Steel firms to weigh in input costs in talks for auto industry contracts

Input costs have skyrocketed between February-end and March due to supply chain disruptions due to the Ukraine crisis and volatile market

Steel companies are weighing the spiraling cost of raw material as they head for discussions with automobile companies for contracts starting April.

Usually, the average price of steel for six months is set as a benchmark for negotiations. This time the spike in raw material prices due to the Russia-Ukraine war is likely to shape discussions with auto companies.

“Our teams are in discussion with automotive companies and have apprised them of the situation in the market. Discussions for the next contracts have been initiated,” said Jayant Acharya, JSW Steel director – commercial & marketing.

“Various materials are impacting the cost such as ferroalloys, refractories, some metals and consumables that are used for certain steels for automotive. The surge is across all raw materials and not just limited to iron ore and coking coal,” Acharya said.

Input costs have skyrocketed between February-end and March due to supply chain disruptions blamed on the Ukraine crisis and volatile market conditions, said Ranjan Dhar, chief marketing officer at ArcelorMittal Nippon Steel India (AM/NS India).

“We need to factor this for the April (onwards) contracts,” Dhar said. Current contracts with auto companies are from October to March and the new contracts will start from April for a six-month period.

Over the past six months, steel prices peaked in November but saw a steep correction in December and is now back at record levels. Beginning March, companies increased prices by around Rs 6,000 a tonne for monthly contracts and Rs 8,000-10,000 a tonne for the trade. Cost increases have outpaced price.

Steel prices have not captured the steep jump in raw materials prices. We can look at a surcharge for raw material and energy costs, which can be discontinued once the situation returns to normalcy. However, this needs to be discussed with the OEMs,” Dhar said.

Raw material prices were increasing when the war fueled the rally. Russia and Ukraine are major suppliers of steel and raw materials--including coal, iron ore and metallics--to the world and supply gaps are driving prices.

The idea, Acharya said, is to see how the cost can be mitigated between the steel and automotive industries.

Negotiations for auto contracts are generally protracted. For H2, contracts got settled over November and December with the increase in flats (hot rolled/cold-rolled) at Rs 9,500-10,000 a tonne and longs Rs 4,600-4,700 a tonne.

A steel industry source said that the current spot prices were trailing contract prices by Rs 10,000-12,000 a tonne. A secondary steel producer said that while negotiations for the contracts were on, input cost was becoming a challenge for all customers.

The 10 million tonne automotive steel demand in India is met by companies like Tata Steel, JSW Steel, AM/NS India and some secondary and long product producers.

Flat steel is used in a car’s body, non-exposed car chassis and safety components; longs are used in engines, transmission and steering, and seating wire applications. According to industry sources, steel accounts for about 8-9 per cent of the selling price of a car.