Steel mills and auto original equipment manufacturers (OEMs) are likely to close the auto contracts for Q1 (April-June, 2022) and Q2 (July-September, 2022) this week itself.
The contracts have been mainly half yearly but sources told SteelMint, with the markets volatile and prices falling sharply, OEMs jointly pressurized the mills to opt for quarterly arrangements, to which the latter gave in.
Mills steer towards Q1 hike
SteelMint heard from reliable sources that the mills have agreed to an increase of around INR 8,000/t in Q1 and a reduction of INR 7,000-8,000/t in Q2.
A leading mill said it is asking for a hike of INR 7,000-8,000/t in Q1 and is okay with a downwards revision of INR 7,000-8,000 in Q2. If this happens, the overall increase in prices will get nullified. Another mill may soon close at INR 5,000-6,000/t for Q1 and accept a reduction of INR 7,000-8,000/t for Q2 because raw material cost push was not severe, global prices were down and overall domestic demand and prices were low.
OEMs erect speed-breakers
However, sources said the OEMs are not agreeable to the INR 8,000/t-odd increase in Q1. They are seeking a reduction in prices or roll-over of Q4 prices.
The last contracts (October 2021-March 2022) had closed with an increase of INR 3,800/t in hot rolled coils and INR 4,000/t in cold rolled coils. Mills had reverted to half yearly contracts from October last year.
A leading steel mill, for instance, has proposed a hike of INR 3,000/t in Q1 and a drop of INR 7,000/t in Q2 or a hike of INR 5,000/t in Q1 and drop of INR 9,000/t in Q2 or rollover in Q1 and a drop of INR 4,000/t in Q2. So, effectively, a INR 4,000/t decline is what this player is eyeing if H1 is considered.
But a flat steel supplier said such proposals to the OEMs are not acceptable. “Steel prices started increasing from February onwards as the war broke out. OEMs must understand they need to incorporate that increase in their contracts. We accept that in Q2 there will be a reduction because prices have been low, demand was sluggish and the raw material cost push was not that severe.”
“Chances of a rollover are thin because OEMs enjoyed very low prices during a period when spot prices were very high and they must factor this in, in Q1. Coking coal prices were high in this period,” reminded a mill source.
Thus, the tussle is not with respect to closing Q2 but Q1 and the OEMs’ hardened stand is leading to the delay in signing Q1 contracts, it is learnt.
Outlook
For Q1, mills and OEMs may go in for a hike and a reduction in Q2.
A source said, “We may have a scenario wherein prices are rolled rollover for Q1 and a decrease of INR 8,000 -10,000/t is arrived at in Q2.”
Going forward, there is a high probability that contracts will henceforth be sealed on a quarterly basis.
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