How the automotive sector in India will bear the brunt

As the conflict between Russia and Ukraine enters the 16th day on Friday, supply chain shortages across the Black Sea region continue to pose a threat to the global semiconductor industry. Russia and Ukraine are major suppliers of key components to the chip industry. While Russia supplies the semiconductor industry with key metals like palladium, Ukraine supplies specialty gases like neon and helium needed for chip manufacturing, according to a report by Moody Analytics.

Even before the start of the war, the global semiconductor industry experienced a slump. In India, the car manufacturers recorded a drop in sales due to the shortage of chips. Maruti Suzuki, the country’s largest automaker, recorded a 2 percent decline in total production in the December quarter of last year compared to the same period last year. The same trend was observed in the overall production of other automakers such as Tata Motors, Hyundai and Honda cars.

Production and sales of automobiles are expanded

According to the report, neon gas prices have risen 10-fold amid the ongoing crisis between Russia and Ukraine, potentially impacting auto manufacturing in the Asia-Pacific region. In addition, the sanctions imposed on Russia will make it more difficult to supply palladium for automobile production. This, in turn, should expand production, sales and deliveries of automobiles. According to data available from the Federation of Automobile Dealers Association (FADA), February passenger car sales in India fell 8 percent, while February PV sales fell 7.84 percent yoy to 2,38,096 Units decreased compared to 2,58,337 for the same period last year.

Fewer cars are produced every year

A disruption in the supply chain is also likely to reduce automobile production this year. According to a report by CNBC, global production of new cars and trucks could collapse in the millions this year. According to the report, in addition to semiconductors, shipments of wiring harnesses and catalytic converters are also bearing the brunt of the Russia-Ukraine crisis. Delayed delivery of key raw materials would mean delayed and reduced production of target vehicles.

Expensive cars

Soaring steel and aluminum prices amid ongoing tensions between Russia and Ukraine are likely to push up Indian car prices. Steel and aluminum prices were already trading 15 percent higher in FY22. Especially in the domestic market, steel prices will continue to rise amid the Russia-Ukraine crisis, according to a PTI report.

In the first week of March, hot rolled (HRC) tonne prices traded between Rs 68,000 and Rs 69,000 compared to Rs 65,000 to Rs 66,500 in the previous week, while cold rolled coil price traded at Rs 73,000 to Rs 74,000 per tonne compared to Rs 71,000 to 72,000 per tonne in the previous week.

In addition, the prices for coking coal have risen with the exploding crude oil prices. Coking coal is an essential ingredient in the steelmaking industry. This is likely to affect the manufacturing and production costs of automobiles.

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