Auto sales decline due to chip shortage, high material costs; forging industry feels cascading effect, face bleak future

08:07 PM Nov 15, 2021 | Agencies

The forging industry is facing the heat with a sharp decline in demand in auto sector which has resulted in substantial production cuts, industry body AIFI said on Monday.

Moreover, the rise in steel prices have further hammered the forging industry in the country and with some car makers already indicating that vehicles will be more expensive from the coming months, the forging and auto component industries are anticipating a “bleak” festive season this year, the Association of Indian Forging Industry (AIFI) said.


The domestic forging industry primarily caters to the automotive industry, which accounts for 60-70 percent of the forging production. With the auto sector witnessing the slowdown, the forging industry has witnessed an average slowdown of 50 per cent of the total capacity, the Association said.


After growing at more than 10 per cent in the early 2010, the auto industry is now struggling to stay in the green.

Due to various factors such as semiconductor chip shortages, rising input costs, rising commodity prices, and rising fuel costs, total automotive sales in India have declined in double digits in FY20 and FY21. Therefore, the overall auto- components and forging industry have not seen an improvement in their order books, AIFI said.

The industry anticipated a rebound for the overall passenger vehicle market following the second wave of the COVID-19 pandemic. However, it is the supply, not the demand, that is likely to lead to longer wait times, which will have a long-term impact on consumer sentiment, as per the forging industry.

''The automobile industry is still going through challenging times after the second wave. The sector faces new obstacles on a regular basis. The industry is currently concerned due to the lack of semi-conductor chips. It has an indirect impact on India's forging sector,'' said Vikas Bajaj, President, AIFI. Additionally, customers are experiencing extended wait times, and the demand-supply imbalance may have an impact on automakers throughout the festive season, he said.

“Furthermore, the rise in steel prices has harmed India's forging industry. Steel is a basic requirement in the forging industry and the current price hike has disturbed the supply chain. If this continues to exist, the high steel prices will reach inflation levels more than what the country is currently witnessing,” said Bajaj.

Additionally, high raw material prices continue to be a challenge and high fuel prices continue to have an impact on customers and purchase decisions, he said, adding, “If manufacturing production and demand do not improve in the coming months, the forging and auto-component sectors will continue to struggle”.

Maruti Suzuki, Toyota, Hyundai, and Mahindra & Mahindra have already indicated that their vehicles will be more expensive in the coming months, AIFI said.

The Association said it had earlier this year raised its concern over high steel prices to the Prime Minister Narendra Modi besides writing to various ministries such as Micro, Small and Medium Enterprises, Heavy Industries, Steel, and Commerce and Industry.

With the ripple down effect of declining automobile sales, the forging industry is facing the heat with a sharp decline in demand which has resulted in substantial production cuts, it said.

The domestic forging industry, which is the second largest in the world, comprises 85 per cent of the MSME sector, employing over 3 lakh people directly and an equal number of people indirectly.

The revival is critical in strengthening the forging Industry and providing collaborative platforms to address the challenges, said Yash Jinendra Munot, Vice President, AIFI. “The government must take a comprehensive approach for its revival and provide the necessary impetus. The industry is hoping that the government will take a few immediate steps,” he said.

The introduction of ''Electric Vehicles,'' will be a direct impact on the forging industry, reducing demand for moveable parts used in vehicles which will result in major unutilised forging capacities, according to Munot. However, the industry continues to support government in their green mission. As a result, it is time for the forging industry to expand into non-automotive domains such as infrastructure, defense, healthcare, and railways where the current government is also investing heavily, he said.

With an annual output of about 20 lakh metric ton (FY 20-21), the domestic forging industry has about close to 400 forging units, of which 80 to 82 per cent can broadly be categorized as tiny and small enterprises, 10 per cent are Medium Sized, the remaining ones large scale, according to AIFI.

While SMEs contribute 30 per cent of forging production, the Medium and Large-Scale units contribute 70 per cent, as per the release.

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