Rising Prices of Inputs Hamper Auto Component Manufacturing
The India manufacturing slump story has been in the news over the past few months as rising interest rates and fuel prices hit the auto industry making life difficult for auto majors and their suppliers. The auto component industry has been hit with rising steel costs, along with the deprecating dollar. Industry news reported negative growth in December 2007 with component manufacturers unable to pass on the burden to their customers who typically were willing to take on only a partial burden.
ACMA was among the more vocal players on asking for intervention by the government to curb rising prices. According to ACMA President Sanjay Labroo, the component industry risked losing share both in domestic and international markets unless the government intervenes to control rising steel prices.
In response to the industry it has been heartening to see the government take steps to reduce steel prices as was evident when the country’s top steel producers, Tata Steel, SAIL and Jindal Steel, on Thursday decided to roll back the prices of long steel products, including construction-grade TMT bars by Rs 2,000 per tonne. The reduction in steel prices is part of a package brokered by the Steel Ministry with the major steel producers.
The steel companies have also agreed to address the issue of supply constraints resulting in higher prices of steel. The main steel producers would now import the requirement of intermediate products like hot-rolled (HR) coils under advance licensing scheme for producing high-grade steel and GPGC sheets, colour coated steel and cold-rolled (CR) coils.
“This is expected to unlock an additional two million tonnes of HR coils in the domestic market that would other wise have gone into producing high grade steel meant for exports,” steel secretary R S Pandey said after the meeting with steel producers. The meeting was attended by representatives from Tata Steel, SAIL, Jindal Steel & Power, JSW Steel, Essar Steel, Ispat Industries, RINL and Bhusan Steel.
The companies have agreed to increase allocation of steel for small-scale industries corporations by 20% from a level of 5 lakh tonne to 6 lakh tonnes. This would improve the availability of steel for the SME sector downstream industries. Moreover, the companies have also agreed to bear a cost of Rs 400 on per tonne transportation of steel to this segment apart from Rs 500 per tonne subsidy available from funds of joint plant committee (JPC). Similarly, package has also been worked out for tiny units requiring one, two or three tonne of steel.
Its a matter of time of course before we see if these measure bear any fruit in terms of relief to the industry. Of concern is the fact that the price of pig iron – a key input to the casting industry – continues to rise. Many components in the auto industry are made of cast iron and component manufacturers continue to be under stress.
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