STEEL PRICE FALL TO LIFT NANO'S MARGINS

 

The softening of steel prices are likely to improve the wafer-thin margins of Nano, the world's cheapest car, which will be launched by Tata Motors on Monday.

Steel prices have fallen 60% in the past six months to $500 per tonne. Steel accounts for 60% of a car's weight and 65% of its total material costs. This means the input cost for Nano would come down substantially. Steel companies normally supply in bulk on long-term contacts. So, Tata Motors is expected to reap the benefits, when the new contracts would be signed. Most contracts for long-term supply of steel will be signed after April 1, said industry sources.

E&Y partner Kapil Arora said: "Any decrease in steel prices should help Nano's overall cost structure, as input costs decline. However, given the wafer-thin margins, any changes in the vehicle pricing are unlikely in the immediate short-term."

When asked about the possible impact of recent change in steel prices, Tata Motors in an e-mail reply said: "It is premature to make any comment on such speculation, as prices for Nano will be announced on March 23."

Meanwhile, many original equipment manufacturers (OEMs) are asking auto component manufacturers to pass on the benefits of falling steel prices to them. Society for Indian Automobile Manufacturers (SIAM) director general Dilip Chenoy said: "The weaker rupee has reduced the benefit of the falling steel prices in the automobile industry. But as the end-March is nearing, many OEMs would re-negotiate with auto component manufacturers."

A Tata Nano vendor said: "Negotiations for new contracts are happening and that is not just limited to Tata Motors or Nano."