New Delhi: The cost of producing a vehicle has increased significantly over the past 12 months due to the rise in raw material prices, but some of them are showing signs of decreasing.
Although the prices of a handful of commodities have started to fall, industry experts are skeptical about a major change in the situation in the coming months.
Often used as a gauge of global economic health, copper prices slipped to below $ 9,100 / tonne in June as China took steps to cool rising prices and a stronger dollar. On a rare move, China announced it would sell government reserves of copper, aluminum and zinc to stem a sharp rally in commodity prices.
The global decline in base metal prices was also reflected in the Indian futures markets. On the Multi Commodity Exchange of India (MCX), the copper price corrected 7.29% in mid-June. Since the beginning of July the prices have been in the range of INR 730 and INR 716. clamped
Notably, the non-ferrous metal is down over 11% after hitting an all-time high of INR 797.5 on May 10th.
Copper price (per kg) vs. month
Similarly, palladium and rhodium prices fell over 11% and 36% respectively in July.
According to SIAM data, the price of copper fell from around USD 10,200 per ton in May 2021 to just under USD 9,600 per ton in June 2021. However, about a year ago, in June 2020, copper prices were around $ 5,800 per ton.
“Copper prices are still 66% higher than a year ago. The companies are already overwhelmed by the very high raw material prices, as the prices for steel, an important material for vehicle construction, continued to rise in June 2021. We hope that sooner or later commodity prices will weaken in the overall interest of the auto industry, ”said Rajesh Menon, SIAM General Manager, to ETAuto.
As commodity prices have continued their fiery bull run since the beginning of the pandemic, their cascading effect on steel-dominated industries like the automotive industry is becoming more pronounced across the supply chain.
According to Shashank Srivastava, Senior Executive Director of Maruti Suzuki, there has been a dramatic increase in the cost of materials, especially steel and precious metals, in the past 12-14 months. The country’s largest automaker pointed out that steel prices rose from INR 38 per kg to INR 68 per kg, while rhodium rose from INR 19,000 per gram to around INR 66,000 per gram.
“Only a small part of this increase has so far been passed on to consumers. We have decided to increase prices across all models and a small change in material costs is unlikely to change that situation, ”Srivastava told ETAuto.
Hot rolled coils (HRC) and cold rolled coils (CRC) are the two types of flat steel that are widely used in industries such as the automotive, home appliance and construction industries. An increase in steel prices therefore affects the prices of vehicles, consumer goods and construction costs.
In addition, rhodium and palladium are used in the catalysts and their demand has increased many times over worldwide due to the introduction of stricter emission standards.
So far, only a small part of the raw material price increase has been passed on to consumers. We have decided to increase prices across models and a small change in material costs is unlikely to change that situation. Shashank Srivastava, Senior Executive Director, Maruti Suzuki
Raw material costs make up a significant proportion of car manufacturers’ costs, which makes forecasting particularly important. With the development of products such as advanced batteries, biofuels and synthetic chemicals, the variety of raw material inputs for automotive companies has increased. These products have subsequently created new and growing markets for raw materials such as cobalt, lithium, nickel and waste oil.
Expressing similar views, ACMA president Deepak Jain said it is premature to draw any conclusions about such short-term fluctuations. “In the short term, we see the situation as volatile, especially because of the problem on the supply side due to the scarcity of chips, the input costs will remain high. The rising logistics costs will put the industry under further pressure, ”he said. The container shortage situation could ease towards the second quarter, but it may not have a very large positive impact as India’s logistics costs remain high, Jain added.
Given the rising input costs, companies such as Maruti Suzuki India, Honda and Tata Motors have already announced that they will increase the prices of their product portfolios in the September quarter. In addition, rising bulk shipping costs continue to worsen the condition.
“Our input costs go up and up, and some of us can raise prices as quickly as those costs go up. At the moment we can’t keep up with it. On the other hand, outsourcing less material leads to higher freight costs, with fluctuating currency conversions often making the situation worse, “said an industry expert on condition of anonymity.
Increasing freight rates for shipping
Freight rates for shipping have been rising steadily since July 2020 and have reached a level where it has become almost impossible for automakers to maintain normal trading operations. Due to the realignment of global trade route patterns after COVID, companies are also seeing delays in the arrival of containers leading to bottlenecks.
With production picking up pace in the second quarter after the second wave of COVID-19, SIAM DG said it is important that container availability normalize.
“The first quarter cannot be compared right now as most of the companies have closed operations and therefore the impact of bottlenecks, if it continues, could be felt in the coming months. With government intervention, discussions are taking place with shipping companies about an increase instead of.” the availability of containers. We sincerely hope that this shortage of containers is only temporary, “Menon said.
In April, the World Bank’s Commodity Price Report indicated that 2021 will be a broad upswing for all commodities in general, after which there will be a decline in 2022.
Aluminum prices are projected to rise around 29% in 2021 before falling 7% in 2022. Copper prices will be on average 38% higher in 2021 than in the previous year. Precious metals prices are expected to fall in 2022 as investment demand falls.