India’s Steel Producers Stake Hopes on Burgeoning Auto Industry

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A recent development in India’s steel sector has renewed the faith of steel manufacturers in its automobile sector. The auto industry has been one of the biggest users of steel in recent years, thanks to the increasing number of sales of vehicles — two- and four-wheelers.

Japanese company Sumitomo Corp. announced recently that it had decided to go in on a joint venture with local steel firm Mukand Ltd (40-60%), and will begin processing specialty steel long products for the automobile industry in India.

Steel industry analysts have hailed the establishment of such a venture as a signal development. The new company shall be headquartered in Maharashtra in western India, while production is expected to start in October 2012.

Explaining the rationale behind the development, Sumitomo, in a press statement, said automotive manufacturers worldwide were expanding their range of products by bringing strategically designed cars to the expanding Indian market. To keep up with the increasing demand for specialty steel products for automobile parts, Mukand and Sumitomo Corporation decided to establish the new company.

The JV will take over Mukand’s business for secondary processing of specialty steel long products for consideration of approximately Rs 2525 million, and continue to operate Mukand’s current plant for a while after the new company’s establishment. Production capacity is 6,000 metric tons per month.

Mukand has high engineering and development capability based on accumulated know-how, and is a leader in the specialty steel long products industry in India. Mukand’s products are exported to Japan, Europe and the US.

Against a background of rapid economic growth, sales of two and four-wheel vehicles have picked up over the last decade. While the two-wheeler vehicle market in India is now the second largest in the world, the market for four-wheeler vehicles has doubled over the last five years. This market is now the 6th largest in the world.

Not only steel manufacturers, but even aluminium producers in India are now vying for a larger piece of this market pie, what with vehicles getting increasingly lighter and stricter pollution norms.

Continued in Part Two. 

Sohrab Darabshaw contributes an Indian perspective to MetalMiner.

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