Tough times for forging industry as auto sector suffers

Chennai, Nov 25 (IANS) With the domestic and global auto industry on a downslide and units running at 15-50 percent of their capacity, many forging units are facing the threat of closure, according to a top industry official.

'Already, around 15 forging units in Ahmednagar in Maharashtra have downed their shutters. The industry turnover will be 20 percent than the $1.5 billion turnover estimates for this fiscal,' Association of Indian Forging Industry (AIFI) president Vidyashankar Krishnan told IANS.

He also said there could be some shakeout in the sector if the current situation continues for long.

The Indian forging industry consists of around 1,200 units with a combined annual capacity of 1.5 million tonnes and employing around 200,000 people.

Nearly 70 percent of the production is for the automotive industry and the balance is sold to the makers of valves, power sector equipment, mining, oilfield equipment, and engineering, among others.

Krishnan said around 20 percent of the production is exported, again mainly to auto units.

Attributing much of the industry's current woes to the runaway steel prices - the main input accounting for 60 percent of the product cost - he faulted the central government's latest move to impose a 5 percent import duty on steel.

'There is no threat of dumping of steel in India by overseas steel companies. In fact, steel imports have come down by 11 percent during April-October to 5.25 million tonnes. The government can always take anti-dumping measures as and when that happens rather than imposing duty,' Krishnan said.

After touching a high of around Rs.50,000 a tonne, steel prices have come down to between Rs.35,000 and Rs.40,000 a tonne.

Krishnan said the present fall in steel prices is owing to reduced demand as the user industries are trying to liquidate their inventories.

'The import duty levied to suit the steel industry is a move that would lead to missing out on about 300 to 500 basis points of deflation potential,' he argued.

With the demand slackening and steel prices coming down a bit, Krishnan said user industries are asking for price reduction even on existing orders.

Asked to comment on the industry's strategy to meet the tough times, he said: 'Companies will sit tight. It is also the time to look at cost-cutting avenues and develop new products.'

Though increasing or looking at supplies to non-auto companies to stay afloat is one option, forging units cannot be entirely divorced of the auto sector, which sources a lion's share of production.