Auto parts firms to take brunt of steel price hike

Long-term contracts leave little scope for negotiations

Auto component manufacturers are likely to take a hit following the recent hike in steel prices.

These companies have entered into long-term contracts (of five to seven years) with their buyers "" the automobile companies "" and are unable to re-negotiate prices now.

The Auto Components Manufacturers' Association (ACMA), the umbrella organisation of these firms, is likely to take up the matter with the government.

"There is a limit to which we can absorb such hikes in prices by steel manufacturers. Steel is a vital input for our business and most steel majors have announced steep hikes in prices in past few days. To matters worse, alloy steel makers have also increased prices by up to Rs 2500-3000 per tonne. We are considering to make a presentation before the Ministry of Steel," Deep Kapooria, president of ACMA, said on Thursday.

"Alloy steel is used for manufacturing various engine parts for cars and transmission components. The government has to consider reducing duty on alloy steel from 15 per cent to 5 per cent to maintain parity with other countries where the duty is hardly 5 per cent," he added.

Jindal Iron and Steel has decided to hike steel prices by Rs 500-750 per tonne while Tata Iron and Steel has already hiked prices by Rs 500 per tonne. The Steel Authority of India and Essar Steel are also expected to adopt the same route.

"With rising costs of gas and the recent hike in freight rates, we have been forced to consider a hike in steel prices," said a source close to Essar Steel.

"With steadily growing sales, the automobile companies will hardly feel a pinch owing to the increase in steel prices. Many of them have already started hiking prices of cars. Our problem is that re-negotiation with our customers is very difficult. However, we now have no option but to go back to them for re-negotiations," said a senior official of Hi-Tech Gears, a leading auto component maker.

Baba Kalyani, chairman and managing director of Bharat Forge, the largest company in the segment, said: "So far we have been able to recover it (increasing costs of steel) from our customers. But, if prices keep soaring, we have reasons to be anxious."