Pressure on steel companies to increase auto contract prices after three quarters

Mumbai: The cost of vehicle manufacturers is going to increase. Steel companies are pushing for an increase in contract prices after nearly three quarters. But it remains to be seen if automakers pass this increase on to consumers. Most car manufacturers have already announced price hikes, which will be effective from April.

Steel accounts for about eight percent of raw material costs in cars and utility vehicles, seven percent in two-wheelers and nine percent in commercial vehicles.

Steel majors Tata Steel, JSW Steel and ArcelorMittal Nippon Steel India have started talks with auto sector original equipment manufacturers for the April-June contract amid a rally in steel prices. Negotiations have started soon after the price hike was announced by the vehicle manufacturers.

Steel company sources said steel prices rose globally in December 2022, reflecting a higher cost structure. Therefore, the contract price of vehicles will directly increase. Negotiations for contracts have started. Prices have come down in the last three quarters. But steel prices have risen since late December due to rising input costs, which will also be reflected in the talks.

Usually the average of the last 3/6 months forms the basis of negotiations. Spot steel prices have increased globally since December. By March, there has been an increase of about 49 percent in America and 22 percent in Europe. The domestic market has grown by more than 12 percent, which will be the basis for negotiations for future contracts.

Contracts for the vehicles were usually for six months, but volatility in steel prices due to supply disruptions following the Covid-19 pandemic has prompted companies to move to quarterly contracts.

Vehicle prices are increasing to cover the cost of compliance with the new emission norms that came into effect from April 1, as well as previous cost increases.