The disruption caused by the Corona Virus has affected the automobile
industry thereby the automotive components and hence the forging industry.
While the industry was reviving post the pandemic, the increase in steel prices
has hammered the Forging Industry in India. Forging Steel manufacturers have
hiked the price by 10% over the last six months, and have now sought a further
15% increase, the initial increase itself was all but impossible to sustain,
the further increase will prove to be disastrous. Steel is the basic raw
material for The Forging Industry and typically constitutes 60 to 65% of the
ex-factory value of forgings, with these two increases this is expected to rise
to around 75%, with such an increase in percentage of the input cost, survival
of the industry has become challenging.
At the moment, the prices
of steel are at unprecedent highs. Increased demand amid low allocation of
production for the domestic market coupled with minimal imports due to import
restrictions imposed by the Government of India, domestic steel manufacturers
have increased the prices twice in the current quarter for forging quality
steel and three times in the current month for other types of steel, bringing
the benchmark hot-rolled coil prices in the wholesale market (ex-Mumbai) to Rs
52,000 per ton from only 36,500 per ton in July, that’s a rise of 43 percent,
an indicator that the prices of forging quality steel will be further revised
upwards in the immediate future in line with the increases in the prices in Hot
Rolled Coil prices.
The price increases of
steel in the domestic market are due to the increase in exports to neighboring
countries and resultant reduction in supply within the domestic market has
resulted in Indian prices, moving contrarian to the prices of steel in the
European and American markets, thereby reducing the price competitiveness of
the Indian manufactures in these markets, besides forcing the manufacturers to
absorb the increases on existing orders, resulting in them incurring losses on
them.
Steel Index Trend - Price movement comparison between Europe, America
and India
Apart from the increased
export of Steel, India's iron ore exports to have increased by 63%. This
increase in exports is mainly motivated by the record steel production of the
world's largest steel manufacturer—China. In FY20, India's iron exports
increased by 133% to 37.69 million tons over the period April-July 2020
compared to the corresponding period in FY19. And more than 80% of these
exports have been to China. Hence domestically produced iron ore in India has met
the needs of another country before catering to our own requirements. If Indian
steel price are higher than international steel price that will lead to exports
becoming uncompetitive. Export rates have risen sharply in post COVID and they
have almost doubled.
Mr. Vikas Bajaj,
President, AIFI said “Steel prices have increased by 25 to 30% per cent in the last three
months, putting the forging industry at serious risk, particularly when we are
still recovering from COVID-inflicted business losses and the resultant
pressure on cash flow, and cash reserves. The industry is still going through a
very difficult time and is not in a position to absorb losses. I believe that
rising demand for steel, low steel production for the domestic market due to
increased steel exports are the prime reasons for price hikes. The Forging
Association requests the government to consider a ban on steel and iron ore
exports so that demand of steel within the country can be met in a cost / price
effective manner”.
Steel accounts for 7 % of
the country's GDP, as steel prices have increased by 10 % and are projected to
increase by another 15 %, that could ultimately have an inflation rise of about
1.5 %. If inflation increases, it will result in higher interest rates, leading
to a slowdown of the economy.
India's exports of
finished and semi-finished steel to China increased sharply in this financial
year despite the growing border tensions. Also, India's overall iron and steel
exports to China in the first five months of this fiscal year were more than
three times the amount for the entire fiscal year 2019-20.
Impact on Forging
Industry: Indian Forging Industry is one of the key players in
the auto component manufacturing sector and a major contributor to the
Government’s Make in India initiative. The Industry apart from catering to the
automotive sector, solar, aerospace, railways and wind sector also plays a key
role in contributing to the forex by way of huge exports. The current
overall capacity utilization of Forging Industry stands around 50 to 55%
against a normal of 65% and the Industry provides direct employment to 250,000
plus people and indirect employment to approx. 250,000 people against 600,000
earlier. The industry has turnover of around 34000 crores.
Mr. Yash Jinendra Munot,
Vice President, AIFI said “Export of steel is the major reason for the rate hike. Large
mills are preferring to export steel to neighboring countries. Also, orders
have been booked for Europe, the Middle East, etc., which is one reason for the
shortage of steel in India. Thus, steel companies are in a position to increase
prices at their will due to the gap in supply and demand. The Government should
consider banning the export of steel and Iron Ore for the next six to eight
months or till such time that the local demand is met and should look at
regulating steel prices for domestic consumption.
Another factor that can
be attributed to steel manufacturers to increase prices is minimal imports from
other countries. Japan and Korea, the main two exporting countries to India
apart from China, are exporting more to Europe due to the restrictions placed
upon imports into India by the Government of India.
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