India’s auto-makers seek ₹8,000-9,000/tonne price reduction from steel mills

Abhishek Law | Updated on: Jul 27, 2022
A worker pours molten iron from a ladle to make automobile spare parts inside an iron casting factory in Ahmedabad. REUTERS/File photo

A worker pours molten iron from a ladle to make automobile spare parts inside an iron casting factory in Ahmedabad. REUTERS/File photo

Key reasons cited were a slump in auto demand and a drop in steel prices, including a fall in coking coal prices

India’s car-makers are negotiating for a ₹8,000-9,000 per tonne price reduction, over the last quarter, in automotive steel, those aware of the matter say. Auto OEMs cite sluggish demand in the auto sector, and a fall in steel prices, including reduced coking coal prices, as key reasons.

The price reduction sought from mills is are for deliveries due in July-September (Q2FY23). Mills, if they accept, would see the price of automotive steel or flats go down by ₹2,000-3,000 per tonne (net), on a six-month basis (April to September period). Negotiations are expected to be closed by the end of this month.

India’s steel mills and auto OEMs have shifted to quarterly contracts beginning April 2022. This was done to counter the high volatility in steel prices at that point in time.

The previous contracts (October 2021-March 2022) had closed with an increase of ₹3,800 per tonne in hot rolled coils (HRCs) and ₹4,000 per tonne in cold rolled coils. Mills had reverted to half-yearly contracts from October last year.

The benchmark HRC price is currently at ₹59,500 per tonne, down by around 3 per cent, month-on-month (m-o-m). Prices were at ₹61,200 per tonne in June.

Cold rolled coil prices — the prime offering for auto-makers — is down nearly 2 per cent, m-o-m, to ₹67,900 per tonne from ₹68,900 per tonne in June. Rebar prices, too, saw a near 2 per cent decline to ₹57,900 per tonne, m-o-m.

Index Based Pricing

According to a steel mill official and one of the largest suppliers to the auto OEMs, an index is generally followed to price the offerings. Different mills follow different price indexation methods.

Those parts of the price discussions told BusinessLine that auto OEMs accepted a price increase of ₹5,000-7,000 per tonne over the base for April-June deliveries. This was supported by mills pointing out the higher cost of production, particularly coal costs, during this period.

However, for Q2 deliveries, OEMs now point out factors like lower cost inflation and slowing demand as reasons for negotiating a ₹8,000-9,000 per tonne lower price over Q1. Thus, the net decrease that mills could see is to the tune of ₹2,000-3,000 per tonne.

“There is very little that mills can do at this point. So despite their dissatisfaction with the price, they will have to settle contracts with auto OEMs at a ₹2,000-3,000 per tonne net discount. On long products, the offers have been better,” the trade source said.

Contracts for long products were closed at ₹9,000-10,000 per tonne upwards of the base for the April-June period; while the price in July-September is ₹4,000-5000 per tonne lower than the previous hike. Thus on a six-month basis, the price increase is around ₹4,000 per tonne.

Long products account for less than 20 per cent of the automotive steel consumption in India.

Published on July 27, 2022
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