Toyota rings alarm bell on rising steel prices

Japanese car-maker Toyota said import of components from Thailand works out cheaper than those manufactured in India, as local steel prices continued to rise sharply in a high import duty regime.

Domestic steel producers announced a Rs 1,500 a tonne hike in hot-rolled steel prices on Thursday, adding to the 49 per cent increase in prices effected through last year. At the same time, imports continued to be levied a high customs duty, the basic rate being 25 per cent.

"In a scenario where prices increase unpredictably, local manufacturing is severely hurt. We think this kind of high import duty is detrimental to the growth of the industry here," K K Swamy, deputy managing director, Toyota Kirloskar Motor, the subsidiary of the world's second largest car maker, said.

Toyota is perceived to be the biggest beneficiary of the proposed India-Thailand Free Trade Agreement (FTA) which will be signed shortly. The company had drawn flak from several local auto component makers and a few car-makers in India as it was seen pushing the FTA.

Toyota, which has a large manufacturing base in Thailand, imports engines and steel panels from there.

Reiterating that Toyota was in favour of a reduction in import duty, Swamy said: "As a worldwide policy, our company supports the growth of local vendors."

And he explained that if the duties were reduced, the company would manufacture steel panels locally. Steel panels, incidentally, is also on the early harvest list of the proposed Indo-Thailand FTA.

Thailand levies a low 5-7 per cent duty on imported steel for automobile makers. There is also a refund available in case of exports. On the other hand, basic import duty on steel in India is 25 per cent.

Since it is levied on the landed price, the effective rate of duty works out to around 28-30 per cent. As a result, there is a huge 23 per cent benefit which accrues to component manufacturers in Thailand.

Swamy said steel prices were fluctuating too often in India, which was not in the interest of the user industry. Thankfully, Toyota has a long-term contract which expires in April. But still the impact of yesterday's price hike will be felt.

Several car makers have said that they will increase the prices of their vehicles by around 2-5 per cent in January. But industry sources say that even by increasing the price by 2 per cent, only 40-50 per cent of the cost increase will be offset.