0.18%
  1. ICICI Bank share price
  2. 1,082.00 0.32%
Business News/ Companies / Automobile industry anticipates steel price hike early next year
BackBack

Automobile industry anticipates steel price hike early next year

Steel makers hope to cash in on demand from auto makers who traditionally raise prices by about 2% in Jan

Steel makers, which were forced to cut prices since August owing to weak demand from consuming industries, will be looking to recover lost ground with price hikes in December-January.Premium
Steel makers, which were forced to cut prices since August owing to weak demand from consuming industries, will be looking to recover lost ground with price hikes in December-January.

Mumbai: Steel prices may go up in the new year ahead of an expected increase in car prices, automobile industry executives and analysts said, although makes of the alloy are unwilling to reveal their pricing strategies.

The steel makers hope to cash in on demand from auto makers who traditionally raise prices by around 2% in January, as well as from the construction sector, which needs to complete purchases before the end of the financial year on 31 March.

“All in all, there could be a 2-3% or a 500- 1,000 per tonne rise in prices," said Goutam Chakraborty, metal analyst at Emkay Global Financial Services Ltd.

“I won’t be surprised if auto companies keep their tradition of 2% hike in January (despite seeing decade-low sales last fiscal). Infrastructure projects, too, have deadlines on exhausting funds and, therefore, the spending push."

Steel makers, which were forced to cut prices since August owing to weak demand from consuming industries, will be looking to recover lost ground with price hikes in December-January, analysts said.

Steel price at 45,000 a tonne in November is down 2.2% from July when it rose to the year’s high of 46,000 a tonne, as per data from Oreteam, a natural resources web site. With the economy failing to gain speed, demand from industries has remained low.

“Steel companies in India are facing pressure and struggling to keep their heads above water," said V.S. Parthasarathy, chief financial officer at Mahindra Group. “We are hence anticipating a price hike in the current quarter."

Auto makers watch the steel price trend closely, since the metal accounts for 8% of net sales for auto companies. Typically, any hike in prices of inputs such as steel, rubber and aluminium reflects in higher prices of cars, trucks and two-wheelers.

On Tuesday, India’s top utility vehicle maker Mahindra and Mahindra Ltd increased prices of its passenger and commercial vehicles by an average 1% effective this month to offset rising input costs.

The increase will be in the range of 2,300-11,500, it said in a statement to stock exchanges.

In October, Indians bought 3.5% fewer cars than in the same month last year, the second consecutive month of falling sales, industry body Society of Indian Automobile Manufacturers said on Monday.

Even as they brace for a price hike, auto makers say steel makers must pass on the fall in prices of iron ore and coking coal, which are inputs in steel making.

“Steel and auto companies are always on a battleground regarding prices," said Prakash Duvvuri, head of research at Oreteam. “But Chinese steel imports have pressured the margins of steel companies so much so that the fall in raw material prices is not helping much."

“Carmakers are unlikely to benefit from the softening of global (commodity) prices," said an executive at an auto firm, who declined to be identified. The firm imports half its requirement from South Korean steel maker Posco and buys the rest from domestic steel companies such as Tata Steel Ltd, Bhushan Steel Ltd and Essar Steel Ltd.

The auto steel producers, however, prefer to keep their cards close to their chest.

“Cost reduction has always been one of the key requirements of auto companies and sometimes, it is linked to the movement of raw material prices," said a spokesperson of Tata Steel Ltd that makes flat steel used in automobiles.

“Since auto companies enter into long-term procurement contracts, it is the long-term trend rather spot market movements which impact the market... Our approach will be governed by several factors including market dynamics, demand-supply scenario, long-term contacts of supply," the spokesperson said, without revealing if a price hike is on the cards.

A spokesperson of Essar Steel claimed that raw material prices had not fallen in tandem with international prices.

“We have rolled over the prices (for auto and auto component manufacturers). Indian iron ore prices continue to rule high, even though international prices have fallen," the spokesperson said.

The next national budget could announce measures to help revive consumption and boost domestic demand for steel, analysts cited above said.

In 2013, car sales fell for the first time in more than a decade.

In 2014, sales grew until August, before falling 1% in September. Unlike previous years, October, which usually witnesses brisk sales due to the festival season, turned out to be a disappointment.

Discounts and freebies during the festive season failed to perk up the sales this year.

With the exception of market leader Maruti Suzuki India Ltd and Hyundai Motor India Ltd, which saw sales rise by 1% and 15%, respectively, most firms saw sputtering sales.

In the steel market, the expected demand increase in 2014-15 is likely to be 3.5% over last year owing to a low base effect.

“I believe the next fiscal will give the best picture of nearly 5-6% growth," Oreteam’s Duvvuri said.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 12 Nov 2014, 12:09 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App

Chat with MintGenie