Over 700 foundries in Coimbatore that manufacture castings for different verticals of engineering sector are hit by the high raw material prices.
Capacity utilisation at the foundries was 50 % in 2019-2020. After September last year, it increased gradually and is at about 80% because of high demand, especially from the automobile sector.
However, the hike in raw material prices by over 50 % for most inputs since November 2020 has turned the situation challenging for the foundries, said S. Balraj, chairman of the Indian Institute of Foundrymen, Coimbatore chapter.
Nearly 70% of the foundries in Coimbatore supply to Original Equipment Manufacturers (OEMs) and most of the foundries cater to the domestic market. “We have long-term contracts with the OEMs. They revise the prices only once in three to five months. But, the raw material suppliers are increasing the input prices almost twice a month. The price realised for the components does not meet the raw material prices. Except for a few, most of the foundries are incurring a loss,” he said.
“The foundry industry is going through very rough times. In the emerging scenario, unless supported by suppliers and customers, government interventions apart, many foundries, especially the ones in MSME sector will find it extremely difficult to tide over the situation,” he said in a press release.
The industry is largely dependent on the migrant workforce and post the lockdown, the industry is reducing reliance on human intervention. The industry is witnessing investment cycles for both upgrades and modernisation, he said.
The foundries, which are sandwiched between the suppliers and customers, are caught in the vicious cycle of cost push inflation, with inadequate support from either side of the value chain. Though there has not been adequate compensation by the customers, the industry was able to manage. The delay by the OEMs in compensating for the raw material price surges have had severe financial implications on many foundries, especially the small and medium-scale enterprises. It has challenged even their sustainability, he said.
Hence, the OEMs should revise the prices once a month to match the input costs till the raw material prices stabilise, he added.
