The first half of 2022 has been a challenging time as a result of increased input costs, particularly steel, aluminum and nickel prices. This combined with a decrease in automotive demand, the industry is expected to see a significant decline in capacity utilisation in FY2023.
According to the Association of Indian Forging Industry, particularly those in the small and medium segment are expected to witness a 50 percent decline in production in FY2023. The electric vehicle sector will have a significant impact on the forging industry since the demand for moveable parts used in vehicles will decrease, resulting in considerable unutilised forging capacity. Internal combustion engines in automobiles contain around 2,000 moving parts, whereas electric vehicles have only 20.
Vikas Bajaj, President, AIFI said, “ We anticipate that EVs will shut down 60 percent of the forging and casting industries in the next few years, resulting in unemployment 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 EVs. 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”.
The last two fiscals have seen a double-digit fall in India’s overall automotive sales due to the Covid-19 outbreak and various factors, including a shortage of semiconductor chips, rising input costs, rising commodity prices, and rising fuel costs (FY2020 and FY2021). Thus, the overall auto components and forging industry have not seen an improvement in their order books.
The tractor segment witnessed 5.34 percent down growth in the first half of 2022. The forging sector has been impacted by a sharp drop in tractor sales, which consume more forging components than any other vehicle. Furthermore, steel contributes 70 percent 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 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 percent 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 create a slew of new business opportunities. However, the Indian forging industry will face serious challenges going forward.
“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 to the cost of EVs, we are gradually seeing the hydrogen vehicles take center stage,” Bajaj added.
The forging industry in India comprises 85 percent of the MSME sector. Over 3 lakh people are employed directly in the industry, with an equal number employed indirectly.
With an annual output of about 20 lakh metric tonne in FY2021, the Indian forging industry has nearly 400 forging units, of which 80 to 82 percent can broadly be categorised as tiny and small enterprises. While 10 percent are medium-sized, the remaining being large scaled.
While SMEs contribute 30 percent of forging production, the medium and large-scale units contribute 70 percent. With a total production worth Rs 45,000-50,000 crore the forging industry provides direct employment to more than 3,00,000 people in the country along with an additional 60,000 contract labourers.