How Has The Automobile Sector Slowdown Affected The Steel Industry?

Domestic carmakers in the country are battling a drop in sales amid a slowdown in the economy. People are buying lesser cars, slowing down the revenue of automobile industry that contributes 7.5 percent to India's GDP.

This slowdown was bound to affect the steel industry. As carmakers started reducing their production to cut costs, it will also affect automotive steel makers like Tata Steel and ArcelorMittal.

Tata Steel CEO and MD T.V. Narendran on Thursday told PTI reporter that the company's revenue is dependent on demand in the construction and automobile sector.

"It is 20% of the steel that gets consumed in auto and that has an impact. That is certainly something that has played out over the last three months," he said.

Besides the current slowdown, demand for steel has been falling for at least the last 5 years on account of advancement in designing techniques to cut costs and make cars faster to provide greater mileage. An average Indian vehicle includes automotive steel in 60 to 65 percent of its raw material and weight. With increased international regulations on automobile emissions and fuel efficiency, the share of steel as one of the vehicle's key raw material has been falling.

To make their cars lighter automakers have been substituting some elements of the vehicles with aluminum and plastic components.

ArcelorMittal, one of the leading producers of automotive steel globally has been developing advanced high-strength steel to keep the position of steel in the automobile industry significant.

The unprecedented slump in sales in the domestic auto industry, with the passenger vehicles (PV) segment being the worst hit, has increased the steel industry's woes.

Tata Steel reported a 63 percent slump in its net profit to Rs 702 crore in the June quarter from a year ago period. The company has major makers like Toyota, Mahindra, Maruti Suzuki and Hero among its customers.

On Wednesday, leaders of the auto industry met the finance minister and asked for a stimulus package, including GST reduction on vehicles, PTI reported.

Shares of Tata Steel has fallen from Rs 395.70 (opening price) on Monday to Rs 367.40 on Thursday (closing price).