September 28, 2023

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Will the marginal corrections in commodity prices help automakers?, Auto News, ET Auto

New Delhi: The cost of manufacturing a auto in the past 12 months has elevated substantially simply because of the rising selling prices of commodities, but some of them are demonstrating indicators of tapering off.

However selling prices of a handful of uncooked products have begun to slide, sector industry experts are skeptical about any significant transform in the problem in the coming months.

Rates of copper, generally utilized as a gauge of world economic wellbeing, slid in June and traded underneath USD nine,one hundred/tonne as China steps to interesting off rising selling prices and more robust dollar. In a scarce shift, China declared a prepare to sell state reserves of copper, aluminium and zinc, in an exertion to suppress a robust value rally in commodities.

The world decrease in foundation steel value mirrored in Indian futures markets as well. In the Multi Commodity Trade of India (MCX) copper value corrected seven.29% in the middle of June. Due to the fact the beginning of July, selling prices are trapped restricted in the selection of INR 730 and INR 716

Notably, the non-ferrous steel has fallen more than 11% immediately after hitting an all-time high of INR 797.5 on Could 10.

Copper rate (per kg) vs Month
Copper price (per kg) vs Month

Similarly selling prices of palladium and rhodium dropped more than 11% and 36% respectively in July.

As per SIAM’s knowledge the value of copper has lowered from about USD 10,200 per tonne in Could 2021 to just about USD nine,600 per tonne in June 2021. Even so, about one particular yr ago in June 2020 the selling prices of copper were about USD 5,800 per tonne.

“Copper selling prices are nonetheless about sixty six% more than what it was a yr ago. Corporations are presently stretched due to very high commodity selling prices, as the selling prices of steel, which is a big material for auto producing, ongoing to rise in June 2021. We hope that the commodity selling prices get moderated quicker than afterwards, in the all round fascination of the Automobile Field,” Rajesh Menon, director normal of SIAM, told ETAuto.

As commodity selling prices go on to sustain their red-very hot bull operate due to the fact the beginning of the pandemic, its cascading outcome on steel-dominated industries, this sort of as automotive, is becoming more pronounced across the offer chain.

According to Shashank Srivastava, senior govt director, Maruti Suzuki, there has been a spectacular boost in material prices for the past 12-14 months in particular steel and valuable metals. The country’s premier carmaker pointed out that steel selling prices have elevated from INR 38 per kg to INR 68 per kg when Rhodium has gone up from INR 19,000 per gram to about INR sixty six,000 per gram.

“Only a smaller element of this boost has been passed on to the buyers so considerably. We have made a decision to boost the selling prices across models and a smaller transform in material prices is unlikely to transform this problem,” Srivastava told ETAuto.

Incredibly hot Rolled Coil (HRC) and Chilly Rolled Coil (CRC) are the two kinds of flat steel commonly utilized in industries this sort of as vehicle, appliances and development. Consequently, any rise in steel selling prices impacts the selling prices of vehicles, consumer products, and the development prices.

Also, Rhodium and palladium are utilized in the catalysers and their demand has gone up manifold due to the introduction of stricter emission norms across the entire world.

Only a smaller element of commodity value boost has been passed on to the buyers so considerably. We have made a decision to boost the selling prices across models and a smaller transform in material prices is unlikely to transform this problem.Shashank Srivastava, senior govt director, Maruti Suzuki

Uncooked material prices represent a significant share of the cost of automotive OEM, which helps make forecasts notably crucial. The selection of commodity inputs for vehicle businesses have elevated with growth of solutions this sort of as sophisticated batteries, biofuels and synthetic chemicals. These solutions have subsequently produced new and growing markets for commodities this sort of as cobalt, lithium, nickel and waste oil.

Expressing identical views, Deepak Jain, President, ACMA, said it is very premature to conclude just about anything on this sort of small-phrase fluctuations. “In the small phrase we see the problem to keep on being unstable in particular simply because of the offer-facet problem due to shortage of chips the enter cost will keep on being high. The expanding logistics cost will go on to set the sector below stress,” he said. The container shortage problem may well be eased towards Q2 but it may well not have a very massive optimistic impact as India’s logistics cost stays high, Jain additional.

With enter prices likely up, businesses this sort of as Maruti Suzuki India, Honda and Tata Motors have presently declared that they would boost the selling prices of their item portfolio in the September quarter. Moreover, soaring bulk transport prices are additional worsening the situation.

“Our enter prices hold likely up and up and a couple of us can elevate selling prices as fast as these prices are rising. As of now we can’t hold up with it. On the flip facet, outsourcing of decrease material adds greater freight prices, with generally fluctuating forex exchange creating the problem even worse,” said one particular sector specialist on situation of anonymity.

Soaring transport freight charges

Shipping and delivery freight charges have been regularly expanding due to the fact July 2020 and have achieved this sort of concentrations the place automakers have been obtaining it practically impossible for sustaining typical trade functions. Thanks to realignment of world trade route styles immediately after COVID, the businesses are also seeing delay in container arrivals ensuing in shortages.

Will the marginal corrections in commodity prices help automakers?
As producing picks up rate adhering to the second wave of COVID-19 in Q2, SIAM DG said, it is crucial that availability of containers normalises.

“Q1 cannot be as opposed presently, as most of the businesses had shut functions and therefore the impact of shortages, if it carries on, may well be felt in the coming couple months. With the intervention of the Government, conversations are happening with transport liners for expanding the availability of containers. We sincerely hope that this shortage of containers is momentary,” Menon said.


In April, the Planet Financial institution commodity value outlook report indicated that 2021 will be a wide upswing for all commodities in normal, immediately after which there will be a tapering down in 2022.

Aluminium selling prices are projected to boost by about 29% in 2021, prior to slipping seven% in 2022. Copper selling prices are projected to regular 38% greater in 2021 as opposed to past yr. Cherished metals selling prices are forecast to drop in 2022 as investment decision demand recedes.