Auto Sector Braces for Production Snags as Gas Supply Constraints Bite

The report highlighted that gas supply constraints could impact key manufacturing processes such as automotive paint shops and forging operations, which rely heavily on gas-based heating systems. It noted that some original equipment manufacturers (OEMs) have already begun witnessing disruptions.

It stated, "Some OEMs have already begun witnessing minor disruptions, which could intensify if industrial gas allocations are curtailed further".

However, the report added that the overall impact is expected to remain manageable in the near term. Most OEMs currently maintain channel inventory of around 3-5 weeks, which can help cushion temporary supply disruptions.

Additionally, since the issue is affecting the entire industry, customers are expected to accommodate modest delivery delays rather than cancel vehicle orders.

The report further stated that restrictions in industrial gas supply may compel several OEMs to shift from piped natural gas to more expensive alternatives such as spot LNG or other fuels.

This shift is likely to increase manufacturing costs by approximately 15-25 per cent. As a result, EBITDA margins of natural gas-dependent auto manufacturers could see a compression of around 80-100 basis points in Q4FY26.

The report also pointed out that higher energy costs may increase conversion costs across the broader auto component ecosystem, putting pressure on suppliers and potentially leading to cost pass-through across the value chain.

Going ahead, the report said key factors to monitor include the duration and extent of natural gas supply disruptions, as well as any further restrictions on industrial gas allocation by the Government of India.

The Government of India has recently implemented significant restrictions on industrial gas usage under the Natural Gas (Supply Regulation) Order, 2026, notified on 9 March 2026.

This order was issued by the Ministry of Petroleum and Natural Gas (MoPNG), invoking the Essential Commodities Act, 1955, due to global supply disruptions in the Middle East.

Under the order, the government has restricted the supply to the tea industry, manufacturing, and other industrial units connected to the national gas grid, which is capped at 80 per cent.

Industrial and commercial consumers supplied via City Gas Distribution networks are also restricted to 80 per cent of their past average.

Fertiliser plants' supply is also restricted to 70 per cent of their average consumption, with a mandate that the gas be used exclusively for fertiliser production.

- ANI