Home / Companies / News /  Cheaper steel to delay auto price hikes, but no cut likely
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MUMBAI : Recent government measures to rein in steel prices might delay planned price hikes for automobiles, but will not lead to lower prices, as input cost pressures remain elevated, automakers said.

Over the weekend, the union finance ministry imposed 15% export duty on steel, which constitutes more than 80% of a truck’s raw material and about 75% for cars. With enough steel stocks available in the domestic market, automakers expect to get a better deal from steel manufacturers in the next quarter.

“Export duty hikes for hot-rolled and cold-rolled steel should cool prices a bit in the spot market, and therefore, our negotiation with steel companies for supplies for the next quarter should see positive impact," Shashank Srivastava, executive director, Maruti Suzuki, said.

Company executives said in interviews that apart from the reduction in steel prices, they also have to weigh other factors such as demand, higher prices for other components, and costs associated with regulatory requirements such as six mandatory airbags.

However, vehicle prices, which went up by up to 15% in the last one year, may not soften, Srivastava said.

“It is unlikely that this will cause a reduction in prices because even after steel prices are lowered, they will continue to be significantly elevated compared to levels seen a year and a half ago. OEMs (original equipment manufacturers) raised prices multiple times in the last one year, but the effect of commodity inflation has still not be fully passed on. However, this will help with the overall cost structure and can potentially delay further price hikes depending on how costs associated with other raw materials and regulatory requirements pan out," he added.

According to the Society of Indian Automobile Manufacturers (SIAM), commodity prices saw a steep increase in FY22. Price of hot-rolled steel rose nearly 92%, while cold-rolled steel was up 77%. Both types of steel are used in automotive manufacturing.

“A heavy-duty truck is typically 80% steel. The export duty hike should definitely motivate steel mills to sell at better prices in the domestic market. Steel prices at their current levels were simply not tenable," Vinod Aggarwal, managing director and chief executive officer, Volvo Eicher Commercial Vehicles Ltd, said.

“Steel prices, which used to be 36,000-37,000 per tonne over a year ago had gone up to 70,000 per tonne, with steel manufacturers asking for even more. The move will definitely correct some of that euphoria. Duty hike will most importantly improve sentiments in the industry, paired also with a reduction in excise duty on diesel and petrol," he added

Aggarwal said while a reversal in prices of commercial vehicles was not likely, softening steel prices may delay further price increases.

“Reduction in import duties for raw material for steel and plastic products, and increase in export duties on steel intermediates would help in moderation of steel prices in the domestic market, thereby easing pressure on the automotive supply chains," said Rajesh Menon, director general, SIAM. Lower fuel prices will ease price pressures on buyers, he added.

According to broking firm CLSA, steel constitutes 5-22% of the average selling price of a vehicle. Commercial vehicle and tractor manufacturers are likely to benefit the most from the steel export duty cut because of the higher steel content, and a strong recovery in demand. CLSA has lifted the earnings estimates of all auto OEMs that it covers on the back of this development.

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