India: Steel export duty levy may further delay auto contracts
The auto contracts for April-June, 2022 may further get delayed, SteelMint understands from the market pulse. This is because the automakers are expecting steel prices to...
The auto contracts for April-June, 2022 may further get delayed, SteelMint understands from the market pulse.
This is because the automakers are expecting steel prices to drop further against the backdrop of the government's recently announced export duty levy on finished steel amongst other items.
"Discussions on concluding the contracts may be delayed because of the recent duty structure announcements which are likely to pull down domestic prices," a source said.
It may be recalled the government, late last Saturday, slapped a 15% export duty on clad, plated or coated flat rolled products of iron or non-alloy steel of 600mm or more. This would include HRCs and CRCs, which are required in automobile production. The export tax has impacted the domestic bargaining power of the mills hugely by denting their overseas sales prospects.
However, whenever these contracts are closed in future, the billing will happen with retrospective effect from 1 April, 2022.
Quarterly versus half-yearly
It is heard that Indian automakers are averse to signing the contracts yet since they want these to be on a quarterly basis, whereas mills want to keep these half-yearly. In fact, this is an old tussle between both parties.
Currently, the former, sensing that prices may drop further in a falling market, do not want to get locked into half-yearly contracts. Shorter contracts would naturally allow them to bargain lower. However, and obviously, mills are strongly opposing this and want to bind the automakers for six months at comparatively higher prices.
"With the better part of the current quarter already over, and with steel prices expected to fall further, automakers are insisting on the shorter duration contracts," said a source.
Deals sealed for longs
Meanwhile, SteelMint heard that a few automakers have signed contracts for longs at around INR 11,500/tonne. It is expected that the other auto companies and steel mills would also agree to similar levels for longs.
However, almost 80-85% of the contracts are for flats with the balance being longs. Flats are where the main action is and it is waiting to unfold. Thus, the longs deals will not have much impact on the negotiations going forward, it seems.