Steel firms expect higher offtake from auto in Q4 after weak show earlier

Topics steel | Steel companies | Automobile

Steel companies are expecting an increase in offtake from the automobile segment in the January-March quarter after its muted showing in the third quarter led by a weak festive demand and supply-side issues. While two-wheelers suffered on the back of poor demand, volumes of passenger vehicles (PVs) suffered due to supply-side constraints. But according to steelmakers, going by the current trend, Q4 is looking better in terms of offtake from the auto segment.   ArcelorMittal Nippon Steel India (AM/NS India) chief marketing officer, Ranjan Dhar, said that the cues from the .....
Steel companies are expecting an increase in offtake from the automobile segment in the January-March quarter after its muted showing in the third quarter led by a weak festive demand and supply-side issues.

While two-wheelers suffered on the back of poor demand, volumes of passenger vehicles (PVs) suffered due to supply-side constraints. But according to steelmakers, going by the current trend, Q4 is looking better in terms of offtake from the auto segment.  

ArcelorMittal Nippon Steel India (AM/NS India) chief marketing officer, Ranjan Dhar, said that the cues from the automobile sector are very positive for the January to March quarter.

“Indications are that the schedule is very strong and we have been asked to enhance the allocations,” he added. The company is expecting a 15-20 per cent increase in offtake from the auto segment in Q4 compared to Q3.

JSW Steel director (commercial & marketing), Jayant Acharya, said that the January- March quarter looks even better than Q4 of last year. “Many of the PVs have a waiting period which reflects a good demand,” he added.

“We are seeing demand from the automobile sector picking up. October to November has seen some moderation but from December onwards, demand has improved across CV and PV,” he pointed out.

In Q2FY22, auto accounted for about 19 per cent of JSW Steel’s domestic sales.

It is not clear how soon the chip shortage will get sorted, but analysts expect a gradual easing of constraints. Over a two-year timeframe, strong growth is expected from CVs and PVs.

Steel accounts for about 50 per cent of a car’s weight; for two-wheelers, it is lower. About 90 per cent of the auto companies’ steel requirements are met by Tata Steel, JSW Steel and AM/NS India.

As far as the share in raw material cost is concerned, steel accounts for about eight per cent of the raw material cost for cars, seven per cent in two wheelers and nine per cent in CVs.

Auto contracts

Steel companies have settled contracts with auto companies over November and December for H2.

Acharya said, “Our contracts with auto companies have been finalised in November/December.” “

In flats (hot rolled/cold-rolled), the increase is Rs 9,500-10,000 a tonne and in longs, it’s Rs 4600-4700 a tonne. The increase will be applicable during October to March 2022,” he added.

Dhar said that AM/NS was the first to settle contracts with auto companies and also to revert to the six-month cycle

Typically, contracts with auto companies have been six-monthly. But companies moved to quarterly pricing with a surge in steel prices over the past year. But steel prices saw a steep correction in December and are currently at a discount to contract prices.

But Dhar pointed out that in May, auto contractual prices were at 35-40 per cent discount to spot.

“Even if we look at the average for April to December, contract prices for auto are trailing the spot prices by a substantial amount. So auto companies have been cushioned due to the benefit of contractual prices. In the long run, it evens out,” he said.

Key stories on business-standard.com are available to premium subscribers only.

Already a premium subscriber?

Subscribe to get an across device (Website, Mobile Web, Iphone, Ipad, and Android Phone applications) access to Premium content, Breaking News alerts, Industry Newsletters, Stock and Corporate news alerts, access to Archives and a lot more.


Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel
Read More on

STEEL

STEEL COMPANIES

AUTOMOBILE

COMPANIES

NEWS


Most Read

Markets

Companies

Opinion

Latest News

Todays Paper

News you can use