50% foundry units in Rajkot face closure as iron ore costs soar

Industry claims iron ore suppliers/ mines keep raising prices every 15 days

Despite increase in order enquiry, the Indian Foundry Industry is not able to deliver due to the steep increase in raw material prices, especially the cost of iron ore, which rose nearly 30-40 per cent during past few months. This comes at a time the industry is trying to recover from the demonetisation and GST impact.

At 15 million tonnes a year, India's foundry industry is the third biggest globally in terms of production capacity (10 million tonnes in FY16), after China (40 million tonnes) and the US (11 million tonnes). It caters to Auto, Railways, Machine tools, Defence, Aerospace, Electrical and others.

Brijesh Dudhagara, secretary, Rajkot Engineering Association (REA) alleges that iron ore suppliers/ mines keep raising prices every 15 days. Six months back, the price was Rs 22 a kg and today it is Rs 32 a kg and it is expected to increase further. Rajkot is a hub for foundries.

He noted, most of the contracts with buyers were signed six months back and customers are not ready to revise the price. "We are not able to understand why prices are going up so sharply since iron ore demand is dropping in the domestic market," said Dudhagara, who claims already 30-40 per cent of the production is down and if the trend continues for the next six-eight months, atleast 50 per cent of the units will close.

Almost 70 per cent of the production is catering to the automobile segment and it is expected that the Original Equipment Manufacturers (OEMs) would pass on the increase in raw material cost to the customer, said Nithyanandan Devaraaj, Honorary Secretary of Institute of Indian Foundrymen (IIF). In a year's time from January, 2017, the prices has gone up by around 15-18 per cent and not only in iron ore, the prices went up in other raw materials also, owing to the tightened environment laws in China affecting production there. Coal is another major raw material for foundries.

In sectors like automobile industry, where the foundries are having a margin of around 7-8 per cent, passing over the increase in cost is the only option available.

The Indian foundry industry is around $16-17 billion in size with around 6,500-7,000 units across the country. Almost 70 per cent of the production is from the top 30 per cent of the foundry units, while the rest of the 30 per cent is contributed by the 70 per cent of the industry. The production is expected to be at around 11 million tonne by the end of current fiscal, he said.

While Sajjan Jindal, Chairman and MD, JSW Group could not be reached for comment, he recently tweeted saying, the recent increase in iron ore price by NMDC & Orissa pvt. miners is forcing steel companies to pass on increased cost of production. Increased cost of other raw materials like coal, refractory, electrodes is further fueling this and leaving no other option.

An official from another steel company, they (big firms like JSW) can pass on the increase to the customers. However, for smaller firms this will be not be possible. He also noted, the price increase comes at a time when most of the steel companies are facing difficulty for working capital since they are under liquidation.