Sharp fall in Indian auto sales to hit steel demand

The abrupt decline in India's automobile sales in March and April as a result of the Covid-19 pandemic and resulting nationwide lockdown is expected to leave a significant dent in the country's steel demand.

The automobile sector contributes to 10-12pc of India's total steel demand. In the year ending March, automobile output fell by 14.73pc on the year to 26.3mn vehicles. This includes more than 34mn passenger vehicles and 752,022 commercial vehicles. The remainder was divided between two-wheelers, three-wheelers and quadricycles. Total auto sales in the same period dropped by 18pc on the year to more than 23.54mn units.

In March, India's automobile sales fell to its lowest on record as a result of Covid-19 and the lockdown, declining by 33.6pc on the year to 1.44mn vehicles. Passenger vehicle sales fell by 51pc year on year to 143,014 units and commercial vehicles by 88pc year on year to 13,027 units.

Automotive steel demand is expected to remain muted for the year ending March 2021 because of low income levels and consumer sentiment following on from the coronavirus.

India's major automobile producers — which include Tata Motors, Maruti Suzuki, Mahindra, Hyundai, India and Nissan India — recorded zero domestic sales in April. Production at these automakers came to a standstill in April following the announcement of a nationwide lockdown on 25 March.

Certain manufacturing facilities that are located in areas demarcated as orange and green zones with low numbers of Covid-19 cases were able to restart operations in the first week of May. But auto sales in May are likely to be muted as services provided by the entire supply chain — which include raw material providers, transport providers, vendors, dealers, and financiers — remain limited.

"We have restarted operations mainly for tractor wheels, as demand for tractors by farmers usually peaks before monsoon [June-October]," said Sanjeev Raghuvanshi, executive director of Steel Strips & Wheels. But automotive demand has yet to pick up, he said.

The auto component industry is likely to witness a double-digit decline in the 2020-21 fiscal year on account of disrupted operations due to the pandemic and lockdown, according to a forecast by Mumbai-based ratings agency India Ratings and Research. Lower income levels, weak consumer sentiment, production disruptions, decreased industrial output and reduced vehicular movement will lead to the decline in auto demand, the agency said.

Automakers are also likely to postpone new model launches and investment plans due to the country's worsening liquidity crisis. This is likely to result in the deferment of orders for automotive steel.

Global industry research agency Crisil estimates that auto component production revenue growth will decline by 15-17pc during the financial year. In addition to dampened consumer sentiment and production cuts, lower freight demand will the limit the movement of trucks, weighing on commercial vehicle demand. Automobile demand is likely to pick up only in the second half of the 2021-22 fiscal year, Crisil said.

"We have to prepare ourselves for a prolonged slowdown in the market in the 2020-21 fiscal year," said Soumitra Bhattacharya, managing director at automotive technology supplier Bosch. India's automobile demand may contract by up to 30pc, it said.

By Charlotte Rao