Rising steel price is becoming a major cause of concern for the $15 billion auto components sector that is already in trouble due to a lower demand in the domestic market, while exports have also suffered because of a stronger rupee.
Automotive Component Manufacturers’ Association (AMCA) members said the rising price of steel has started affecting their profitability and the situation could get worse in the next two to three quarters.
While components makers said that the price of steel used in the component sector has risen by as much as 25 per cent in the last three months, a steel industry source said that prices of cold rolled coil were up from Rs 38,500 a tonne to Rs 44,000 a tonne (inclusive of taxes), while that for hot rolled coil were up from Rs 34,500 a tonne to Rs 40,000 a tonne since April 2007.
A further increase of steel price by Rs 6,000 a tonne is expected by April 1, according to a component industry source.
“Given the continuous push in input cost, we do not rule out a further price hike in the coming months,” said a steel industry source.
Vishnu Mathur, executive director of ACMA said that a survey of 53 of ACMA’s members showed a clear downward trend in profitability. ACMA represents the interest of 558 large and medium sized parts makers in the country.
“There are another 1000 or 1500 small and medium sized component makers who are not members of ACMA but are also affected by the rising steel price,” said Srivats Ram, chairman of ACMA’s southern region.
An estimated 3,00,000 people are directly and indirectly employed in the auto component business in the country, he said.
Parts makers said that export incentive on steel was inappropriate at this point, as the availability in the domestic industry has already been affected due to rising prices and inadequate supply.
“Since there is an incentive for exports, steel makers tend to benchmark the price in the local market after providing for incentives that they would have earned had they exported,” said a Chennai-based component maker.
The rising steel prices could not have been more badly timed given that the demand for automobiles has also been on the decline. The overall automobile industry shrunk by 5.3 per cent between April 2007 and February 2008.
While sales of passenger vehicles grew by 12 per cent during this period, two wheeler sales fell by 9 per cent and medium and heavy commercial vehicles by 4 per cent.
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Sunday, March 23, 2008
Steel price hurts component makers
Saturday, March 8, 2008
Auto part makers in China rush
India’s leading auto component makers are making a quiet move. As many as over 20 Indian auto component makers, which include big boys such as Talbros, Ashahi Glass, ZF Steering Wheels, GNA Axles, Luxite and Sundaram Brake Linings, are winging their way to China this week to see the possibility of setting up manufacturing plants in the country.
And they are looking at supplying their products not to Chinese companies but global auto makers ranging from BWW, Mercedes, General Motors, Ford amongst others. These global majors have been outsouring from Indian manufacturers and are aware of their reliable quality.
With Indian auto ancillaries supplying high-quality components to almost every multinational auto majors in the world, moving into China help them leverage this privileged relationship with the same players in China.
“The main reason for foreign companies to set up plants in China is to take advantage of the large Chinese market,” says Suresh Krishna, MD, Sundram Fasteners, the first Indian auto parts company to foray into China four years ago.
“In fact, we started the plant for exports from China in the first phase. In the second phase, we have now started supplying to MNCs in China. In the third phase, we will be covering the Chinese auto companies,” adds Krishna.
Others have also taken their first tentative steps in this direction. Bharat Forge (BFL) acquired a 52 per cent stake in China’s largest foundry unit, FAW Corporation, to become FAW Bharat Forge (Changchun) Co.
The JV has catapulted BFL to become the largest player in forgings & castings in China. And just a few weeks earlier, Tata Autocomp GY Batteries (TGY), a 50:50 JV between Tata Autocomp Systems (Taco) and GS Yuasa International (GYIN) announced plans to set up a manufacturing facility in Nanjing, to be operational in the next 3 months.
Of course, there is a cautious optimism about entering China. Says Arvind Dham, managing director of Amtek Auto, “We will surely go to China by 2010. At the moment, our first stop is Eastern Europe which is also a growing market. We have narrowed down on Rumania. China is an interesting market but not that easy to enter.”
The Chinese domestic auto industry is the fastest growing auto market in the world overtaking the United States’ auto industry. “To tap the Chinese auto industry, one has to be present in China,” explains Vishnu Mathur, executive director, Automotive Component Manufacturers Association of India (ACMA).
The reason: to encourage domestic production of components, the Chinese government stipulates that a vehicle with more than 40 per cent localisation will attract the MFN general duty of between 8 and 12 per cent. Else they attract as much as 25 per cent duty.
Another big attraction is the cost of doing business which directly related to the taxation structure. “It’s 25 per cent cheaper to manufacture goods in China than in India,” explains Mathur.
“While the Chinese have a GST, India has cascading taxes like octroi and special taxes that are yet to abolished. These add to the costs,” adds Mathur.
India has a roadmap for a common GST to be realised by 2010.
Apart from reliable infrastructure such as power, a managed yuan that makes exports competitive and a flexible hire & fire labour policy, China also has a huge stockpile of commodities available at competitive rates to companies operating in China.
“With their high export duty on commodities, raw material such as iron ore is in surplus,” said one industry observer.
Monday, December 17, 2007
Auto part investments to treble in 3 yrs
Companies plan to pump in Rs 30,000 crore to cash in on demand surge
Domestic auto component companies are investing Rs 30,000 crore to cash in on the automobile boom. Automobile capacity in the country will double from 2.2 million unit per annum to 4.4 million by 2010.
Sanjay Labroo, president, Automotive Component Manufacturers’ Association (ACMA), said: “The industry will invest Rs 30,000 crore in the next two years. Last year, we did a business of Rs 62,000 crore and this year we will do a business of 71,000 crore.”
Companies, which are jumping into the bandwagon, include MNCs. For instance, the world’s leading component company Bosch has committed an investment of Rs 2,650 crore through four subsidiaries in India. Funds will be used to set up manufacturing facilities for gasoline systems, electronic control units and ABS systems.
Delhi-based Sona Koyo, manufacturers of steering columns, axle assembly, propeller shaft, plans to invest Rs 400 crore, including Rs 200 crore to be spent in 18 months. The company caters to Toyota, Nissan, Suzuki and Renault.
The company forged a JV earlier this year with Japan-based JTEKT for making electronic power steering systems at an investment of Rs 150 crore. The facility is coming up in Haryana. The company has five other JVs with global players.
Surinder Kapoor, chairman, Sona Group, said, “We are in talks with international players. They are checking our facilities to evaluate the manufacturing and supply capacities.”
TACO (Tata Auto Systems), the auto component arm of the Tata group, is eyeing a a turnover of $1.75 billion by 2010 from $1 billion currently. TACO, which has 20 companies, has been growing at an exponential CAGR of 40 per cent in the last three years.
“Tata AutoComp would like to build technology and business process capabilities to be a leading global supplier to the automotive industry. Domestic growth will largely come from increase in the domestic automobile market, as well as exports of components from India,” said a company spokesperson.
Another world leader in the component making space is bearings major SKF, which is targeting 20 per cent growth to Rs 3,000 crore.
To cater to the demand for bearings, it will invest to Rs 500 crore to set up new facilities and enhance capacities.
Mahindra Systec, formerly Mahindra Systems and Automotive Technologies (MSAT), the auto component arm of the $4.5 billion Mahindra group, is targeting a revenue of $1 billion. The group achieved $800 million turnover last year. The unit is investing about Rs 750 crore in various group companies including, casting, forgings and stamping.
