Steel companies negotiate 10-16% price increase for auto manufacturers

While some mills have finalised contracts, others hope to close by month-end. Deals are for April-June quarter

Leading steelmakers have finally struck a deal with automobile manufacturers for a price increase of 10-16 per cent after protracted negotiations.

For flat steel, which is used in the car body, non-exposed car chassis and safety components, the increase is Rs 7,500-9,800 a tonne; the increase in longs, used in engine, transmission and the steering, and seating wire applications, is about Rs 6,000 a tonne.

While some mills have already finalised contracts, others are hoping to close by month-end. The contract is for the April to June quarter.

Ranjan Dhar, chief marketing officer, ArcelorMittal Nippon Steel India (AM/NS India), said, “We have finalised some contracts and the rest will be done by the end of the month. The increase in CRCA, or cold-rolled close-annealed (basis the index movement) would be around Rs 10,000 a tonne for Q1FY.” AM/NS is into flat steel.

Jayant Acharya, JSW Steel director (commercial & marketing), confirmed that auto contracts for the April to June quarter had been finalised.

Tata Steel is working towards closing the contracts by month-end.

However, even after the increase by steel companies, there would be a substantial gap with domestic prices. Acharya said, “While we appreciate the closure, there is still a substantial gap between domestic spot prices and quarterly contracts finalised in different products.”

Steel industry sources pointed out that the gap between domestic prices and quarterly auto contracts is about 18-25 per cent in different products a tonne after the increase and that between international spot and domestic quarterly contract for automotive is even higher.

One of the producers said that the opening price for CRCA was Rs 57,000-Rs 58,000 a tonne for negotiations and for auto-grade hot rolled (HR) Rs 54,000-55,000 a tonne.

With the finalisation of April to June contracts, companies are likely to open negotiations for Q2 and indications are that the increase could be higher.

Dhar said, “We will soon finalize the Q2 contracts as well, basis the movement of index during April to June, which should be around Rs 20,000 a tonne.”

Steel prices have been surging over the past year, globally. Domestic flat steel prices nearly doubled to Rs 72,000 a tonne in June 2021 from Rs 38,000 a tonne in June 2020. Long steel prices rose 1.4 times to Rs 57,900 a tonne, a Crisil report earlier in the month mentioned.

Domestic steel prices, however, were still at a discount to international prices. Much of the surge in domestic steel prices happened after November, which prompted the auto contracts to move to a quarterly pricing from a six-monthly,ntypically. The last increase for January to March was about Rs 7,000 a tonne.

Dhar said, “Though the auto contracts have shifted from semester to quarterly from Jan 2021, we have always been keen to keep auto contracts on semester basis only. We hope, we will revert back to it from H2 of this financial year.”

With the finalisation of contracts, some of the automakers have already started intimating about a revision in prices.

According to steel industry sources, steel accounts for about 8-9 per cent of the selling price of a car.

PRICE RISE

• Steel prices for the auto sector

• CRCA up by Rs 9,500-9,800 a tonne

• Auto grade HR up Rs 7,500-7,800 a tonne

• Longs up by about Rs 6,000 a tonne