By Rutam Vora, Commodity Online
It’s a boom-time for India’s car makers and the same can be implied for all those commodities, which contribute for making the automobile.

A robust growth in sales figures from the Indian car makers is hinting at the upbeat mood in the country’s economy. The car sales have skyrocketed in the month of April with a rise of 39.5% over the corresponding period past year, witnessing a biggest jump in past 10 years.

The growth in car sales has shown cascading impact on the demand of raw materials used in making the automobiles. The recent price trend in basic metals used in car making has seen a robust growth. Steel accounts for between 40% and 60% of a car’s total weight, even if one described as having an ‘aluminium’ bodyshell.

However, it’s not merely the metals that have witnessed a robust growth over past few months, but the demand for other raw materials like, rubber for tyre, plastic for other body parts and several non-metals too have witnessed increased demand in the wake of high automobile demand.

The steel prices had registered a growth in the month of March 2010 rising above Rs.29,000 per tonne, but the could not sustain the uptrend as the priced dipped registering a highly corrective session in the last month. Prices downgraded by around 13% in the month of April 2010, after hovering in broad range of Rs.25,130-30,150 per tonne. This is compared to 2.06% gains in same month last year. Moreover, prices have fallen by around 4.50 percent since the year start.

In India, April car sales hit 143,976, up from 103,227 units a year earlier. Overall passenger and commercial vehicle sales were 231,267 in April, up 39.4 per cent from 165,868 vehicles a year earlier. India's sustained auto boom has attracted auto majors from across the globe, including Ford, Nissan and GM, who are all trying to build smaller, more affordable vehicles to tap growing appetite for cars in India.

The rise in car sales resulted in an increased demand for tyre, translating into increased demand for rubber. Rubber prices have been hovering at its peak levels in recent past at around Rs.150 per kg. However, the plant crop has witnessed a steep rise in past few months mainly driven by the global shortfall of the rubber supplies. In just past 15 months, prices have shot up by 150%, as mentioned by an estimate suggested by the All India Rubber Industries Association. 

Besides metals and rubber the auto boom also brought a rebound in the demand for other commodities that are used in car making. A car is a combination of various metal and non-metal commodities that includes Manganese, used for steel alloy, Arsenic and tin for solders in making the engine mountings etc, Niobium – a high strength low-alloy steel, silver for electrical contract, magnesium for making aluminium alloy, lead used for batteries, Chromium, cadmium and Nickel used for plating, copper for electrical wiring, radiator etc, Zinc is used for anti-corrosion plating, germanium and gallium for diodes, aluminium for alloy, tungsten used for light filaments, titanium for paints, while sodium and calcium used for greases.

According gross estimates, the average car contains 338 pounds of plastics and composites, which is about 8.4 percent of the total weight of a car. This is up from 286 pounds in 2000 and 194 pounds in 1990. This shows about 75% increase in plastic content in car making over past two decades. This results in the increased demand for polymers, which are subject to price situation of crude oil. Crude prices are directly linked to industrial consumption, which if found slowing down bears diminishing impact on crude prices.

Automobile constitute a larger share of the demand for polypropylene. But the recent upsurge in the oil and gas prices – the main ingredient of polypropylene resins hint at more cost pressure on the car makers in future.

This is more evident from the vehicles sold during April, which showed that 13.2 percent fewer vehicles were sold in April than in March, when sales hit 266,471 vehicles.

Auto sales last April were unusually low due to the global recession. Now commodity prices are likely to continue to rise as the global economy recovers, despite efforts by the Indian government to contain costs. However, most Indian auto majors have already passed higher costs, from commodities used in manufacturing, a change in emissions norms and a tax hike, on to consumers. In spite of the higher costs, strong consumer confidence, available credit and new car launches like the Indigo Manza from Tata Motors and the Eeco van from Maruti Suzuki helped sales.

Likewise, the metals demand too showed uptrend thereby impacting prices, which remained high since the start of the calendar year. The LME aluminium futures price showed small increases from its January 2010 cash level of $2189. Three-month aluminium is $2,216 while 15 month is priced at $2,305. More bearish sentiment is expressed by producers who suggest that 2010 production is expected to exceed consumption for the fourth consecutive year and, hence, stocks are forecast to increase further to around 8 million tonnes (12 weeks of consumption).

Reflecting the continued increase in stocks and lower forecast import demand from China, the Australian aluminium price in 2010 is forecast to average around US$1950 a tonne, 18 per cent higher than 2009, but lower than its current price.

Metals analysts predict that the China-led revival of the global economy will trigger a rise in steel input prices. Iron ore price rises of between 30% to 50% are expected, which would reverse 2009’s 33% price cut. Coal has already jumped 30% and coking coal has risen by 13% so far in 2010.

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