Monday, March 14,
Specialized steelmakers, who supply high value products to the car industry, could be the first to switch to monthly contracts from quarterly agreements to reduce risks arising from increased volatility..*
Specialized steel includes high value alloy that accounts for about a fifth of the total cost of a car. In fact, the alloy steel companies have raised prices by about 25% in the past three months and are planning to revise upward yet again in April.
“These are uncertain times. Both the buyers and sellers are scared to stay locked-in for longer periods,” said Niraj Bajaj, chairman and managing director of Mukand Ltd , the largest alloy steel player in India. While this (the monthly contract) is not healthy, we hope stability returns soon”
Companies like Kalyani Steel , Mahindra Ugine , Usha Martin and other alloy steel makers supplies vital components to the car and two-wheeler industry and is a major driver and indicator of the price of cars.
Prices of the mineral has fluctuated violently in the past three-to-four months due to tight supplies on floods in Australia and growing demand from steel and power generating companies in China and India.
“After 40 years of working with annual supply contracts, in March last, the global order changed to quarterly. Only a year has passed and already they are thinking of changing to monthly, which is too soon,” said a Mumbai-based commodity analyst who is familiar with the move by alloy steel players.
“Monthly contracts will make predictability higher and we can forecast better,” said Mayank Pareek , executive officer (marketing and sales), Maruti.
But the previous contracts also had scope for revisions. According to Mr Bajaj, the earlier contracts had provisions for revision in prices after every month. “The story on raw materials is similar for us too. Hikes in prices of iron ore, coal and other minerals have led to a cost push and we are forced to raise prices,” said Mr Bajaj.
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