Auto & consumer durable firms heave a sigh of relief

But say the impact of any reduction in steel prices will be seen with a lag

- SHALLY SETH MOHILE, SHARLEEN DSOUZA & VIVEAT SUSAN PINTO

The Union government's recent move to reduce import duty on some key raw materials used in the manufacturing of steel and a levy on exports has come as a relief for automakers and consumer durable firms. The move is likely to cool down steel prices in the months ahead. But it is unlikely to boost demand in segments like entry-level small cars that have seen the overall affordability taking a hit due to incessant price hikes, said analysts.

A persistent inflationary trend in commodity prices, including steel, copper, aluminum, and plastics, has led to frequent hikes in the prices of automobiles, refrigerators, washing machines, air conditioners, and other consumer durables since the beginning of 2021.

The weighted average on-road prices of compact cars (entry-level and premium), for instance, surged 13 per cent by the end of FY22 when compared with FY20, according to industry sources.

For automakers, commodity prices account for 75 per cent of net sales value.

"Steel is a major material for auto manufacturing, so a reduction in steel prices will be a positive for the industry," said Shashank Srivastava, executive director at car market leader Maruti Suzuki India.

The effect of changes in steel prices happens with a lag of a quarter as the contract prices are finalised for the next quarter, taking into account the spot prices of the previous period. With the export duty going up, it is expected that steel spot prices in the domestic market will come down, stated Srivastava.