Forging industry raises concern on inflation, EVs hampering future outlook | The Financial Express

Forging industry raises concern on inflation, EVs hampering future outlook

Increased commodity prices, high-interest rates, inflation, and high CNG expenses, as well as the Russia-Ukraine crisis, are cause for concern across the auto industry and may have an impact on the market in the coming quarters. 

Forging industry raises concern on inflation, EVs hampering future outlook

The Indian automotive industry is on track to report a record performance this financial year, and the festive season has certainly given a boost to retail sales. On the other hand, while the Association of Indian Forging Industry (AIFI), the apex body representing the Indian forging industry has raised concern over high costs for steel, aluminium and nickel . As a result, rising production costs are having a negative impact on the forging industry.

Increased commodity prices, high-interest rates, inflation, and high CNG expenses, as well as the Russia-Ukraine crisis, are cause for concern across the auto industry and may have an impact on the market in the coming quarters. 

According to Vikas Bajaj, President, AIFI, “the volatility of steel prices has harmed the Indian forging industry this year. While steel prices were unavoidable due to global trends, a more prudent and balanced approach would have been preferable for the business. We will need to monitor how the economy performs generally, as well as how inflation and interest rates move in the future.”

In fact, in September 2022, the overall auto industry recorded a growth of 21.2% YoY. On a quarterly basis the growth was 18.3% YoY, closing Q2 FY2023 with retails of 60,52,628 units, up from 51,15,112 units at the same time last year. Vikas Bajaj, President, AIFI said, “The auto industry achieved the 10-lakh sales mark between July and September 2022. This is encouraging news for the Indian forging industry, as we primarily serve the Indian automotive industry, which accounts for 70-80% of forging production. Sales were hampered last year as a result of a global shortage of semiconductors.”

But Yash Jinendra Munot, VP, AIFI added that the electric vehicle sector remains a big concern for the forging industry and may result in considerable unutilised forging capacity, “In the coming years, we estimate that EVs will eliminate 60% of the forging and casting industries, leading to job losses and business closures. It will take at least a decade in India to entirely shift to EV’s. However, the forging industry must consider alternate options such as aluminium forging and expand into non-automotive sectors such as infrastructure, defence, healthcare and railways where the current government is also investing heavily. As an association we would be delighted if the government encouraged hybrid vehicles over electric vehicles.” 

Forging industry in India

The global electric vehicle market is expanding rapidly, and the Indian market is no exception. In 2021, around 3.2 lakh EVs were sold in India, which marked a growth of 168% 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. As the industry is rapidly shifting towards EVs, the government is focusing more on safety regulations that will provide more stability, quality, and efficiency.

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. The 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 an annual output of about 20 lakh metric tonne (FY2021 approx.), and has about close to 400 forging units, of which 80 to 82% can broadly be categorised 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 Rs 45,000-50,000 crore the forging industry provides direct employment to more than 300,000 people in the country along with an additional 60,000 contract labourers.

Representational image courtesy: Pradeep Forging

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First published on: 28-10-2022 at 19:19 IST