A secondary steel producer, catering to the auto segment, said that for the past two months the sheet market slowed down due to lower offtake from the auto segment. “In some of the thicker materials, there was no forecast of restocking,” he said.
Steel contributes 60-65 per cent of the total raw material content in average Indian vehicles and domestic companies
have been finding favour with car makers for a while now.
Most of the automotive steel was manufactured by domestic producers and only 2-3 per cent was imported, said a producer. Also, a key advantage in local sourcing would be reduction of levels in value chain and minimising exposure to forex fluctuations. While the slowdown in auto sales, was felt by the steel industry, the impact was not that sharp due to fungibility. The capability of fungibility in the steel production enabled us to divert it to alternative industry segments, said Acharya. That’s probably one of the reasons why prices did not drop proportionately.
“While there has been a slowdown in the automobile sector, activities in the construction sector has shown some traction,” Jayanta Roy, senior vice-president, Icra, said.
Improving demand from the infrastructure sector was one of the key contributors to demand growth, pointed out a producer. The industry believes the offtake from the auto segment would improve from Q2.
Acharya said channel inventories, which had been built up in Q3FY19, underwent a correction in Q4. “Post the election and starting of Q2/Q3 FY20, the auto demand is likely to revive, so also steel. The pre-buy of vehicles before the introduction of BSVI in April 2020 is likely to propel auto and steel demand.”
More than margins, supplying to the auto segment keeps the steel industry future-ready. However, while automotive will be an important indicator for steel demand in the coming quarters, the industry is betting big on the infra sector as well. “Due to the model code of conduct, contracts close to award have been put on hold. All these projects will take off post-elections,” said an executive of one of the major steel producers. The monsoon is also expected to be near normal, which will put more money in the hands of people and should help the steel sector, too.
Consumption of automotive steel dipped 4% in Q4 FY19 over Q4 FY18
Fungibility of steel production made it possible to divert to alternative sectors
Demand for auto steel expected to pick up from Q2/Q3 FY20