The forging industry in India has performed well during the year 2009-2010. According to a year-end review released by the Association of Forging Industry (AIFI) the revival which started in October 2009 picked up momentum during the last year.
The performance figure released by the Association of Forging Industry (AIFI) for 2009-2010 reveals that the overall production of forgings increased to about 1.8 tonnes in the year from 1.05 tonnes in 2008-2009, registering a strong growth of over 71%. Capacity utilization has also increased considerably and expected to reach 3millions by March 2011.This was a result of several industry initiatives including capacity expansion, modernization, cost rationalization, coupled with a revival in demand from the automotive sector and particularly the passenger car segment which recorded an excellent growth.
While the automotive industry is the main customer for forgings, the industry’s continuous efforts in upgrading technologies and diversifying product range have enabled it to expand its base of customers to emerging sectors including Aerospace, Energy, Oil & Gas and Heavy Engine Parts.
Key challenges & concerns
The AIFI report states that the in spite of registering an upswing in sales, the industry still faces a lot of concerns including increased cost of forging quality steel, high energy consumption, inefficient economies of scale, inadequate backward/forward linkages & overseas marketing support facilities, with rising steel prices leading the list of concerns.
Steel prices in India still remain out of sync with international prices. Recently Rashtriya Ispat Nigam Limited (RINL) had announced an increase in forging quality steel prices, from Rs. 2,500/- to Rs. 4,000/- per tonne effective 1st January, 2011. This will have a cascading effect on the industry including:
• Significantly lowered demand
• Very high inflationary impact
• Slowing down of economy
• Greatly reduced international orders, and
• Increasing competitiveness between India and China.
For instance China discourages exports of steel by putting an export tax and encourages exports of value-added products such as auto components. In contrast, India allows exports of iron ore at a nominal duty, helping China produce steel cheaper. All this is now pushing Indian buyers of steel products, such as automotive companies, to import components from China.
Also the customers of forging industry, including the automotive sector are not giving due credence to the conversion input increases resulting into the forging industry still struggling to maintain profitable growth despite the turnaround in the Auto industry.
The industry also faces hindrances which include on the export front which are the following:
• Volatile international and domestic prices of forging quality steel
• Non-availability of trained manpower at shop floor and managerial level
• Impact of the rising rupee and its adverse effect on exports
• High cost of energy inputs & Non-application of energy efficient technology
• Absence of research partnership between Forging units, Material manufacturers & Educational Institutions
• Excessive loss of metal, leading to low yield of forged products
• Inadequate adherence of forging units to environmental norms
• High Attrition rates.
Hence there is a critical need to bring transparency in steel pricing by aligning to a weighted index of prices of essential inputs for steel making, such as iron ore, coking coal, melting scrap and Ferro alloys, energy costs. To overcome the concerns of rising steel prices, the government should take steps including banning export of steel or imposing export duty to act as deterrent; banning export of iron ore from India or imposing duty; reduce import duty on coke and other raw material for steel making, bringing pressure on steel mills to price on par with ex-factory prices of Chinese/US mills.
Some of the other measures include bringing transparency and instituting a steel regulator thereby ensuring steel pricing in India is cost-based rather than opportunistic.
The casting and forging sectors of the country constitute a considerable proportion of employment. As is the case the world over, a major portion of this industry is made up of small and medium units/enterprises (SMEs). As per estimates, the industry provides direct employment to about 2.5 million people, contributing directly to the livelihood of more than three quarters of a million people. With increasing globalization, the industry is becoming more capital intensive. However with the SME segment, high requirement of capital (for technology) still remains a major constraint. Also industry continues to face acute shortage of skilled manpower and rising labour costs.
The market potential continues to grow for the forging industry. Looking at the overall long term picture, the vehicle industry seems well poised to maintain a remarkable growth rate. This industry is likely to post over 25% higher than the last year’s production.
The Auto Industry’s growth in 2009-10 has climbed up to 25.76% over 2008-09. The production clocked this year is 14,049,830 vehicles. The first half of 2010-2011 indicates even better performance. This, obviously, will require the production of the Indian Forging industry to shift into higher gear to cater to:
• Expected surge in global demand Galloping surge in the domestic automotive sector
• Upcoming projects in Energy – especially nuclear application.
The production of forgings for the non-automotive sector is on the rise, to give it a more widespread portfolio. Identified drivers of growth in the non-auto sector are Aerospace, Energy, Oil & Gas and Heavy engine parts. The Indian forging industry needs to capitalise on this by capacity expansion, technology up gradation & modernization of the units to meet global quality standard’s.
Rising Input Cost:
Average Price on Dec. 2009
Average current Price
Rs. 36.45/Ltr.[inclusive excise and VAT]
Rs. 13.45/ltr. About 60% increase
About 15% increase
Rs. 20/kg. About 13% increase
Stores & Consumables
Lubricants-110% Quenching Oil-from 32.29/Ltr to 90.30/Ltr – 300% Welding Rods -30%
About 15% increase