The recent spurt in two-wheeler, lighter passenger vehicles (PVs) and tractors sales spells good news for the alloy steel producers in India.
Severe slowdowns pre- and post-Covid resulted in the suspension of auto orders and reduction in supplies, leading to issues of economies of scale, which, in turn, pushed up the fixed costs of production of alloy steel producers, resulting in negative margins for almost 4-6 quarters in a row last fiscal.
The alloy steel industry in India caters to global and world-class auto makers and original equipment manufacturers (OEMs) like Honda, Toyota, Bajaj Auto, Tata, Mahindra & Mahindra, Ashok Leyland and Maruti Suzuki amongst others. Alloy steel items are not commodity products but are highly customised, mainly for the auto industry, and constitute a prominent section of high-value and specialty steel products. The alloy steel producers’ installed total capacity is around 12 million tonnes (mn t).
Dr Anil Dhawan, Executive Director of Alloy Steel Producers Association (ASPA), a steel industry veteran of more than 45 years and a former Executive Director-Marketing of SAIL, explained to SteelMint that the alloy steel industry in India caters to global and world-class auto makers and OEMs on a regular basis and has developed highly customised supplier-buyer relationships over the last few decades. Of late, the demand for two-wheelers, light vehicles and tractors has speeded up, spelling good news for both the auto makers and ASPA members.
“The industry outlook is healthy and the alloy steel industry investments and growth are in line with the requirement of the consuming industries of auto and auto components,” Dr Dhawan observed.
The alloy steel industry is expected to double capacity by 2030 to about 24 mn t as per estimates. However, its growth is linked to the growth of the auto and auto components segments as alloy steel producers supply 70% of their production to these two segments.
The Indian auto industry, on its part, is expected to see stronger growth in 2021-22, after recovering from the devastating effects of the pandemic, with electric vehicle sales, especially two-wheelers, also likely to see positive movements, according to Nomura Research Institute Consulting & Solutions India. However, in the personal vehicles segment, the levels reached in 2018-19 would be reached only in 2023-24, it has added.
As per another source, the Indian automotive industry (including components manufacturing) is expected to reach INR 16.16-18.18 trillion ($251.4-282.8 billion) by 2026 and India could be a leader in shared mobility by 2030, providing opportunities for electric and autonomous vehicles.
In fact, alloy steel producers, through regular interactions with OEMs, the Society of Indian Automobile Manufacturers (SIAM) and the Automotive Component Manufacturers Association (ACMA) have achieved more than 90% localization in the auto industry and are working toward 100% indigenous use of alloy steels.
Dumping a serious concern
As with other items of steel, the alloy steel industry too is having serious concern over the dumping of alloy steels by FTA countries like Japan, South Korea and especially China. “ASPA is seeking help from the government in curbing cheap and undesirable imports of alloy steel, particularly from the FTA countries, and China, since these steels are easily available from the domestic alloy steel producers,” Dr Dhawan clarified.
“Indian alloy steel producers have accepted the challenges of providing quality steels to these global players and are continuously investing in R&D, new facilities and upgrading in terms of environmental requirements,” he further added.
EV demand positive
The alloy steel industry is also working proactively to meet the challenges of producing steels for electric vehicles (EVs) as well as higher demands that will arise out of the newly-announced vehicle scrappage policy of the GoI, which will accelerate demand for fresh vehicles. “The recent challenge of the Covid-19 pandemic, leading to higher demand, is also being met efficiently by alloy steel producers who are looking to match the quantum and quality requirements of the auto sector to feed public demand for all sorts of vehicles,” Dr Dhawan added, giving a thumbs-up to the decisions of the government.
Increase in cost of manufacturing
However, with a sharp increase in raw material prices, alloy steel producers in India are fighting with their back to the wall and consequently mulling a price increase, SteelMint has learnt.
The price issues are a matter of one-to-one between the buyers/OEMs and each alloy steel producer with each having their demand-supply dynamics to consider.
Cost escalations are generally the basis of reaching an understanding between a buyer and each individual alloy steel producer. Alloy steel producers follow a period-specific price contracts structure which is normally revised 2-4 times a year depending on individual arrangements. The negotiations with major OEMs are inked taking into account the increase in raw material prices during the period as well as the demand and supply situation and the international prices scenario. Global prices of all steel items have increased tremendously as is seen in the last few months.
In fact, since Jun’20, prices of key raw materials like iron ore, LAM coke, and various alloying elements have recorded a sharp increase. Domestic iron ore prices have shot up 120%-125% since Jun’20 while domestic LAM coke prices have increased by over 55%-60%. Prices of other alloying elements too have gone up sharply. Thus, the cost of production has increased multi-fold for alloy steel producers, admitted Dr Dhawan.
Despite such sharp increase in raw material prices, alloy steel prices have increased modestly by only 20-22% since Apr’20 while commodity steel prices have gone up by 60-63%, and are still headed north-ward. Steel prices internationally have also gone up.
Alloy steel producers, it is learnt, have been negotiating with their customers continuously who appreciate the necessity of a price increase to cover the increase in the cost of production, which is currently being absorbed by individual members.
“There is already a sharp surge in key raw material prices. Amid the robust demand in the domestic and international markets, raw material prices are expected to rule firm, if not increase further,” Dr Dhawan further forecasted.
With the prevailing international prices of steel and cost escalations, it is widely felt by industry sources that there is sufficient headroom available with OEMs and auto manufacturers to accommodate the evident and imminent price increase seen in alloy steels in the near future.
~By Madhumita Mookerji
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