India, China, and Cheaper Castings

Metal Bulletin recently reported the predictions of V. Mahadevan, president of the Indian Institute of Foundrymen. Within three years, he said, India could replace Japan as the third largest producer in the world of castings. The expansion is driven by the demands of the rapidly developing Indian auto industry — not just demands for domestic cars like the new Nano, but also demands to support India’s plan to become a regional hub for auto components and assembly.

As a long admirer of Bharat Forge’s focus on developing world-class heavy forgings capabilities, I can certainly believe that there are many more firms in the market for engine and drive chain components, and they could likely face successful results. Bharat Forge have been major suppliers to Mercedes Benz, Ford, GM and a host of other international names for many years ” and, I should add in the interests of full disclosure, a good customer of mine.

When browsing the IPO lists on the Mumbai stock market during 2007, anyone could notice that company after company was over-subscribed as they came to market. And what did they all have in common? They were castings manufacturers.

Apparently in 2006 India had some 4,750 foundries producing a record 7.17 million metric tons of castings, fourth behind China, the U.S., and Japan. But with forge shops and cast houses announcing plans to invest in new facilities almost weekly, this capacity figure is set to rise. SEForge recently announced plans to invest $250m to build a new foundry with a capacity of 120,000 tons of ductile iron castings, a major part of which will be exported to Europe and the U.S. Good news for buyers who have seen India as possibly the only viable alternative to China for castings. Although interestingly, a friend of mine who runs a very successful machine shop near Delhi still buys a significant proportion of his castings from China.

India still hasn’t been immune from the same problems affecting China. The Rupee has appreciated markedly against the U.S. dollar, according to Bloomberg.  The rupee rose 12.3% last year, which by our estimate is more than the RMB. Labor costs are rising, too, and while inflation appears under control, there is the risk of the economy overheating if structural reforms and the appalling infrastructure deficiencies do not allow the economy to react efficiently to demands.

Likely as a hedge against over-reliance in the auto industry, SEForge is teaming up with Suzlon Energy, a major producer of wind power. Suzlon are developing plans to install 1000MW of capacity in the largest wind farm in Asia at Dhule, Maharshtra, India. Like automotive, the wind generating market is seen as a significant growth area for castings as the turbines and gearboxes require ever larger and more precise components.

So how much cheaper could western consumers expect Indian castings to be? Well, you wouldn’t expect a precise number to such a broad question. Clearly it depends greatly on the type of casting, the material, and so on. But we have a client accessing ductile iron castings at half the price of their local domestic supplier, and that’s landed at their own dock. In addition, the molds are often much cheaper, so lower production runs become viable. The deciding issue is more around the cost and management of the global supply chain rather than the cost of the actual product. In that case, the percentage savings can be dramatic.

When faced with such economies, it comes as no surprise that India’s foundries are expanding at such speed.

–Stuart Burns

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  • I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.

    Jason Rakowski

  • Jason, Thanks so much for your comments. We are glad you found us and hope to hear more from you in the future. LAR


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