Steel price hurts component makers

Rising steel price is becoming a major cause of concern for the $15 billion auto components sector that is already in trouble due to a lower demand in the domestic market, while exports have also suffered because of a stronger rupee.

Automotive Component Manufacturers' Association (AMCA) members said the rising price of steel has started affecting their profitability and the situation could get worse in the next two to three quarters.

While components makers said that the price of steel used in the component sector has risen by as much as 25 per cent in the last three months, a steel industry source said that prices of cold rolled coil were up from Rs 38,500 a tonne to Rs 44,000 a tonne (inclusive of taxes), while that for hot rolled coil were up from Rs 34,500 a tonne to Rs 40,000 a tonne since April 2007.

A further increase of steel price by Rs 6,000 a tonne is expected by April 1, according to a component industry source.

"Given the continuous push in input cost, we do not rule out a further price hike in the coming months," said a steel industry source.

Vishnu Mathur, executive director of ACMA said that a survey of 53 of ACMA's members showed a clear downward trend in profitability. ACMA represents the interest of 558 large and medium sized parts makers in the country.

"There are another 1000 or 1500 small and medium sized component makers who are not members of ACMA but are also affected by the rising steel price," said Srivats Ram, chairman of ACMA's southern region.

An estimated 3,00,000 people are directly and indirectly employed in the auto component business in the country, he said.

Parts makers said that export incentive on steel was inappropriate at this point, as the availability in the domestic industry has already been affected due to rising prices and inadequate supply.

"Since there is an incentive for exports, steel makers tend to benchmark the price in the local market after providing for incentives that they would have earned had they exported," said a Chennai-based component maker.

The rising steel prices could not have been more badly timed given that the demand for automobiles has also been on the decline. The overall automobile industry shrunk by 5.3 per cent between April 2007 and February 2008.

While sales of passenger vehicles grew by 12 per cent during this period, two wheeler sales fell by 9 per cent and medium and heavy commercial vehicles by 4 per cent.