Indian Steel Companies Worry About Demand as Auto Sales Fall

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Since April this year, the Indian automobile sector has been seeing signs of a slowdown in sales. This has led to job cuts and expressions of concern from some major domestic steel producers.

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The slump in the sales of four- and two-wheelers has forced companies and ancillary automotive supply units to either shut down factories for specific hours (even days) or axe shifts, leading to a reduction in both temporary and permanent workers.

Auto sales for the June quarter are at their lowest in almost two decades, according to the Business Standard, only adding to the worries of domestic flat steel producers.

Many producers are now wondering what the immediate future holds for them.

There are no signs of any immediate revival in auto sales, especially after some economy experts warned of a coming recession in India.

Added to this is the Indian government’s new drive to bring in electric vehicles. Some major automobile companies, already on the path of a switch to electric, have stopped manufacturing diesel vehicles.

Yet, there are steel and automobile industry experts who are downplaying the drop in sales.

T.V. Narendran, CEO and managing director of Tata Steel, told the Business Standard recently that the platform economy (for example, Uber and Ola) is a bigger disruptor than electric vehicles. In his opinion, as more and more people took to cab-hailing apps, the need to have their own vehicles would come down, he said.

In the June quarter, the total sales of cars, sport utility vehicles and vans declined 18.4%, the largest drop since a 23.1% drop in the third quarter of 2000-01. Every segment of the auto industry reported a double-digit decline.

A recent report in India’s national daily, The Hindustan Times, said automobile ancillaries in and around Jamshedpur, where Tata Steel’s main plant exists, were facing tough times due to a series of block closures in Tata Motors in the past month because of a market slowdown. A local association leader told the paper that about 30-odd such ancillary “steel sector companies” were on the verge of closing down, even as a dozen others had already downed their shutters.

The report quoted Inder Agrawal, president of the Aditaypur Small Industries Association, as saying that recession in the auto sector is always cyclical and that he expects things to normalize after September.

According to media reports, because of the automobile sector slowdown, steel companies were diverting products towards alternative segments, such as renewables, oil and gas, and structural steel.

Flat and long steel products are two categories which find application in the auto and infrastructure sectors, respectively.

A report by news agency Reuters said India’s JSW Steel Ltd had acknowledged that a weaker steel market coupled with a drop in global demand and a local slowdown could impact the turnaround time for its newly acquired Monnet Ispat assets. The report, though, added that JSW’s chairman downplayed any substantial impact on financials.

On the sidelines of the company’s annual meeting, Sajjan Jindal, co-chair of JSW Steel Ltd, said his company had always said it could take about two years to turn around and it would try and do it within that time frame.

He called the present slowdown in the automotive sector as “temporary” and was hopeful the sector will bounce back.

Another Reuters report, as published on the Al Jazeera website, said the auto industry has sought tax cuts and easier access to financing for both dealers and consumers to revive the industry.

The report quoted Automotive Component Manufacturers Association of India (ACMA) Director-General Vinnie Mehta as saying the sector was experiencing a “recessionary phase.”

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India’s automobile sector employs over 35 million people, directly and indirectly, according to the report.

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