The Indian auto industry could face major demand challenges with COVID-19 lockdown expected to dent the economy, says Society of Indian Automobile Manufacturers (Siam).
The auto sector was already facing challenges since 2019. But 2020 was marred with production cuts, diminishing sales and financial constraints further impacting the industry, states Siam. Many dealerships and operating facilities in India remain shut effective March 24. Operations are likely to resume after May 3 when the lockdown lifts. The domestic passenger vehicle sales have halved in March from the prior period as reported by Davis Index.
The auto sector is a major consumer of zinc and lead among other metals. Market participants have been concerned over the sluggish auto sector which is directly impacting zinc and lead markets.
Demand for lead scrap, which is used in the production of lead batteries remains hit with most battery manufacturers remaining shut. A major producer, Amara raja batteries, however, has recently resumed partial operations which could give a boost to the scrap market in the near term. Scrap yards and sellers remain shut at present, but it is believed prices and demand for scrap could rise, supported by battery manufacturers’ demand for lead ingots.
Tyre manufacturers are drivers of consumption for zinc oxide manufactured from zinc dross. But tyre companies have been grappling with stockpiling even before the lockdown. In early March, these companies had curtailed production by almost 50pc due to sluggish demand. With no raw material at hand, these companies await for markets to re-open to inventories before commencing production. Other sectors which use lead include cable sheathing, lead pipes and manufacture of ammunition. Zinc downstream industries include pharmaceuticals, paint manufacturing, ceramics making among others. Still, the auto sector remains a major consumer influencing lead and zinc markets.
Market participants believe that economy could take several months to return to normalcy as there would be supply gaps in the chain and auto sector recovery will be slow, which was also expressed by Siam.