India: Excise Duty Cut on Cars may boost Domestic Flat Steel Consumption

The interim Budget has bought in some relief for the automobile Industry as the Finance Minister Mr. P Chidambaram reduced excise duty for small cars by 4%. The prevailing duty of 12% was reduced to 8%.

The automobile Industry is one of the major consumers of Flat Steel products in India. This sector consumes around 2 MnT of Flat Steel products, whereas the demand is about 7-8 MnT. Many automobile companies depend on imported steel products due to specific requirements; however cost competition has forced manufacturers to look for domestic substitutes. Experts believe that in coming years, domestic Flat Steel industry is likely to meet the entire demand for automobile companies owing to capacity expansion seen by many players.

As per industry body SIAM, Car sales have declined annually by 10% in 2013 for the first time in the last 11 years. The excise duty cut comes as a sigh of relief for the auto sector.

Production of Cold Rolled steel used in automobile industry is as shown below:

 CRC Production

Bhushan, one of the prime manufacturers of Auto grade steel is quite bullish on this sector. It has planned to increase its capacity to 4.5 MnT in this year, in order to meet the growing demand from the automobile industry. Steel Authority of India Limited (SAIL) is also planning to set up a 1.2 MnT pa cold rolling mill at its Rourkela Steel Plant (RSP) through a joint venture. Production from this unit  will cater to the needs of the auto sector. SAIL supplies around 0.5 MnT of steel to the auto sector, whereas its competitor TATA supplies around 1 MnT.

Sales of domestic cars have witnessed a decline of 7.6% in January. The duty cut will make cars cheaper by almost INR 25,000- 30,000 and thus boost sales. This will bring cheers for the beleaguered auto industry. But many experts view that higher interest rate and rising fuel cost may continue to affect the demand for automobiles.