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End User’s Perspective: Impact of Steel Prices on the Automotive and Machinery Industry.
Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap
1
Agenda
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
1 Overview: The Indian Automotive Industry
2 Supply and Demand Projections
3 Impact of Steel Trend and Prices on Automotive Industry
2
4 Challenges for buyers in Short and Long term.
5 Industry expectations from Steel Producers
Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap
Source: Tata Motors, Society of Indian Automobile Manufacturers (SIAM), TechSci Research
• Closed market
• Five players
• Long waiting
periods and
outdated
models
• Seller’s market
• Joint Venture (JV):
Indian government and
Suzuki formed Maruti
Udyog; commenced
production in 1983
• Component
manufacturers entered
the market via JV
• Buyer’s market
• Sector de-licensed in
1993
• Major Original
Equipment
Manufacturers (OEMs)
started assembly
operations in India
• Imports permitted from
April 2001
• Introduction of value -
added tax in 2005
• More than 35 market players
• Indian companies gaining
acceptance on a global scale
• Setting up of National
Automotive Board to act as
facilitator between the
government and industry
• Government has proposed
GST to support lower raw
material cost
• Launch of Automotive Mission
Plan 2016-26 in 2015
Evolution of the Indian Automotive Sector
Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap 9
0.4 million units
(1982)
0.6 million units
(1992)
11 million units
(2007)
21.5 million
units (FY14)
24 million units
(FY16)
Before 1982
1983–92
1993-2007 2008 onwards
3
Indian Automotive Industry
Indian Automotive Industry
Growth in the Indian Automobile Industry
Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap 4
1.3 1.3 1.6 1.8 2.4
3.0 3.1 3.2 3.1 3.2 3.4
0.4
0.5
0.6
0.4
0.6
0.8
0.9
0.8
0.7
0.7
0.8
0.4
0.6
0.5
0.5
0.6
0.8
0.9
0.8
0.8
0.9
0.9
7.6 8.5
8.0 8.4
10.5
13.4
15.4 15.7
16.9
18.5 18.8
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Passenger Vehicle Commercial Vehicle Three Wheelers Two Wheelers
Production of automobiles increased at a CAGR of 9.4 per cent over FY06-16
Around 15% of total vehicles produced in India are exported
Total production of automobiles in India (million units)
Source: SIAM, TechSci Research
Indian Automotive Industry
Advantage India
Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap 5
FY15
Market size:
USD 74
billion
FY26E
Market size:
USD 260 to
300 billion
Advantage
India
•
Policy support
The government aims to develop India as a global manufacturing as well as R&D hub
• There has been a wide array of policy support in the form of sops, taxes and FDI encouragement
Innovation opportunities
• Tata Nano and the upcoming Pixel have opened up the potentially large ultra low- cost car segment
• Innovation is likely to intensify among engine technology and alternative fuels
• Strong growth in demand due to rising income, middle class, and a young population is likely to propel India among the world’s top five auto manufacturers by 2016
• Growth in export demand is set to accelerate
• Government takes Initiatives to set up manufacturing plants through Make in India
Rising investments
• India has significant cost advantages; auto firms save 10-25 per cent on operations vis-à-vis Europe and Latin America
• A large pool of skilled manpower and a growing technology base would induce greater investments
Growing Demand
Source: Automotive Mission Plan (2006–2026),
Make in India
The Automotive Mission Plan 2016-26 (AMP 2026) targets a fourfold growth in the automotive industry.
6 Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap
0.7
>2.0
2016 2026
2.8
>9.4
2016 2026
Domestic sales of passenger
vehicles in India is expected to
increase at a CAGR of 12.87
percent during 2016-26
Domestic sales of commercial
vehicles in India is expected to
increase at a CAGR of 11.07
percent during 2016-26
Domestic sales of passenger
vehicles to grow from 2.8 million
in 2016 to 9.4 - 13.4
million by 2026
Domestic sales of commercial
vehicles to grow from 0.7
million in 2016 to 2.0 - 3.9
million by 2026
million
million
16.46
>50.6
20161 2026
Domestic sales of two wheelers
in India is expected to increase
at a CAGR of 11.9 percent
during 2016-2026
Domestic sales of two wheelers
to grow from 16.46 million in
2016 to 50.60 -
55.5 million by 2026
million
Growth In Domestic Indian Market: 2016-2026
Indian Automotive Industry
Source: SIAM, NEMMP 2020 (National Electric Mobility Mission Plan), TechSci Research;
Indian Automotive Industry
Indian Automotive Industry – Competitive Advantage
Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap 7
Design and
engineering skills
Manufacturing
skills
Manpower
costs
Supplier
base
Raw
materials
East Asia Korea
China
Thailand
Indonesia
Vietnam
Central &
Eastern Europe
Czech Republic
Romania
Poland
Slovakia
Russia
Hungary
Turkey
Latin America Brazil
Mexico
Less competitive than India In competition with India Source: ACMA, TechSci Research
Agenda
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
1 Overview: The Indian Automotive Industry
2 Supply and Demand Projections
3 Impact of Steel Trend and Prices on Automotive Industry
8
4 Challenges for buyers in Short and Long term.
5 Industry expectations from Steel Producers
Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap
Automotive Industry: Key Consumer of Steel
Structure of Indian Steel Sector
Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap 9
Steel
End use
Structural steel
Construction steel
Rail steel
Form
Liquid steel Crude steel
Ingots
Semis
Finished steel
Flat
Non-flat
Composition
Non-alloy steel
Low carbon steel
Medium carbon steel
High carbon
steel
Alloy
Stainless
Silicon electrical
High speed
Source: Report on Indian steel industry by Competition Commission of India,
TechSci Research
Key Steel Consuming Sectors in India
Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap 10
35%
20% 12%
10%
8%
15%
Construction
Infrastructure
Automobiles
Pipes and Tubes
Capital Goods
Others
- In FY15, Crude Steel production in India was 88.98
million tonnes and Finished Steel production in India
was 92.17 million tonnes
Automotive Industry: Key Consumer of Steel
13.25 12.52 12.82 13.44 12.83 9.23
55.3
7
63.1
8
68.8
6
74.2
4
79.3
4
58.4
9
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6H
1
Public Sector Private Sector
Finished steel production(million tonnes)
16.99 16.48 16.48 16.77 17.21 13.34
53.6
8
57.8
1
61.9
4
64.9
2
71.7
7
53.7
4
FY1
1
FY1
2
FY1
3
FY1
4
FY1
5
FY1
6H
1
Public Sector Private Sector
Crude steel production (million tonnes) Key Steel Consuming Sectors in India
- Automotive Industry is third largest consumer of Steel
In India and consume 12% of total Steel Produced in India
- The Automotive Industry is forecasted to grow in size by
USD 74 billion in 2015 to USD 260-300 billion by 2026
- With increasing capacity addition in the automotive
industry, demand for steel from the sector is expected to be
robust
Source:: Ministry of Steel Annual Report, TechSci Research
Agenda
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
1 Overview: The Indian Automotive Industry
2 Supply and Demand Projections
3 Impact of Steel Trend and Prices on Automotive Industry
11
4 Challenges for buyers in Short and Long term.
5 Industry expectations from Steel Producers
Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap
Metal Cost as % of Sales price for Auto OEMs
Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap 12
- Domestic steel prices have increased 10-12 % after
imposition of MIP (minimum Import Duty) by Union
Government.
- Steel cost accounts for 8% for Two Wheelers, 11% for
Passenger Vehicles and 15% for Commercial
vehicles sales price.
- A 10% increase in domestic steel prices would
require a price increase of 0.6% in two wheelers, 1%
in passenger vehicles and 1.6% in MHCV commercial
vehicles
Impact of Steel Prices on Automotive Industry
20%
8%
6% 2%
4%
60%
Two Wheelers
Metal/Castings
Steel
Aluminium
Copper
Other Metals
Polymers+Overhead +Profit
24%
15%
3% 3% 4%
52%
Commercial Vehicles
Metal/Castings
Steel
Aluminium
Copper
Other Metals
Polymers+Overhead+ Profit
19%
11%
3% 2%
3%
62%
Passenger Vehicle
Metal/Castings
Steel
Aluminium
Copper
Other Metals
Polymers+Overhead +Profit
Source:: Kotak Securities Research Report
Agenda
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
1 Overview: The Indian Automotive Industry
2 Supply and Demand Projections
3 Impact of Steel Trend and Prices on Automotive Industry
13
4 Challenges for buyers in Short and Long term
5 Industry expectations from Steel Producers
Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap
14 Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap
Challenges for buyers in Short and Long term
- MIP and Anti dumping duty
- Currency Fluctuation
- Monopolistic market in certain special steel grades
- Long process of new steel grade approval
- Low bargaining power of Buyers
- Steel availability in small MOQ resulted into high inventory level
Agenda
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
1 Overview: The Indian Automotive Industry
2 Supply and Demand Projections
3 Impact of Steel Trend and Prices on Automotive Industry
15
4 Challenges for buyers in Short and Long term
5 Industry expectations from Steel Producers
Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap
16 Platts Steel Markets Asia Conference. 18th Nov.2016. Chandrashekhar Jagtap
Industry expectations from Steel Producers
- Development of special grade alloy steels for small MOQ
- Payment credit extension to Tier 1 and Tier 2 suppliers
- Immediate response on Quality issues
- Reduce Minimum Order Quantity
- Carry safety stock of fast moving raw material
- Local warehouse in all major Industry Clusters
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