Over the past four or five months, international raw material prices have maintained a steady uptrend, and the domestic prices have been surging ahead of the international rates. Indian foundries are floundering under the impact.
About 5,000 foundries produce nearly seven million tonnes of castings annually. It is not that the sector has not faced spiralling raw material prices before. But, the prices are now revised twice or thrice a month and the rise is too steep, says one of the leading foundrymen in Coimbatore.
The main raw materials used by foundries are pig iron, scrap, coke (in the case of cupola foundries) and alloys. The units procure their pig iron needs from the domestic market. Industry sources say over 50 per cent of the coke requirements are imported. About 30 per cent of the scrap requirements too are met through imports and in the case of alloys, nearly 50 per cent is imported.
According to an Engineering Export Promotion Council data on steel prices, the domestic price of pig iron on April 3 was $850 a tonne (inclusive of VAT and excise) and the domestic price in China was $606-613 a tonne.
The foundries are unable to meet the soaring domestic pig iron prices and do not find imports viable, says K. Illango, another foundryman.
Iron ore is the raw material for pig iron. Huge quantities of India’s iron ore exports go to China. The Chinese Government now encourages export of value-added products and has levied 25 per cent duty on coke and primary steel product exports. “We have enough iron ore and we export iron ore.
They have enough coke but they have stopped giving us coke,” says Mr. Illango. The steel plants need 0.8 tonne of coke to melt one tonne of steel.
With steel prices going up, the prices of all related materials have also increased.
Most of the casting exporters enter into annual contracts with their overseas buyers. If the buyer sources castings from China too, then the Chinese have a 25 per cent cost advantage in raw material over the Indian manufacturer. Thus, the competitiveness of Indian foundries, the fourth largest casting producer in the world, has been affected. Domestic buyers are also reluctant to revise prices frequently, he says.
The units in Tamil Nadu have the added disadvantage of power cut in addition to the higher power tariff. In Coimbatore, many foundries have cut down one-third of their production.
The Government is considering revision of iron ore export duty structure. The foundries have appealed to the Government to ensure that the domestic industry gets raw materials at reasonable prices.
“We have appealed to the Government to control iron and pig iron exports with appropriate duty structure,” says C. R. Swaminathan, chief executive of PSG & Sons Charities Metallurgy and Foundry Division. The import duty on pig iron and metallurgical coke should be scrapped. The foundry industry has also sought removal of all restrictions on steel scrap import.