October 13, 2008

Indian auto majors seeks long term contracts from steelmakers

It is reported that, in order to ensure assured supplies of steel at a negotiated price through long term contracts, Society of Indian Automobile Manufacturers will meet primary steel makers represented by the Indian Steel Alliance over the next few days. The move is aimed at keeping vehicle prices stable, at a time when the economy is reeling under rising inflation and the automobile industry hit by declining sales.

Mr Dilip Chenoy director general of SIAM said that "We are meeting different steel associations to have a common approach. We plan to meet ISA to ensure availability of steel at a price where the cost of vehicles is not affected."

In the new contracts being negotiated, steel companies have asked automobile companies a price hike in the range of 20% to 35%. At this rate of increase, SIAM estimates that the cost of commercial vehicle is required to increase in the range of INR 50,000 to INR 75,000. While two wheeler makers have already hiked prices in the range of INR 500 to INR 1,000, car manufacturers are also likely to take a decision by May 2008.

Sources in the steel industry said that finalizing the long term contract prices with automobile manufacturers may take a little longer than usual this year because there are strong possibilities of the government initiating fiscal measures to bring down steel prices. The final contract price with the automakers would probably be decided only after there is clarity on the government front.