Rising interest rates, fuel prices and sluggish growth in the auto 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%.
Companies, however, maintain 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 given the robust growth in the previous years. 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 grew 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 LCV commercial vehicles and two 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.