Two heavyweight tier-1 mills have agreed to an INR 4,200/tonne (t) reduction in hot rolled (HR) and cold rolled (CR) prices in the third quarter auto contracts, SteelMint learnt from reliable sources. These prices, it is heard, were quoted to India’s largest auto maker. However, sources also confirmed that these offers are applicable across the board — to all auto original equipment makers (OEMs).
It may be mentioned that SteelMint, around ten days back, had forecasted that Q3, FY2022-23 auto contracts could see a substantial reduction of INR 4,000-5,000/t.
Mills and auto OEMs had shifted to quarterly contracts since April 2022 owing to high volatility in commodity prices. It can be recalled that Q2FY23 contracts saw a reduction of INR 10,700/t in HRC and INR 9,650/t in CRC. Auto segment contributes around 9-10% of total steel consumption in India.
Reasons for reduced offers:
1. Mills focused on long-term customers: With steel exports yet to pick up despite the 15% export duty removal, mills are focusing on long-term customers like automotive and others with attractive offers. Primary mills posted dismal Q2 results, highlighting the impact of the export duty on their bottomline, and are looking to shore up their balance sheets for the current quarter.
2. Domestic HRC-CRC prices range-bound: Hot rolled and cold rolled prices in the domestic market remained range-bound since October, 2022 with the trade channel in destocking mode. Monthly average benchmark HRC prices in September-October hovered at INR 56,250/t and INR 56,800/t respectively. CRC prices in September were at INR 65,900/t — such levels were last seen in February 2021. October’s average prices were INR 65,600/t. Trade channels are not approaching mills readily as they are sitting on inventory bought at higher prices and are not keen to offload the same at lower rates.
3. Imports are cheaper than domestic HRCs: Japanese and Vietnamese imports are turning out to be cheaper than domestic material, although these are being bought in small parcels. Some India-bound Japanese HRCs were heard booked at $590/t CFR (INR 48,380/t) and another 40,000 tonnes at $550-580/t (INR 45,100-47,560/t) CFR. In comparison, domestic trade level HRCs were at over INR 56,000/t minus 18% GST.
4. Raw material prices fall: A fall in key raw material prices like iron ore and coking coal in Q3 has been factored in by the mills, leading to subdued domestic prices of HRCs and CRCs.
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