Indian Automobile Industry Headed for Stabilization and Sustained Growth

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Researched by Industrial Info Resources (Sugar Land, Texas)--India's steel industry witnessed a small slump, relative to global conditions, during the economic recession. Things are looking up for the industry at present. According to the annual report released by the Ministry of Steel, India currently has emerged as the fifth-largest producer of steel in the world.

At present production rates, India will soon emerge as the second-largest producer of crude steel by 2015. The report adds that Indian steel consumption grew about 8% in the financial year ending March 2010. One of the key factors for this growth has been the growth of the automobile industry.

The Indian automobile industry recorded robust growth in the past fiscal year as an immediate after- effect of the rolling back of the recession. Statistics from the automobile industry show that the production for April through June 2010 were up 32.6% year over year. The industry produced 5.57 million vehicles during this period. Passenger vehicle sales reports indicate this segment increased 33.78% between April and July, whereas utility vehicles sales increased 23.87%. Multi-purpose vehicles increased 43.96%.

The top-selling cars in India belong to Maruti Suzuki, the Indian-Japanese brand, and begin at a price bracket of $4,800. Other popular brands include Chevrolet, Volkswagen, Hyundai, Honda, General Motors (GM) and Ford (NYSE:F), with the prices rising to a maximum of about $10,600. These brands make up for almost 90% of the Indian automobile market sales. The advent of Tata Motors' (NYSE:TTM) (Mumbai) Nano model, which costs about $2,500, has added a new dimension to India's small-car market. Tata's other offering, the Tata Indica has also made great inroads in the Indian market.

However, with the announcement of the central budget this year, observers feel that the automobile industry will slow because of the rise in interest rates on vehicle loans, as well as a hike in vehicle costs by various brands. India currently stands ninth in terms of global vehicle production.

The automobile and the steel industry are inextricably related. The main steel types that are used in the automobile industry are carbon steel and special steel, such as flats and longs. This is inclusive of forged parts. Between flats and longs, flats find larger use in the form of cold-rolled steel sheets. Their primary applications are for outer body and inner component construction. While a huge amount of steel is imported, India at present also manufactures and supplies locally. Tata Steel (BSE:500470) (Jamshedpur, Jharkhand) and Bhushan Steel (BSE:500055) (New Delhi) have developed capacities to manufacture cold-rolled steel. JSW Steel Limited (BSE:500228) (Mumbai) has recently joined forces with Nippon Steel Corporation (TYO:5401) (Tokyo) to develop cold-rolled steel as well.

Tata Steel launched the world's first branded cold-rolled product, called Steelium. In its annual report, Tata Steel announced that sales growth for the 2009-10 fiscal year had increased 18% to 6.17 million tons. Flat product sales figures for the same period stood at 3.47 million tons, compared to 3.23 million tons last year. Nippon Steel has proposed investing about $388 million with Tata Steel to make auto-grade steel in India by March 2013.

At present, India produces about 60 million tons of steel, and the overall consumption rate stands at about the same figure. With the growth of the economy, sectors such as infrastructure are seeing a spurt in growth and demand.

An area of concern for the Indian automobile industry is the rising imports of steel from China. Between May and June this year, China exported approximately 1 million tons of structural-grade steel into India. The quality of the steel is said to be low, but its cost is 15% to 16% cheaper than the local product. The basic price of IS 2062 Grade-B steel in India is about $755 per ton, exclusive of excise and freight rates. In comparison, Chinese structural steel is available for about $711, all-inclusive.

The Indian steel industry is worried about a loophole in the China export rebate policy. Boron steel does not carry an export rebate, and there is concern that China will ship boron steel under the title of structural steel. Boron steel is largely used in cars as it is a durable and lightweight material. With the demand in the auto industry already climbing about 22% higher than last year, less expensive steel imports could lead to a setback for the domestic steel market.

In addition to popular car models, the luxury car segment cannot be ignored. The arrival of Land Rover and Jaguar via Tata Motors has given these brands a much-needed boost in sales. The Asian market, including China and India, has helped boost these companies' sales figures considerably.

The Indian market reported sales of $425 million for the three months leading up to June this year. For the Indian economy too, it bodes well, since Jaguar plans to start assembling cars in India from next year. Land Rover and Jaguar also plan to begin assembly of cars in China, where they have met with reasonable sales success. A possible pricing war is on the anvil with this development. The Indian automobile industry has tremendous potential, considering the size of the country's population. Brands such as Mercedes, Audi, BMW, Rolls Royce and Lamborghini have met with considerable success in India. Several other international brands are working on plans to introduce themselves in the Indian market.

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