India: Leading primary mill, automaker seal Q4 contracts; Others may follow soon

It seems Indian steel mills will take a further reduction in the fourth quarter (January-March) auto contracts if the latest deal is any indication. A leading primary mill closed the contracts for hot rolled coils (HRCs) with India's largest automobile manufacturer lower by INR 1,350/tonne. For cold rolled coils too the deal was signed lower by INR 1,550/t.

Since the mill and vehicle manufacturer involved are both heavyweights, these figures are expected to become benchmarks for other industry participants too for the current quarter.

It may be recalled that mills had agreed to a reduction of INR 4,900/t in HRCs and INR 4,200/t in CRCs for the October-December, 2022 quarter (Q3).

Therefore, the Q4 contracts point to a further drop in prices.

The second quarter (Q2FY23) contracts had seen a reduction of INR 10,700/t in HRCs and INR 9,650/t in CRCs.

Therefore, the predominant trend for the current fiscal has been downward.

Certain factors went against the mills and did not allow them much bargaining power in the current fiscal. These included the 15% export duty which impacted mills especially in the first half of the fiscal and drove them to lure long-term customers like automotive with offers and incentives in the form of lower contract prices.

Secondly, domestic HRC-CRC prices had remained range-bound for the better part of the fiscal and did not offer mills the elbow room to raise contract prices either.

That apart, cheaper imported HRCs had also been a bit of a bother for mills.

Mills and auto OEMs had shifted to quarterly contracts since April 2022 owing to high volatility in commodity prices. The auto segment contributes 9-10% of total steel consumption in India.

Outlook
With domestic and global steel demand and prices rising, mills may not be in a conciliatory mood in Q1 (April-June) of financial year 2023-24 (FY24). Prices of raw materials like iron ore coking coal are also rising which will not allow mills to conclude the next set of contracts lower.