Steel prices have been soaring due to the Russia-Ukraine war, but auto companies have not felt the pinch so far. That may be about to change. Vehicle makers and steel producers will soon be sitting across the table to review their contracts.
Reports have indicated steel firms want to renegotiate auto contract prices higher by 15,000-25,000 per tonne. Let us find out how it will impact you and auto companies.
Why the price increase?
Due to the Russia-Ukraine war as well as inflation, there has been a surge in input costs like iron ore, coal, refractories, graphite electrodes, and energy costs. Additionally, steel prices have zoomed while auto contracts have not been revised, so a bit of catch up is on the cards.
How often does auto contract price revision happen?
Every six months, though sometimes we have seen quarterly revisions.
When was the last increase?
The last increase was effective October 1, 2021, in which long-steel producers got a relatively lower increase. So, this time around, they will get a higher price increase.
How does the process work?
Steelmakers will send out requests at the start of April for price revisions which, this time around could be Rs 15,000-25,000. There will be negotiations between OEMs and steel makers and in about 1.5 months they will arrive at a decision.
From a stock market perspective, who stands to benefit?
Among larger names, JSW Steel, which is one of India’s largest steelmakers, and Tata Iron and Steel Company (Tisco) have roughly 15-20 percent of the sales skewed towards auto contracts. For smaller players like Kalyani Steel and Vardhman Special Steels (VSSL), sales are almost entirely for the auto space.
From a consumer perspective, how much could your cost go up?
The cost of the vehicle you want to purchase could go up by approximately 1.5 percent depending on the type. For automakers, extending price hikes to consumers is a hope as of now, but operating costs spike is a reality.
First Published: Mar 28, 2022 12:07 PM IST
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