Mahindra Auto Steel to Redefine Steel Supply Chain in India’s Car Industry?

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In Part One of this article, we laid out why India’s auto sector is in dire straits, especially in light of auto component imports.

The increasing trend in imports indicated that overseas component manufacturers had improved their market share in India. On the other hand, India’s share in global exports had remained stuck at less than 1 percent of the overall exports over the last decade, because component makers had not been able to catch up with other low-cost Asian destinations.

So much so, exports in 2015 are estimated to touch less a quarter of the Vision 2015 target of US $33 billion set by the ACMA way back in 2003-04.

Let’s look into why this is bad news for steel producers.

FREE Download: The Monthly MMI® Report – covering Steel/Iron Ore markets.

India’s share of global automobile parts exports remained below 1 percent over the last decade because component makers have not been able to catch up with other low-cost Asian destinations. Exports in 2015 are expected to be less than a quarter of the $33 billion target set by the Auto Component Manufacturers’ Association in 2003-04.

Also, the gap between imports and exports was estimated to have widened to over 60 percent of exports in fiscal 2013 from 20 percent in fiscal 2006, offering a stark commentary on the competitiveness of domestic auto-component makers, said the report.

Crisil analysts were of the view that the rising trend in auto-component imports was unlikely to reverse course anytime soon because the cost differential was so material that the rupee’s fall can barely narrow the gap.

The gap between imports and exports, they claimed, would remain in the current range, though as a percentage of exports, it could drop. That’s because exports are expected to grow at about 10-15 percent annually over the medium term.

All this only means bad news for Indian steel producers.

What Mahindra’s Got to Do With It, Got to Do With It

Notwithstanding the automobile sector’s slowdown, steel companies like Tata Steel and Essar have been aggressively expanding their product portfolios to cater to the demands of the auto industry.

But as if they did not have China and other Asian nations to compete against, they have to now contend with some of India’s automobile manufacturers, too. An example is auto major Mahindra, maker of SUVs, trucks and even two-wheelers.

Mahindra Auto Steel Pvt Ltd, a new joint venture company, is seeking to redefine the steel supply chain in the Indian auto industry by investing about US $24 million in a new facility to process steel and make blanks, trapezoids and profiles.

The company is a joint venture between Mahindra Intertrade, which is a wholly owned subsidiary of the Mahindra Group, Taiwan-based China Steel Global Trading Corporation and Singapore-based Mitsui & Co (Asia Pacific) Pte, with Mahindra holding a 51-percent share in the venture. This is Mahindra’s seventh steel processing facility.

Talk about the bad news piling up.

FREE Download: The Monthly MMI® Report – covering Steel/Iron Ore markets.

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