Indian mills settle flat steel prices in Q1 auto contracts

Indian steel mills have increased prices of flat steel products in their auto contracts for the first quarter (April-June, 2023), reliable sources informed SteelMint.

Prices of hot rolled coils (HRCs) have been increased by INR 3,000-3,500/tonne (t) and of cold rolled coils (CRCs) by INR 4,000-4,500/t.

However, it may be recalled that in the last contracts closed for Q4 (January-March, 2023), mills had reduced both HRC prices by INR 1,350/t and CRCs by INR 1,550/t.

In fact, Q3 (October-December, 2022) had seen steep cuts of INR 4,900/t in HRCs and INR 4,200/t in CRCs.

It may be mentioned that mills and OEMs shifted gear to quarterly contracts from April 2022. Importantly, flats comprise about 80% of automotive steel demand and longs, 20%. Thus, flats contracts impact auto OEMs more.

Factors leading to hike in contracts

1. Mills recover previous reductions: Prices in Q1 have been hiked after two straight quarters of reductions. Thus, mills are looking to regain some of the lost ground in the previous two quarters.

Overall, demand in the steel industry is rather low. Domestic offtake has been sluggish while exports are not making any headway. Mills have been forced to lower their prices against the backdrop of weak demand signals globally, especially from China. Therefore, recovering some of the lost ground from the previous two quarters was imperative for the mills.

2. Raw material cost impact: Moreover, the cost of both iron ore and coking coal in the previous quarter was higher compared to Q1. For instance, the premium HCC coking coal CFR India, touched a high of $357/t in Q4FY23 but dropped off to $265/t in Q1FY24 (till date). Raw materials are usually used with a lag of 2-3 months and thus necessitated the price increase to recover the higher costs.

3. Higher automotive sales: Data reveals that auto sales rose by 17% m-o-m in May, which seems to have kept demand for CRCs supported. Data from the Federation of Automobile Dealers Association of India (FADA) shows that passenger vehicle sales increased by around 6% m-o-m in May.

Outlook
The buzz is that contracts for Q2 (July-September) will be closed lower since raw material prices have eroded q-o-q. Moreover, auto sales generally skid in the rainy season.