Amid slowdown, steel companies reduce prices for automakers by 14%

For the automobile sector reeling from slowdown, there could be some breather from steelmakers lowering contract prices by 11-14 per cent for the second half (H2) of the financial year (2019-20 or FY20).

Some have already sealed half-yearly contracts for the auto segment; others are in the process of finishing them. 

“The auto industry is an important stakeholder for the steel industry. It is important for us to support them when they are facing challenges,” said a leading steel producer that has already closed negotiations. It added, “It’s in the nation’s interests that both survive and grow. Hence, we support each other.”

G H Bang, managing director of Korean firm Posco’s India operations, said in H1FY20, prices of commercial grade steel had dropped by $100 a tonne, but that had not been factored in the contracts for the auto segment. 

“In the contracts for the second half, prices are being cut by Rs 6,000 a tonne,” he said. 

Posco, which supplies automotive steel to the domestic market, said some contracts had been done and some were pending. In the analysts call after the second quarter results, JSW had indicated that there would be some correction because the first-half prices had been stable for the automotive customers. It is in the process of negotiating contracts.

The suppliers who meet the 10 million tonne automotive steel demand are Tata Steel, Tata Steel BSL, JSW Steel, Essar Steel, Posco, and some long product producers. For the past few years, the industry has been consistently focusing on the value-added mix, with a focus on the automotive segment.

The prices of the benchmark cold-rolled close-annealed (CRCA) products have been revised to Rs 48,000 a tonne from Rs 54,000 a tonne. CRCA products are used in a car’s exterior. 

Prices of auto-grade hot rolled products — used in body panels — were revised to Rs 38,000 a tonne from Rs 44,000 a tonne. 

Steel accounts for 50 per cent of a car’s weight. For two-wheelers, it is lower.

Auto sales have been in the slow lane for the past 11 months which has hurt the steel industry as well. Most companies have been resorting to exports to offset the slide in demand.

In October, however, festive demand bumped up sales marginally. Passenger vehicle sales in October rose 0.28 per cent to 285,027 units, stemming the slide. Overall vehicle sales, though, recorded a decline.

A steel producer said lower prices would hopefully support the auto sector. 

Bang, however said, “The situation in the Indian economy needs to get better for auto sales to pick up.”