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Indian Forging Industry depends on 60 per cent of its revenues from the domestic automotive industry. Automotive industry was hopeful for recovery with post introduction of BS VI from the slowdown but Coronavirus (Covid-19) has impacted on the recovery of the domestic market. Muralishankar Sambasivam, President, Association of Indian Forging Industry (AIFI), discusses with Pushkar Oak about current situation in the forging industry and the way ahead considering the virus outbreak.
Shed some light on Indian forging industry?
According to the Association of Indian Forging Industry (AIFI) study, the total capacity of the industry is 23.9 lakh metric tonne (MT). The Indian forging industry has close to 400 forging units, of which 83 per cent can broadly be categorised as small and medium enterprises (MSMEs). While 9 per cent are medium units and the rest are large manufacturing plants. The MSMEs contribute to approximately one-third of the total output in terms of production and sales. Meanwhile, the industry provides employment for over 300,000 people. Currently, the total capacity of the industry is 30 lakh MT (FY2019) with a total production valued between Rs 45,000 and Rs 50,000 crore. The industry is experiencing a sales slowdown on account of coronavirus taking a hit on 25-30 per cent sales.
Has coronavirus worsened the current situation in the automotive industry affecting the forging industry?
More than 60 per cent sales of the forging industry accounts to the automotive sector. Hence the slowdown of all the segments of the auto sectors— commercial vehicle, cars, tractors and two- and three-wheelers has affected the forging industry very badly. The forging industry is down by more than 30 per cent in terms of sales. Covid-19 outbreak has extended the slowdown when industry was expecting recovery.
In India plants are operational for a limited time. A lot of companies have reduced the shifts and also the working days to reduce their fixed overhead costs.
The need of the hour is aggressive and assertive action that will help Indian manufacturers to become competitive on the global platform and other relevant policy reforms to foster ease of doing business.
Over the last couple of years, the industry has created additional capacity expecting a good growth which was projected from various quarters. Hence, with the slowdown, the overall capacity utilisation is less than 50 per cent.
What are the new trends in the forging industry?
With stringent emission norms coming in place, there is a huge thrust towards lightweighting. Automakers are looking to replace components with high-strength aluminium and magnesium alloys. Also, a lot of design innovation is taking place to achieve lightweighting like hollow shafts for the transmission instead of solid shafts or the use of micro-alloy steels to reduce weight by increasing the strength. Wherever possible, carbon fibre is seen replacing metallic parts.
With push on the electric vehicles (EVs), how will forging industry deal with this?
In an electric vehicle number of mechanical components are reduced. The introduction of EVs will have an adverse impact on the Indian forging industry as 60 per cent of the forging units are into manufacturing of auto components.
In the conventional combustion vehicle, the engine and also the transmission has so many forged parts like connecting rod, crankshaft, camshaft transmission gears and shafts and all these parts will vanish in an EV. internal combustion engines (ICEs) have approximately 2,000 moving parts as compared to only 20 moving parts in EV, as an EV does not have complete engine and transmission parts. It only has steering components, suspension and axles out of the forged auto components.
As a result, on an average 60-70 per cent of demand for forged auto components would decline to result in job losses and unit shutdowns. Hence, this will be a big disruptive change for the forging industry. The forging industry has to look for opportunities in aerospace, metro transportation, solar and other non-automotive sectors.
Tell us about forging industry’s export contribution?
The forging industry exports around 30 per cent of the overall sales globally. EEPC has identified forging as one of the thrust areas for the export. There are huge opportunities for the sector in the global market.
Since some of the forging units in Europe and USA are closing there is a huge opportunity for the Indian forging sector. Also, some of the OEMs and Tier 1 manufacturers across the world are looking to outsource their manufacturing now instead of creating additional facility or upgrading their in-house facilities.
Currently, the Chinese auto component industry with their huge domestic automobile production does not have the capacity to capitalise this due to the virus outbreak. Moreover, the trade war between USA and China has also made the Chinese suppliers non-competitive because of the additional customs duty. So, this opens huge opportunities for Indian forging and auto component industry. But the industry has to act fast in developing the new products and establish the production.
The industry is also faced with some challenges with regard to steel pricing and technology upgradation. Currently, the steel prices in India are relatively higher as compared to the global market and this is a major factor for the Indian players.
Such export opportunities exist for all the sectors of the industry -- the MSMEs and large scale. But for the MSMEs to become globally competitive and effective, they need huge technology upgradation.
AIFI is vocal about diversifying into non-automotive segment to reduce dependency. What is being done in the area?
In the current scenario the Indian forging industry is gearing up to meet the domestic slowdown in the short term and will hopefully diversify in future to take on the long-term challenge of e-mobility. MSMEs also have a huge opportunity in the export market. Hence upgrading in the times of slowdown and in such a situation will be a key to face future with more zeal.
The upgrades from conventional oil/ gas-fired heating, they should go in for induction heating to achieve energy efficiency/ reduce emissions and also for better quality. They shall adopt the latest technology in terms of simulation for tool and process design. They shall install quality systems in line with global standards.
As this is going to involve huge investments and at this juncture, MSMEs are not in a position to undertake such investments. AIFI has been speaking with the government and requesting the following initiatives on the following:
- For technology, upgradation create the funding under TUF and also interest subvention.
- Since simulation techniques are very costly and require well-trained specialist, most of the MSMEs will not be in a position to create such facility in- house. Hence the association has been interacting with the government to set up Tech Centers. MSMEs can use such facility for the process and tool design and also failure analysis and thereby reduce their development time drastically and ensure 'First time right'.
With the above facilities, the MSME’s in the forging sector can confidently develop components for the export markets and other non-automotive sectors.
What is your growth outlook for FY2020?
The entire industry is going through a very tough period now. Currently, there has been a huge inventory built up due to poor demand and in order to curb this, many forging units have been making proportionate cuts in their working hours and production. If the current scenario continues, we anticipate further cuts in production and capacity utilisation leading to job loss.
Coronavirus outbreak has added fuel to the fire which coupled with slowdown and BS VI transition. The industry's revival will play a critical role in strengthening the forging industry while collaborative platforms are expected to address the challenges faced by the industry.
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