Rising
interest rates, fuel prices and sluggish growth in the automobile sector may
take a toll on automotive steel makers. Domestic companies such as Tata Steel
and Essar Steel have lowered their estimates for automotive steel demand to
8-10% from earlier projection of over 15%.
However,
companies expect that the impact would be limited as the demand for automotive
steel in the domestic market is growing faster than their production capacity.
“We
had budgeted for 8-10% growth this year internally. The automotive steel demand
in India has grown at a faster rate than our production capacity. Hence, the
impact of the slowdown is limited,” a Tata Steel spokesperson said. Overall
steel demand in the country is expected to grow at around 7-9% this financial
year lower from 12% growth as anticipated earlier. For auto steel sales, the
demand was expected to grow over 15%.
In
fact, during the first three months of this financial year, auto sales rose by
15.14%. It was hit in July and August mainly due to rising interest rates and
fuel prices. Auto steel manufacturers feel that since the demand for Light commercial
vehicles (LCV) and 2 wheelers are in double digits, it would help them boost
their sales.
These
companies are also trying various strategies to meet their sales targets. While
Tata Steel is looking at boosting its sales by increasing its share of business
in the automotive with select customers, Essar is looking at better
distribution network and more sales in other segments like oil and gas,
construction and white goods to increase its sales.
Tata
Steel is one of the major players in automotive steel (flat products). Of its
total production, the auto steel amounts to around 25%. For Essar, around 20%
of its total production is for sales to all major passenger vehicles,
commercial vehicles and two & three wheeler manufacturers in India.
Most
of the automotive steel makers have long term contracts with the auto
companies. With the slowdown, the delivery schedules for steel is also likely
to change. “There are indeed long term contracts with auto companies on
volumes. We do see some changes in schedules from specific customers given the
volatility in demand,” the Tata Steel spokesperson said.
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