Mumbai : Recent government measures to rein in steel prices may delay the planned price hike for automobiles, but will not bring down prices, as input cost pressures remain elevated, automakers said.
Over the weekend, the Union Finance Ministry imposed a 15% export duty on steel, which accounts for more than 80% of the raw material for trucks and about 75% for cars. With adequate steel stock available in the domestic market, automakers are expecting better deals from steel makers in the next quarter.
Shashank Srivastava, Executive Director, Maruti Suzuki said.
Company executives interviewed said that apart from the reduction in steel prices, they also have to weigh other factors such as demand, higher prices for other components, and costs associated with regulatory requirements such as six mandatory airbags.
However, vehicle prices, which have risen by up to 15% in the past one year, may not soften, Srivastava said.
“It is unlikely that this will bring down prices because even after the steel prices come down, they will remain much higher than the levels seen a year and a half ago. OEMs (Original Equipment Manufacturers) have raised prices several times in the past one year, but the impact of commodity inflation is still not fully implemented. However, this will help the overall cost structure and could potentially delay further price hikes, depending on how the costs associated with other raw materials and regulatory requirements pan out.”
According to the Society of Indian Automobile Manufacturers (SIAM), FY22 witnessed a steep rise in commodity prices. The price of hot rolled steel rose by about 92 per cent, while that of cold rolled steel rose by 77 per cent. Both types of steel are used in automotive manufacturing.
“A heavy duty truck is usually 80% steel. The increase in export duty will certainly prompt steel mills to sell them at better prices in the domestic market. “Steel prices at current levels were simply not sustainable,” said Vinod Agarwal, managing director and chief executive officer, Volvo Eicher Commercial Vehicles Ltd.
“Steel prices what they used to be” 36,000-37,000 per ton a year ago 70,000 per tonne, steel makers are asking for even more. This move will surely quell that excitement to some extent. The duty hike will most importantly improve sentiments in the industry, coupled with reduction in excise duty on diesel and petrol.”
Aggarwal said a change in the prices of commercial vehicles is not likely, but the softening of steel prices could lead to further increase in prices.
Rajesh Menon, Director General, said, “Reduction in import duty for raw materials for steel and plastic products, and increase in export duty on steel intermediates will help in reducing steel prices in the domestic market, thereby impacting the automotive supply chain.” The pressure will be less.” He said lower fuel prices would reduce the price pressure on buyers.
According to broking firm CLSA, steel accounts for 5-22% of the average selling price of a vehicle. Commercial vehicle and tractor manufacturers are likely to benefit the most from the cut in steel export duty due to higher steel content and strong recovery in demand. CLSA has removed the earnings projections of all auto OEMs which cover the back of this development.