The Hindu Business Line : Power equipment industry hit by soaring metal prices

DESPITE facing bright prospects in the light of the increased momentum in power sector reforms, the over Rs 85,000-crore domestic electrical equipment industry is in a tizzy, following soaring metal prices in the last several months.

What has hit the industry most is that the increasing metal prices have come at a time when the electrical equipment manufacturers had just come out of a depression and were on the route to raking in big bucks, after power sector reforms gathered momentum. Indeed, the timing could not have been worse for the industry — on the one hand, it faces bright prospects, especially with the Government planning to add about 80,000 MW of installed capacity by 2012, while on the other, it is struggling to complete the existing contracts as a result of the surge in metal prices.

In fact, as a result of the rising trend in metal prices, the industry is being compelled to ramp up prices of the electrical equipment such as transformers, generators, cables and switchgears, much to the chagrin of Central and State utilities.

The Indian power electrical equipment industry is a mix of multinationals, such as Siemens, Alstom and ABB and Indian corporates, such as BHEL, L&T and Crompton, besides a large number of small and medium enterprises.

"Metals play an important role in the manufacture of these equipment, accounting for 60 to 80 per cent of cost of production, depending on the type of product. For example, in products like motors and transformers, metals account for 60 to 65 per cent of the cost of production, while in the case of products like conductors and transmission line towers, the contribution can be as high as 85 per cent," says Mr S. Ramaswamy, President of the Indian Electrical Equipment Manufacturers' Association (IEEMA).

Industry sources say that between July 2003 and February 2005, the prices of the three major metals used by the industry _ aluminium, steel and copper_ increased by 16 per cent, 56 per cent and 59 per cent respectively. And as a result, the electrical equipment manufacturers increased the prices of the equipment, especially transformers, switchgears and cables, by about 40 to 50 per cent in the last two years.

Apart from the rising prices, availability of the metal products has also hit the industry, following an unprecedented demand surge for electrical equipment globally. "In the light of this situation, the utilities should have a re-look at their old contracts with their suppliers and offer suitable compensation to help the domestic manufacturers to fulfil their contractual obligations," an IEEMA representative felt.

However, the trend is not dimming the long-term prospects that the industry faces. In fact, a significant trend of late has been that many MNCs, which are already in operation in India, like Siemens, ABB and Alstom, have identified certain products for manufacturing in India for global supplies. Not only this, new MNCs, like the US major, Emerson Technologies, are said to be eyeing India as a possible destination for developing a components manufacturing hub or procure the products through approved suppliers.

The Indian companies, apart from consolidating their presence in the domestic market, have also increased focus on international business through increased exports.

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