The Hindu Business Line : Rise in steel prices hits margins of auto component cos

THE steady rise in prices of steel and other ferrous products is hitting the operating margins of auto component companies, particularly the smaller ones.

According to an industry official, auto ancillaries companies have committed to supply parts at specific prices to their customers and many have to, as per their agreements, decrease prices by a certain amount every year.

"While the larger companies can afford to re-negotiate the prices with their customers, the smaller companies find it hard to do so," says the official. It is particularly difficult to re-negotiate in the case of sourcing contracts that have been signed with global players, since outsourcing by these companies is done on the premise that it would result in cost savings upwards of 30 per cent.

"It is not only the rise in prices of key inputs which is hurting profitability, but the frequent rises," Mr Vishnu Mathur, Executive Director of the Automotive Component Manufacturers Association (ACMA), said.

But faced with little option, auto component companies are currently in talks with automobile manufacturers to allow them to increase prices on components.

Incidentally, prices of components such as castings and forgings that have a high metal content have already gone up recently.

"This is not normal inflation, it's a very steep rise. We have already made a request to our customers for a price increase and have been assured that they will consider it very positively. The price increase is likely to happen in April," said Mr Arun Anand, Executive Director, Goetze India Ltd.

Many of the bigger auto component companies feel that though current margins may not suffer too much as various cost-cutting activities are being undertaken, they will be affected in a big way next year if they are unable to increase their prices.

The Rs 460-crore, Haryana-based Omax Autos too is currently in talks with its customers for a price increase. "There is a definite pressure on margins. Earlier the price increase on steel and other metals was once in a quarter, now it is happening every week or fortnight. We are in talks with our customers and expect to put in place a price hike from retrospective effect. We have already allowed our small scale industry suppliers to hike prices, so as to not make them suffer," says an Omax official.

The quantum of the price hike being asked by the industry varies from component to component, depending on the percentage of metal in the product.

Meanwhile, in a meeting held last week between ACMA, Society of Indian Automobile Manufacturers and the Indian Steel Alliance, it was decided that a committee would be formed consisting of members of each of these associations, which would discuss the current and potential increase in prices.

More Stories on : Automobile Components | Steel

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