The Hindu Business Line : Auto components industry reels under high steel price burden

Government has to do away with policies that fuel inflation such as export incentives for steel and reduce customs for incoming materials to produce steel.

T. Murrali

Chennai, March 29 The recent price increase in steel has sent shivers down the spine of the steel consuming industry as it witnessed a price hike of 25 per cent during the last three months. While the automotive industry is the worst-hit, the battered lot includes several other segments such infrastructure and housing.

There are three categories of steel used by the automotive industry — flat (hot/cold rolled and plates for making vehicle bodies), long (used for making forged components) and pig iron (used by foundries for making cast components).

While the flat and long products witnessed an increase of 25 per cent, prices of pig iron have gone up by as much as 40 per cent. Worse, industry fears another round of prices hikes — about 7-10 per cent — in the beginning of next financial year.

Speaking to Business Line, Mr Srivats Ram, Chairman of the Southern Region of Automotive Components Manufacturers’ Associations (ACMA), said around 70 per cent of the cost for the automotive industry goes for bought out items. Steel accounts for most of it.

For instance, steel content in an entry level passenger car is about 500 kg, while medium duty commercial vehicles have five tonnes, and so even a marginal increase in price impacts the automotive industry significantly. In this scenario, the 25 per cent increase in steel during the last three months is staggering and might wipe out the fortunes of component manufacturers, he said.

Concerns

ACMA is concerned about the price increases. “There has been a reduction in profitability of companies for successive quarters, to the tune of 3-4 per cent due to rupee appreciation, (even) prior to the steel increase price. The steel increase is on top of this, which will severely affect the fourth quarter of this fiscal and first quarter of next fiscal,” he said.

ACMA has close to 600 members. There are a few thousand small and medium manufacturing units consuming steel, and to them the steep price increase is unbearable. Soon, it would pose a threat to the very existence of the businesses, as the industry has already been reeling under pressure due to the higher cost of finance and diminishing volumes, he said.

“The response from OEMs is good but the question is the extent of compensation,” he said.

The domestic steel price in a number of countries are lower than Indian steel prices, which affects the competitiveness of the Indian industry, he said.

Policy measure

ACMA is looking at some policy measures ensuring raw material security. In addition to various initiatives announced by the Union Minister for Steel, it is necessary to look at issues related to basic raw materials where India is losing out in the geopolitical battle (for resources) compared with other large developing countries such as China and Brazil.

“We are abundantly exporting our iron ore to countries having higher prices, which becomes a benchmark for our industry. The iron ore is imported by the countries like China that do not have these resources,” he pointed out.

For instance, China has zero import duty on iron ore (it imports from India) and 25 per cent export duty on coke, which is imported by India. Hence, there was no quid-pro-quo in steel-related trades between the two countries, he pointed out.

Commodity security

If the Government wants to contain inflation it could take a few initiatives such as getting commodity security for several items, including coking coal, he said.

It has to do away with policies that fuel inflation such as export incentives for steel and reduce customs for incoming materials to produce steel.

With these measures, the quantum of increase could come down, he said.

More Stories on : Automobile Components | Steel | Industry Associations

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