Bike sales still on slippery slope

Bike sales still on slippery slope
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First Published: Wed, Jan 02 2008. 11 37 PM IST

Updated: Wed, Jan 02 2008. 11 37 PM IST
Sales of passenger automobiles were disappointing in the last month of 2007. December sales usually are slow because many consumers postpone purchases by a month to get their vehicles registered in the new year. But an analyst with a foreign brokerage points out that sales in December 2006 had slowed considerably for two-wheeler makers, and hence represented a low base.
Sales of Hero Honda Motors Ltd, the country’s largest motorcycle manufacturer, were flat in December 2006 after months of double-digit growth.
Each of the top three motorcycle manufacturers, Hero Honda, Bajaj Auto Ltd and TVS Motor Co has reported a drop in sales volumes in December. Motorcycle sales have been falling consistently this fiscal, but the difference in December was that the industry didn’t have to contend with a high base. This puts to question claims that sales had bottomed last year and would pick up in the second half of fiscal 2008. While the impact of higher interest rates seems to have subsided, the two-wheeler segment is still struggling from lower disbursements by banks.
Maruti Suzuki India Ltd, the leader in the passenger car segment, also saw a deceleration in growth last month. Its domestic sales grew 6.9% last month, much lower than the 18% growth recorded between April and November. Mahindra and Mahindra Ltd reported a 2% drop in domestic sales last month. The company didn’t provide a break-up between passenger and commercial vehicles, but it’s safe to assume that passenger vehicle sales were unexciting.
It’s no wonder stocks of passenger automobile manufacturers have come off their highs reached towards the end of last year. After correcting considerably in the earlier part of the year owing to the double whammy of higher interest rates and lower loan disbursements, most stocks had risen on the assumption that sales had reached a nadir and that consumers had gotten used to higher interest rate levels. What’s more, loan rates reduced marginally in the second half of 2007, leading to hopes of a revival in sales. In that context, the performance in December was a letdown. But share prices of auto stocks were intact on Wednesday because of the earlier correction.
China effect
Investors took profits in steel stocks on Wednesday after the announcement of a hike in steel prices.
The price revision had been expected for quite some time and the hike in Chinese export taxes on steel with effect from 1 January had led to a spike in the stock prices of steel companies, withthe Tata Steel Ltd stock moving up 4.8% in the last week and Steel Authority of India Ltd (Sail) gaining 4.4%.
In an effort to reduce the country’s massive trade surplus, the Chinese government has hiked export duties on a range of steel products, although rebates remain on some other items. As a result, Chinese steel exports have been falling steadily, from 6.4 million tonnes (mt) last June to 4.1mt in November. In addition, Chinese crude steel production growth slipped to 4.3% year-over-year in November compared with 13.5% in October, pointing to a much-awaited deceleration in the Chinese economy. A Lehman Brothers Inc. research note says: “The decline in the growth of steel production in November was in line with recent changes in steel product exports: semi-finished steel product exports declined by 85% year-over-year in November, versus an increase of 138% in April, while growth of finished steel product exports has been on a secular decline this year to only 5.4% year-over-year in November from 210% in April.”
Steel prices are on their way up across the world, with Korea’s Hyundai Steel Co. announcing a 7% rise in prices, Nucor Corp. of the US raising its flat steel products by around 5% and ArcelorMittal doing the same. In India, the strong domestic economy will enable steel producers to pass on price hikes to consumers.
But while demand from emerging markets like India and China is expected to remain strong, won’t the slowdown in the US hurt demand? Analysts say a slowdown may not hurt much because of low US inventories.
Among steel producers, the preference for those with captive raw materials sources is likely to get stronger, because costs of iron ore and coke have risen. National Mineral Development Corp. Ltd has hiked iron ore prices by 48%, while a hike in Chinese export tax on coke will also increase its price.
While Indian majors Tata Steel and Sail largely rely on captive raw materials for domestic operations, higher raw material prices could affect margins at Corus, which now accounts for a majority of Tata Steel’s consolidated results.
Write to us at marktomarket@livemint.com
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First Published: Wed, Jan 02 2008. 11 37 PM IST