Powder metallurgy (PM) is a technology used to manufacture near net shape components for an increasing number of applications like automobile components, aircraft components, cutting tools, refractory, household appliances, etc. The general PM process comprises of Powder manufacturing/powder tailoring, Compacting, and Sintering. Based on product’s final requirements, optional secondary operations are performed. PM components for automotive application are experiencing a growth coupled with new challenges.  PM´s capability for producing complex net shaped components with desired properties has enabled it to be an alternative to other traditional manufacturing processes. Average U.S. made vehicle in 2010 contained an estimated 41.6 pounds of PM parts and in Europe, the average per vehicle PM parts in 2010 is estimated 18.5 pounds [3].  New design goals set by OEMs (original equipment manufacturers) demands for complex shaped components with high mechanical properties. Stupendous developments are done in the field of PM component manufacturing and PM raw material manufacturing, endeavoring to cater the technical and economic needs set by OEMs. Based on the application, unique powder characteristics are demanded which are in turn associated with the quality of powders produced.  Powder production for conventional PM application encompasses reduction or atomization followed by annealing. Reduced powders are called sponge iron powders, used for low density (density of PM component) application and atomized powders are used for relatively high density application. Atomization can be further classified into water atomization and gas atomization. Coarse, irregular shapes are the common features of water atomized powders and fine, spherical shapes are the common features of gas atomized powders. Water atomization is one of the prominent methods used in production of powders for conventional PM application. Oxygen content of the powders produced by water atomization plays an important role in determining it’s as sintered properties. In this work, oxide formation during various stages of water atomization and annealing were studied for iron, carbon and manganese alloy system and iron, carbon, chromium, molybdenum and manganese alloy system. Manganese content was varied (0.0%, 0.5%, 1.0%) in the above said two alloy system maintaining the same amount of other alloying constituents for comparison. Total oxygen content and oxide composition formed during processing were studied. Both alloy system showed that total oxygen content increases with increasing manganese content. The composition of oxides includes manganese, chromium and iron for Fe+C+Cr+Mo+Mn alloy system and manganese and iron for Fe+C+Mn alloy system. Key words: Powder metallurgy, Water atomization, Gas atomization, Reduced powders,  Oxygen content, Oxide composition, Annealing, Sintered properties, Iron, Chromium, Molybdenum, Manganese.