The forging and components industry will experience a 60% decline over the next few years due to electric vehicles: president AIFI
The Association of Indian Forging Industry (AIFI) has witnessed a challenging time in the first half of 2022 as a result of increased input costs, particularly steel, aluminum, and nickel prices. The Forging sector, combined with a decrease in automotive demand, is expected to reduce capacity utilization in FY23. The first half of the year was the most difficult for most forging companies, particularly those in the small and medium segment, which are expected to witness a 50% decline in production in FY23. The last two fiscal years have seen a double-digit fall in India's overall automotive sales due to COVID-19 outbreak and various factors, including a shortage of semiconductor chips, rising input costs, rising commodity prices, and rising fuel costs (FY20 and FY21). Thus, the overall auto- components and forging industry have not seen an improvement in their order books.
The Automobile
industry in India has been witnessing a gradual improvement in month-on-month
sales for H1 2022 for most segments barring the tractor segment. The
tractor segment witnessed - 5.34 percent growth in the first half of 2022. The
forging sector has been impacted by a sharp drop in tractors sales, which
consume more forging components than any other vehicle. Furthermore, steel
contributes for 70% of the forging industry's input expenses. Other metals
required by the industry, such as nickel, chromium, molybdenum, and titanium,
have also seen volatile prices.
The Association
of Indian Forging Industry (AIFI), the apex body of the Indian forging sector,
has expressed concerns to the government over high steel, aluminum, and nickel
prices, as the increase in steel prices has damaged the Indian forging
industry. As a result, the forging industry is feeling the heat of increasing
production costs, and the post-pandemic recovery may be pushed back, with a
revival taking up to at least two years. The Indian Forging Industry largely
serves the Indian Automotive Industry, which accounts for 70-80 percent of
forging production. With the auto sector deceleration, the forging industry has
seen an average slowdown of 50 percent of total capacity.
Mr. Yash Jinendra
Munot, Vice President, AIFI said, “The industry is still going
through challenging circumstances, and the forging sector faces new challenges
on a regular basis. The volatility in steel prices has damaged
the Indian forging industry. The forging industry's core
requirement is "STEEL," and the present price increase has disrupted
the supply chain. Furthermore, high raw material prices remain a challenge, and
high fuel prices continue to influence customers and buying decisions. The
automobile industry accounts for around 70-80% of our industry. Rising input
prices and a decrease in vehicle demand could cause capacity utilization at
forging plants to decline from 80-85% pre-pandemic levels to approximately
50-55%. While steel prices were unavoidable given global trends, a more prudent
and balanced approach would have been preferable for the business. With demand
not picking up, fuel price increases, and a semiconductor shortage, automobile
OEMs have little room to pass on additional price increases, and the forging
sector anticipates a difficult year ahead.
The Impact of Electric Vehicles on the Forging Industry:
The global
electric vehicle (EV) market is expanding rapidly. The Indian EV market is also
continually growing, with close to 0.32 million vehicles sold in 2021, marking
a 168% increase YoY. The Indian automobile industry is the fifth largest
in the world and is anticipated to become the third largest by 2030. The EV
push in India will creates a slew of new business opportunities. However,
the Indian forging industry will face serious challenges in the coming years.
Mr. Vikas Bajaj, President,
AIFI (Association of Indian Forging Industry) said, “The electric
vehicle sector will have a significant impact on the forging industry since
demand for moveable parts used in vehicles will decrease, resulting in
considerable unutilized forging capacity. Internal combustion engines in
automobiles contain around 2,000 moving parts, whereas electric vehicles have
only 20. We anticipate that EVs will shut 60% of the forging and casting
industries in the next few years, resulting in employment and unit
closures. The major conversion of internal combustion engine (ICE) vehicles to
electric vehicles (EVs) in India would necessitate the growth of infrastructure
facilities, including charging stations, and vehicles that could provide a
higher range with a single charge. In India, it will take at least a decade to
completely transition to Ev's. However, the forging industry will need to look
into alternative options such as aluminum forging and expand into
non-automotive areas such as infrastructure, defense, healthcare, and railways,
where the present government is also substantially investing”.
He Further Added “Moreover, as
an association, we would be delighted if the government promoted hybrid
vehicles over electric vehicles (EV), as a hybrid contains both an internal
combustion engine and an electric motor. Also, as the price of these vehicles
declines closer toward the cost of EVs, we are gradually seeing the hydrogen
vehicles take center stage”.
The forging
industry in India comprises 85% of the MSME sector. Over 3 lakh people are
employed directly in the industry, with an equal number employed indirectly.
Indian forging industry is the second largest in the world, next only to
China. The forging sector has been identified by EEPC as one of the key
sectors for export growth. The Indian Forging Industry has always been a growth
driver of the Indian manufacturing sector, and it is one of the important
industries enabling and sustaining the success of the country's automotive,
power, and general engineering sectors. The industry has been meeting the
requirements of OFM’s under the Ministry of Defence, by being a significant
contributor to the ‘Make in India’ initiative.
With an annual output of about 20 Lakh
Metric Ton (FY 20-21 Approx.), the Indian forging industry has about
close to 400 forging units, of which 80 to 82 % can broadly be
categorized as Tiny and Small Enterprises. While 10 % are Medium
Sized, the remaining being Large Scale.
While SMEs contribute 30 % of forging
production, the Medium and Large-Scale units contribute 70 %. With
a total production worth INR 45000-50000 crore the forging industry provides direct employment to more than 300,000
people in the country along with an additional 60000 contract labourers.
ABOUT AIFI:
Association of Indian Forging Industry (AIFI) is the apex body of the
Indian Forging Industry. At present, it consists of over 200 members, who
command a large market share of the total production of the Indian forging
industry. The role of AIFI is to promote and develop the Indian Forging
Industry to meet the demands and expectations of forging customers and
end-users, both domestic and global) by improving the business environment for
its members and contribute in increasing their competitiveness through mutual
co-operation and understanding of all parties concerned and constant updating
of information and technology.
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