Indian steel mills negotiate interim price hike with auto companies for existing contracts

A section of automobile manufacturers and auto component makers have agreed to pay INR 7,500/t to steel producers on top of their biannual contracts to factor in the big surge in steel prices.

"Some companies have agreed to give steel mills an interim correction of 7.5 (rupees per kg)", a senior executive close to the negotiating process between the companies said, on the condition of anonymity. "Talks are continuing with the others who have not agreed".

"The interim adjustment would be an additional payment on the contract prices for the current January-March quarter", two other sources said.

Auto and steel companies last set the prices in mid-October but thereafter steel prices started to climb following a heavy demand from the automobiles and infrastructure sector. Higher foreign markets also added to the bull run.

The next round of talks is scheduled to take place at the end of March for the new six monthly contract to kick in on April 1, but the steel makers have persistently asked auto firms for a revision in the pricing system.

Steel hot rolled coils were priced at around INR 55,250/t (exy-Mumbai) on Monday, up around 33% from INR 41,600/t in the first week of October, 2020, data from SteelMint Info Services shows. Prices are basic and do not include an 18% goods and services tax.

"The gap between the contract and spot prices is to the tune of INR 9.5-INR 10/kg", one of the sources said. But a second source said "the gap was wider at about INR 13/kg, therefore, the gap has not been fully closed in this agreed INR 7.5 figure," they added.

Tough negotiations underway

As all price negotiations, this one has also been contentious. Steel makers started by demanding a switch to quarterly contracts so that the volatile steel prices are factored in better. But auto companies rejected this as they like to work with the surety of pricing over a longer duration of time.

So, steel companies put their foot down insisting on their second alternative-the interim price adjustment.

"Mills are insisting (on the interim payment) and they even threaten to stop supplying," a senior official in a large trading company said. "Market information says it is INR 7.5 but it is not agreed to so far."

But "OEMs (original equipment manufacturers) may not have options in the present situation..."

OEM refers to both auto producers and those who manufacture the auto components.

One of the companies even replaced its negotiator hoping the new person works to help secure a better deal.

Author-Ruchira Singh