The Hindu Business Line : `Coimbatore foundries groaning under cost escalation'

What they want
Raw material suppliers to hold price line, customers to offer a higher price.
Fund technology upgradation like in textiles.
Separate industrial estates for large foundry units.
Ban on iron ore exports to bring in market stability.

Coimbatore May 7 The continuous increase in raw material prices and financial costs and the appreciation of the rupee against the dollar have come as a double whammy to the foundry industry in Coimbatore region that finds neither the domestic market nor exports a profitable option.

The industry has sought the intervention of the Central Government to prevail upon the raw material suppliers to hold the price line even as the foundry sector seeks to prevail upon the customers to offer a higher price to compensate for the increase in raw material cost.

The foundry industry also wants the Government to treat it on par with the textile industry by providing it with softer credit by floating a Technology Upgradation Fund (TUF), similar to what is provided to the textile sector, since it provides large-scale employment to the unskilled and semi-skilled workforce.

Speaking to presspersons here on Monday, Mr D. Balasundaram, President, Indian Chamber of Commerce and Industry, Coimbatore, said the ten per cent appreciation of the Indian currency against the greenback has hit castings exporters since they have not been able to increase the price to compensate for the rise in the raw material cost.

The upturn in the bank interest rate had also cast a shadow on the profitability of operations. He said the price of iron scrap has also been volatile and urged the Government to abolish the import duty of 5 per cent on scrap to enable manufacturers to import it.

The Government should also ban the export of iron ore to bring some stability in the market.

The engineering industry accounted for nearly 27 per cent of the export earnings and it certainly deserved a better deal by the Centre.

Mr Balasundaram said the Centre pushed the foundry sector to adopt environment-friendly technology that came at a high cost. But the cost of bank finance has shot up to 13-14 per cent and it was imperative that the Government subsidises the cost of technology upgradation.

He also wanted separate industrial estates be formed for large foundry units around Coimbatore.

Raw material costs

Mr C.R. Shanmughasundaram, President, Southern India Engineering Manufacturers' Association (Siema), Coimbatore, said that in the past one year, the cost of critical raw materials required by the foundry sector — like pig iron, CRC scrap, CI borings and heavy melting scrap — have gone up by 8 per cent to 21 per cent and the labour cost also had increased steeply.

The manufacturing cost of ferrous castings has moved up by Rs 10,000 per tonne and compared to the prices in 2005, the increase was about 20 per cent.

But the foundries have not been able to pass on this increase to buyers of castings who are demanding a 5 per cent reduction in prices year-on-year, failing which they threatened that they would source cheaper products from abroad.

Mr S.V. Jagadeesan, Chairman-Institute of Indian Foundrymen, Coimbatore, and Mr C. Muthusami, President, Coimbatore District Small Industries Association (Codissia), said Indian foundries produced castings worth about Rs 24,000 crore a year and exports accounted for about Rs 3,300 crore.

Export earnings share

The share of Coimbatore foundries in export earnings was about Rs 500 crore.

But neither the export nor the domestic sales seems to be profitable for the industry in view of the appreciating rupee and the continuous increase in raw material prices that were not matched by any increase in selling price.

While the manufacturers of raw materials were able to increase prices with impunity, the product manufacturers were unable to increase the product price due to market pressures.

`Jobs at stake'

Mr Jayakumar Ramdass, Vice-President, SIEMA, said the engineering sector played a vital role in employment generation among the semi-skilled and unskilled population and it was imperative that the Government nurture this sector to maintain social harmony.

Mr C.R. Swaminathan, former President, SIEMA, said the foundries have asked for a 13 per cent increase in prices from their buyers, and exporters also have asked for a 10 per cent increase from overseas buyers.

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