Auto steel makers face pressure as car demand withers

Auto-grade steelmakers in the country have started to feel the pinch of dwindling car sales. The outlook is cautious and the steel manufacturers are staring at a drop in demand from automakers.

Ankit Miglani, deputy managing director, Uttam Galva, a leading auto and white goods steelmaker in India, said, “Sales volumes have dropped and prices have bottomed out, too. The drop in demand and lower steel prices will reflect in the second-quarter numbers, as the effect will be fully factored in by then.”

Essar Steel CEO Malay Mukherjee said the auto-grade variety forms just 7-8 per cent of the total steel demand in the country. However, he agreed that there was indeed a fall in the demand for steel from automakers. “Given that it’s less than 10 per cent of the total steel demand in India, the impact will be marginal on us,” he said.

According to the latest data made available by the Society of Indian Automobile Manufacturers (SIAM), sales growth in the passenger vehicles segment came down to just 8.8 per cent to 601,547 units in the first three months of 2011-12, as compared to 29 per cent in the same period of last year.

SIAM had forecast this segment would grow at 16-18 per cent, which was revised downwards to 10-12 per cent.

The overall growth for the auto sector is also lowered to 11-13 per cent from an earlier indication of 12-15 per cent.

“We have seen explosive growth in the auto sector over the past times and clearly that cannot continue. However, it will still be the growth driver for steelmakers as it pushes the companies for better innovations, etc,” Mukherjee added.

The issues that plague the auto sales and hence, the steel sales, are similar. SIAM President Pawan Goenka had pointed out the rising interest rates and the recent increases in fuel prices as the culprit for the moderation in auto demand.

An official from a steelmaker who wished not to be identified said, “The demand for auto-grade steel is slowing down since the beginning of the current financial year and this is affecting the steel consumption drastically,“ adding, “the low demand from auto companies is expected to continue for the next quarter or so.”

The official further said the falling demand for auto-grade steel had put pressure on the steel consumption and prices.

An official from another steel company, talking on behalf of the industry, said, “The inventories of finished auto-grade steel are very high. Also, the cost of raw materials used by the steel companies to make this variety are relatively high.”

Miglani said that the market, according to him, has bottomed out. He said, “Steelmakers are already producing at cost levels and any further drop in demand will warrant production cuts.”