Indian steel mills close longs contracts with auto OEMS, flats still under discussion - Sources

Auto contracts for long steel for the first and second quarters (April-June and July-September, 2022) have been closed, SteelMint learnt from reliable sources.

Flat steel contracts are still under consideration. SteelMint heard that some auto majors did make some offers but the larger players on both sides of the table (OEMs and mills) are yet to arrive at a decision. However, the buzz is that these will settle at an increase of INR 6,000/tonne (t) for Q1 and at a decrease of around INR 10,000/t in Q2.

Meanwhile, some of the leading auto makers and mills came together today to settle the longs deals, where Q1 contracts closed at an increase of INR 9,000/t and for Q2, by a decrease of INR 4,050/t, over Q4. Thus, the net increase that mills will enjoy in longs is of INR 4,950/t over both quarters.

If the flats get settled at the above-mentioned rates, then these will see a net decline of INR 4,000/t spanning both Q1 and Q2.

In reverse gear to quarterly contracts

It may be mentioned that mills and OEMs have shifted to quarterly contracts from April, 2022.

The previous 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.

The Q1 and Q2 contracts should have ideally been settled at the close of last financial year or beginning of the current fiscal. However, both parties were not agreeing to the price proposals. The disagreement stemmed from the fact that spot prices were high in Q1 on account of runaway inflation in coking coal and other input costs etc. However, mills had agreed that Q2 would see a reduction because prices have been low, demand sluggish and the raw material cost push not that severe.

Thus, both parties had agreed to revert to a quarterly dispensation.

The tussle was not with respect to closing Q2 but Q1 and the OEMs' hardened stand led to the delay.

It may be mentioned that automotive steel' share is 9-10% in India's total steel consumption, out of this 80-85% would be flats and rest longs.