Indian Alloy steel makers pitch INR 6,000-8,000/t price hike in long-term auto contracts

Alloy steel producers across India, such as JSW Steel, Mukand Ltd, Kalyani Steel, Sunflag, Vardhaman, etc are bracing for a price increase by INR 6,000-INR 8,000 per tonne for original equipment manufacturers (OEMs) and component makers in the auto sector under their long-term contracts. Negotiations are under way, SteelMint has learnt from reliable sources. The price hike as mentioned above, however, pertains only to long alloy steels, it is understood.

These auto contracts are negotiated on a half-yearly basis and cover both long and flat products. It may be recalled that these were due for a relook in April 2020. However, due to the pandemic-induced lockdown last year, negotiations could not be held between the mills and the automakers. Instead, post-lockdown negotiations led to a price hike of around INR 5,000/tonne in longs in October, 2020. These prices were to have sustained till March 2021. However, the sharp rise in domestic and global steel prices forced the mills to return to the negotiating table and go for an interim price hike of INR 6,200/tonne in January in longs for leading car makers as an addition on the contract prices, SteelMint data points out.

In fact, the sharp rise in global steel prices and higher margins lured many mills to export and forced them to lower their supplies to the auto sector. Consequently, automakers had no choice but to agree to absorb the interim price hike.

"Negotiations are underway. But, most of the auto dealerships are closed because of the lockdown in major cities and towns, because of which sales are not happening," said an official with a leading alloy steel supplier.

Indeed, at present, the market buzz is that there is a risk in the negotiations since auto sales are being impacted because of the localized lockdowns and that, in case sales decline, the negotiations may get delayed.

'Price Rise Inevitable'

But, an alloy steel industry source said, "This price hike is inevitable, because of the sharp increase in international prices of steel, coupled with an upsurge in raw material prices."

The negotiations with major OEMs are inked taking into account the increase in raw material prices during the period, the demand/supply situation and the international price scenario. Global prices of all steel items have increased tremendously as is seen in the last few months and are at an all time high.

Since June 2020, prices of key raw materials like iron ore, metallurgical coke, and various alloying elements have recorded a sharp increase. Domestic iron ore prices have shot up 120%-125% since June 2020 while domestic metallurgical coke prices have increased by over 55%-60%. Prices of other alloying elements too have gone up. Thus, the cost of production has increased for alloy steel producers, admitted Dr. Anil Dhawan, Executive Director, ASPA.

Alloy steels are specialized and are not commodity steels. They go into sophisticated applications-mainly automotive.

Alloy steel producers, on their part, feel the present price levels cannot be sustained any longer. With the prevailing international prices of steel and cost escalations, and the very strong demand for steel in India and globally, it is widely felt by industry sources that there is sufficient headroom available with OEMs and auto component manufacturers to accommodate the price increase in alloy steels.

The prices of alloy steel grades vary widely depending on the composition of the grades and their processing. The average price for carbon steel grade is ranging from INR 57,000/tonne at the lower end to INR 90,000/tonne for high-value alloy steel grades which are commonly used by the OEMs. Special grades are priced even higher.

~By Madhumita Mookerji