Foundries unite to tackle price hike

Foundries unite to tackle price hike

Chennai: Foundry units in Coimbatore, Tamil Nadu, one of India’s leading hubs for the manufacture of castings, are joining hands to collectively import raw materials such as pig iron and scrap steel in an effort to tackle price increases in the domestic markets of these inputs.

Pig iron price has risen to Rs22,500 per tonne from previous year’s Rs17,700 per tonne. In the case of scrap steel, the price is Rs19,300 per tonne against Rs16,000 per tonne last year. A year ago, heavy metal scrap sold for Rs15,500 per tonne but the current price is Rs17,800 per tonne. The price difference between domestic pig iron and scrap steel prices per tonne against the landed cost of the same imported materials is a whopping 20%.

Foundries are coming together as exporters are demanding a minimum order size of 3,000 tonnes, which is higher than the requirement of the biggest foundry unit based in Coimbatore.

In addition, exporters of pig iron ask for advance payment. Pig iron constitutes around 55% of the foundry production costs, according to Jayakumar Ramdass, vice-president of The Southern India Engineering Manufacturers’ Association. Ramdass runs his own foundry unit to supply another unit of his company, Mahendra Submersible Pumps Pvt. Ltd.

Last year, around 10 Coimbatore-based foundry firms got together to import pig iron and scrap steel from Brazil, but the alliance broke after local suppliers reduced their prices. Recently, an industry body has called for bids from exporters and plans to initiate talks with its members after getting a price quote. “We’re all competitors at the end of the day," Ramdass said, explaining why the alliance fell apart last year.

This year though, Ramdass hopes that importing foundries would band together, even if the domestic players make a “temporary cut" in prices.

Coimbatore’s foundries have an annual turnover of more than Rs3,000 crore. The city has around 600 foundries with a casting capacity of 40,000 tonnes per month, according to a 2006 report by Confederation of Indian Industry.

Exports at Rs500 crore account for one-fourth of the industry.

The foundry products also go to auto component makers based in the city and outside.

“The pump industry is price- sensitive," said an official at Texmo Industries, which has been making water pumps for the past 50 years, with an annual turnover of Rs300 crore. “If we can source collectively we will get a volume discount."

Water pump manufacturers, who depend heavily on foundries for making their products, said their margins have come down because intense competition does not allow passing on the hike to end users. The boom in the steel industry in the last three years has prompted major steel companies to move away from producing pig iron to value-added steel products.