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Fall in steel prices to benefit car makers

Abhineet Kumar  |  Mumbai 

Nearly 55 per cent fall in prices of steel products such as in the last six months is expected to benefit the country’s car makers, whose contracts for sourcing metals are due for renewal.

The auto makers had increased their product prices in the range of 3-14 per cent in the last six months due to a rise in the input cost. With the drop in metal prices, the input costs are expected to come down. However, the car makers are noncommittal on the reduction in vehicle prices.

According to an estimate, a typical passenger car consists of about 70 per cent steel, of which 35 per cent is HRC and 30 per cent cold rolled coil (CRC). Rest of the nearly 5 per cent steel is used in auto components, which is sourced by the manufacturers from auto component suppliers. Both HRC and CRC are directly sourced by the car makers on a six-month to one-year contracts.

The benchmark East Asia import cost of HRC was $700 per metric tonne in the beginning of this year. It reached a high of $1,080 per metric tonne on June 10. According to a Bloomberg data, HRC price has come down to $490 per metric tonne on December 9.

“Price negotiation for sourcing will happen in January and there is a possibility of price benefit being passed on to the customers,” said a spokesperson at Hyundai Motor India, the country’s second largest car maker and the largest exporter.

For India’s largest car maker, Maruti Suzuki, the contracts are for six months and it is due for renewal within next three months. “We are waiting for the new contract, but the price reduction will depend on various factors,” said a Maruti Suzuki spokesperson.

The car makers have already passed on the benefit of the recent central excise duty cut to customers. This has brought down the product prices by 2-4 per cent.

However, according to experts, the benefits of the drop in steel prices will be limited due to the depreciation in the rupee and the re-imposition of a 5 per cent duty on steel import.

“When steel prices went up, our car price increase was slightly delayed due to contracting. As a result, reduction will also be delayed,” said a spokesperson at Honda Siel Cars India, which is in negotiations with its steel suppliers over new contracts.

First Published: Mon, December 15 2008. 00:00 IST