The Ups and Downs of the Foundry Market in India

The Foundry Market in India is set to experience some major growth over the next four years, posting a CAGR of 19.67 percent in terms of revenue from 2013-2018.

Increased demand from the automotive, electrical and construction industries will propel a lot of this growth, as the world starts to recover from the economic crisis, and companies renew their interest in India as a source of metal castings. But the industry is still volatile, with some big challenges expected to mediate more aggressive growth.

TechNavio analysts have pared down the most significant factors expected to impact the Foundry Market in India over the next four years.

Increased Need for Infrastructure and Power Generation

A number of ambitious infrastructure projects have been launched in India in recent years, and the foundry market in the country has been witnessing steady growth in order to meet demands from these projects. The Power Generation market consumed 4-4.2 percent of the total castings produced in 2013 and the growing demand from this market will help propel overall growth of the Foundry Market in India. Sanitary casting requirements will also create a continued demand for the foundries in India as they consumed 8.5 percent of the total castings produced in 2013. These necessities for infrastructure and power generation during the forecast period will act as a major driver for the foundry market in India. 

High Import Duties on Metal Scrap

Government regulations on the import of metal scrap—including a 2.5 percent import duty on scrap metal—have seriously affected metal casting manufacturers in recent years. The imposition of the import duty could cause a potential revenue loss of approximately US$1.82 billion (US$1= INR60.24) to metal casting manufacturers in India.

Since the Foundry market in India mainly relies on imported raw materials to reduce costs and increase the quality of castings, regulations put forth by the government will be a challenge for metal casting manufacturers as they will ultimately lead to increased cost of operations and reduce the quality of castings during the forecast period.

Revival of the Manufacturing Sector

The manufacturing sector in India is showing signs of revival, with strong demand from domestic and global markets. After holding back investment in the aftermath of the global economic slowdown in 2008-2009, companies have again started to invest in capacity expansion and asset creation. For example, Ford is planning to invest US$2 billion in India over the coming years and Renault-Nissan is planning a US$2.5 billion investment. As major manufacturers renew their interest in India, the demand for castings will bolster growth of the foundry market in India.

High Power Requirements

Rapid modernization, economic growth and industrialization in India has resulted in huge demands on the power grid, and large power deficits for various manufacturing industries.

Basically, India is not able to meet its domestic power requirements so commercial establishments (like the foundry market) that require power for their daily operations are facing severe power shortages.

Energy requirements for manufacturing metal castings are expected to increase with the growth of the foundry market in the coming decade. Most of the industry’s energy requirements are for melting metals, but mold making and core making also require substantial amounts of energy. As one of the most energy-intensive industries, achieving energy efficiency and looking for viable alternative energy sources will be the primary goal for this market over the next few years.

Industrialization and Development in the Emerging Countries

The need for urbanization and industrialization has created a need for construction equipment in emerging countries in the APAC region such as China, India, and Indonesia. The Construction Equipment market in the APAC region is expected to grow at a CAGR of 22.12 percent from 2013-2018. The revival of the global economy and the recovery of European nations from the recent Eurozone crisis will drive the growth of the foundry market in India in terms of both domestic and export demand over the next few years.  

Increased Raw Material Costs

Export taxes and import duties have increased the cost of raw materials, thereby squeezing the profit margins of manufacturers in the foundry market in India. In addition, high demand for raw materials is causing suppliers to increase their prices. This in turn poses a major hurdle for the growth of the Foundry market in India during the forecast period.