India's auto sales decline in Sep'24 putting pressure on aluminium alloy prices

In September, automobile retail sales in India fell by 9% y-o-y, with total registrations declining to 1,723,330 units from 1,899,192 units in September 2023, according to the Federation of Automobile Dealers Associations (FADA).

This decline was observed across most categories, including a 19% drop in passenger vehicle sales, which totalled 275,681 units. Factors contributing to the sluggish demand include seasonal influences like Shraddh and heavy rainfall, leading to historically high inventory levels of 80-85 days' worth of stock.

As per sources, FADA's President had urged original equipment manufacturers (OEMs) to implement corrective measures to prevent financial setbacks as the festive season approaches. Despite the expected boost from festivals, the market sentiment remains weak, compounded by low consumer inquiries and reduced foot traffic.

Looking ahead, FADA emphasizes the critical need for a successful October to clear excess inventory and establish a positive growth trajectory for the remainder of FY25.

Impact of high inventory on aluminium alloy market

In the aluminum segment, particularly the alloy sector where ADC12 ingots are used to manufacture cast parts for vehicles, such as engines and smaller components, there has been a setback due to weak auto sales. This declining demand has led to increased inventory levels, exacerbated by a sluggish overseas market, especially in Japan, which is the leading export destination for ADC12 ingots. As a result, domestically produced alloy ingots in India are being increasingly sold within the Indian market.

Moreover, the excess inventory has led auto OEMs to curb their aggressive purchasing of alloy ingots, which has further exerted downward pressure on the prices of ADC12 (OEM approved) materials.

Notably, India's largest automobile manufacturer had announced its ADC12 prices for November 2024 settlements at INR 209,900/t, reflecting a reduction of INR 6,000/t from October's price of INR 215,900/t. This marks the lowest price level seen in eight months, with the last similar figure recorded in Mar'24. The decline is primarily attributed to sluggish demand in the automobile sector.

The decline in settlement prices by OEMs has negatively impacted alloy ingot manufacturers, primarily because the raw material for producing ingots relies on scrap, which is currently trading at higher prices. Since India largely depends on imports for aluminum scrap, many alloy manufacturers report operating at a loss due to the high cost of raw materials coupled with falling alloy ingot prices.

H1FY'25 scenario:

In the H1, the Indian automotive sector showed a growth of 4% in terms of production reaching 1.48 million units compared against 1.42 million units in H1FY'24. Meanwhile domestic sales witnessed an increase of 12% which includes CVs, PVs, two-wheelers and three-wheelers.

The Indian passenger vehicle (PV) market experienced slower-than-expected growth in the first half of FY25, with a modest increase of just 0.5%. This falls short of the Society of Indian Automobile Manufacturers' (Siam) initial forecast of 3-4%. As a result, the overall annual growth outlook has been tempered, despite hopes for improvement during the festival season.

SIAM president expressed disappointment, citing unforeseen events in May, June, and September-such as elections, heatwaves, and heavy rains-as key factors hindering momentum. He noted that three out of six months in H1 underperformed expectations. While H2 may see stronger growth, the full-year target of 5-8% is now likely to be revised down to below 5%.

In the April-September period, PV dispatches totaled 20.81 lakh units, a slight increase from 20.71 lakh units last year, but September alone saw a y-o-y decline of 1.4%.

Outlook

Despite an initial boost from festival sales in April, the Indian vehicle market struggled to maintain momentum in the following months. However, early October showed promising signs, with vehicle registrations increasing by 30-35% compared to September, suggesting a potential rebound in the second half of the year, according to Siam president.

The near-term outlook remains cautiously optimistic about a gradual recovery in FY25, driven by festival sales and new model launches, but overall growth is expected to fall short of earlier projections. High single-digit growth in H2 is essential, supported by intrinsic demand and OEM efforts. In response to sluggish H1 demand, automakers have introduced discounts.