Rising price, shortage of steel likely to hamper revival of forging industry

Forging companies have been hit hard by the rise in steel prices. Asheet Pasricha, director, Association Of Indian Forging Industry (AIFI) and joint MD of Trinity Engineers, said the 30% rise in the price of steel seen from the second quarter this year will hinder the revival of the domestic forging industry.

Around 75% of input for the forging industry is steel and it directly affects the forging industry, he said. “In 40 years I have not seen steel prices go up this much,” Pasricha added. With these developments, he does not expect the forging industry to be anywhere close to where it was in 2019. The forging industry largely supplies to the automotive industry. For now, the OEMs in India are compensating for some of the increase in steel prices but this may not go on for long, he said.

Companies that are exporting may not be able to get a price rise at a time when steel prices in US and Europe have gone down, Pasricha said. The auto segment accounts for around 60-65% of the forging industry business and this was the only segment that had seen some revival. Demand from other segments such as power, aerospace, oil and gas sector has not revived yet.

According to Yash Munot, CEO of Varsha Forgings and V-P of AIFI, another price rise is expected soon. Steel supplies, too, are not in the required quantities and steel companies are demanding advance payment. This is affecting their cash flows, he added.

The premium at which firms are buying steel will not be compensated by OEMs, he said. This premium works out to around 5-7% per tonne. Many OEMs have not given a price rise for a long time and it’s going to be difficult for the forging industry as it can’t absorb any more price rise, he said.

There are around 378 forging companies in the country with installed capacity of around 47 million tonne and production of 23.50 lakh million tonne in FY20.