Foundries that produce metal castings across the country, led by top clusters such as Rajkot, Ahmedabad, Vadodara and Pune, among others, are being forced to either curtail production or temporarily shut down amid a spike in input costs.
It is customary for the foundry industry to witness and absorb price rise of different commodities within the range of 2-3 per cent every year. However, in the past one year, metals and castings industry saw a steep rise in commodity prices including that for coke, pig iron, cast iron, steel scrap, cast iron borings, HR sheet, CR sheet, ferro alloys, chemicals for core making and coatings, consumables for foundry units, copper, brass and aluminum in the range of 60-150 per cent.
For instance, the price of pig iron – a key raw material has jumped by nearly 45 per cent whereas coal prices have more than doubled in the last two months. Since most foundry units are dependent on coal for manufacturing processes, the input costs have dramatically shot up because of which, manufacturers are compelled to curtail production or else increase the cost of the castings. Some of the raw material rates have even surpassed those in China.
According to Devendra Jain, president of Institute of Indian Foundrymen, the industry body for foundries, the overall cost of iron castings has increased by at least 20-30 per cent over the past three to four months. Also, most foundries are on periodic contracts with buyers including Original Equipment Manufacturers (OEMs) who generally do not agree to share the price burden. This erodes profitability of foundries, drying up their revenue streams amid cost pressures and makes doing business unviable in both near-term and long-term outlook.
"Due to unprecedented rise in the costs of raw materials, power, labour, container crisis and multi fold rise in shipment costs, the foundry units in India are badly affected and hence impacting their competitiveness in domestic and well as in the export market," said Jain.
With over 6000 units in India, led by clusters in the western region such as Rajkot, Ahmedabad, Vadodara, Pune and Kolhapur, the foundry industry had seen a turnover of roughly $3 billion in financial year 2020-21. However, this year looks bleak in the wake of a rise in input costs, along with other challenges. IIF estimates suggest that of the total installed capacity of at least 18 million metric tonne of metal castings manufacturing in India, barely 60 per cent is currently utilised due to the rising cost of production.
To make matters worse, foundries are unable to cash-in on fresh order volumes due to supply-side bottlenecks triggered by uncertain supply and rising cost of raw material, thereby making foundry operations unviable.
Meanwhile, in the wake of this, IIF has sought that the government revokes the import duty on key raw materials used in casting production. "Most raw materials are imported and therefore, cutting down the import duty will help bring down the cost of production. The government should encourage manufacturing of ferro-alloys and various chemicals used in casting production in India through policy support," said Jain.