Forging industry margins shrink due rise in industrial fuel prices

May 18, 2011 11:21 am

Buffeted by the high rate of inflation and continued increase in interest rates for a long time, the auto industry has increased prices across the board. Recently the forging industry cited the continually rising industrial fuel prices and fluctuating steel prices as the key reasons for rising input prices and shrinking margins.
 
Deven Doshi, President AIFI (Association of Indian Forging Industry) comments, “The hike in the prices of industrial fuel is having a cascading effect on the entire industry. In fact the price of furnace oil has skyrocketed in the last few months. The price of furnace oil has increased to Rs. 35.60, a whopping increase of 52 per cent over the last 6 months”. The price of furnace oil was Rs. 23.48 as on 1st September last year. “It is not possible for the forging industry to absorb such a high increase in energy costs. The government should look at alternate subsidies or reduce taxes to bring down prices of industrial fuel products”, Doshi added.
 
Also the Forging Industry has been constantly plagued by such margin shrinkages due to arbitrary, unrelated, frequent and unilateral price increases by the Steel Industry on one side while the tacit reluctance of the Auto industry to compensate Forging companies for the relevant escalations in their input prices. Such apathy invariably leads to putting brakes on possible capacity expansions or slowing production in the least and in closures of units at the worst.
 
Doshi also cautioned that the ‘out of sync’ price escalations of fuel and forging quality steel could result in a drop in domestic demand as well as greatly reduced International orders. He said, “The reported shrinkage of margins of the Auto Industry is a clear pointer towards this dreaded possibility”.
 
Doshi also reiterated the critical need to bring transparency in steel pricing by aligning to a weighted index of prices of essential inputs for steel making, such as iron ore, coking coal, melting scrap and Ferro alloys, energy costs. This will ensure that steel pricing in India is more cost-based rather than opportunistic.
 
Citing example of China, Doshi pointed out, “The Chinese Govt. has restricted export of steel while encouraging export of value added finished components. In addition, the Chinese industry is being helped by our generous export of iron ore at a nominal duty”.