Auto sector propelling growth for the Steel industry
2 min read 15 Jun 2021, 06:04 PM ISTTo meet this demand, the industry needs quality raw materials and funding.
PremiumIndia's auto industry is currently valued at $118 bn and is expected to be the world's third-largest automotive market in terms of volume by 2026. The sector manufactures presently 26mn vehicles, including Passenger Vehicles, Commercial Vehicles, Three-wheelers, Two-wheelers and Quadricycles. As companies are all geared up to increase their production, the sector is expected to account for 65 million new jobs within India. The automotive industry also benefits from global supply-chain rebalancing, government incentives to increase exports, and technology disruptions. These developments will help create opportunities at all levels of the automotive value chain.
According to the Auto Industry Sales Performance of April 2021, the total production of Passenger Vehicles, Three-wheelers, Two-wheelers and Quadricycle across various companies was 1,875,698 units. It is forecasted that there will be 72 vehicles per 1000 people by 2025. There is also a shift being witnessed in the automotive industry. Along with first-time buyers, now auto players are also focusing significantly on repeat customers. This is predominantly being catalysed with the government's revamped scrappage policy, making the resale market important.
To meet this demand, the industry needs quality raw materials and funding. A major raw material component demand for the automobile industry is Steel, as one car uses about 700 kg of Steel. Major steel producers of the country such as Jindal Steel & Power, TATA Steel, JSW Steel, to name a few will have to ramp up their production capacities. One such player, Jindal Steel & Power, a company that has taken aggressive steps and put forth an impressive turnaround in recent years. Post-lockdown, when the steel production saw a downward curve, JSPL continued production with the available workforce – implementing all Covid-19 measures. The risk paid off, and the company kept running its mills at 80 to 90 % utilization. Owing to this, the company's steel production grew 8 % quarter-on-quarter in the first quarter, and sales were up 12 %. Riding on the success, Jindal Steel & Power also plans to double the capacity from 6 Million Tonnes Per Annum (MTPA) to 12 MTPA at its Angul plant in Odisha to become the world's largest and greenest single-location steel plant in future.
The Indian government is also taking adequate measures to boost the auto industry. They offer production-linked incentives, which will total $7.5 billion over the next five years, and encourage exports. This will enable automotive suppliers to leverage their strengths, including their competitive costs, process expertise, high quality, and innovation focus, to pursue international growth and leverage the recent tailwinds. In the Union Budget 2021-22, the government introduced the voluntary vehicle scrappage policy, which will eventually boost demand for new vehicles after removing old unfit vehicles currently plying on the Indian roads. The Union Cabinet also outlaid Rs. 57,042 crore (US$ 7.81 billion) for automobiles & auto components sector in production-linked incentive (PLI) scheme under the Department of Heavy Industries.
These initiatives by the government and the contribution by raw materials manufacturers will pave the way for a robust outlook for the auto sector and reach an estimated $300 bn by 2026. The auto industry's growth will invariably augur well for its associated industries such as Steel, which provides a considerable portion of raw materials to manufacture automobiles.
