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The bearing sector reported fall in profits in the quarter ended September 2008, largely due to spike in input costs and inability to fully pass on the same to customers. Though the revenues grew, the costs surged leading to fall in profits. Bearing Industry in India can be divided into two segments - the organized sector and unorganized sector.
The ball Bearing prices moved up by 3% in July and 4% in August, September and October 2008 (for the three weeks ended 18th October 2008), on y-o-y basis. They have also sequentially increased by about 3.4% from between April and October 2008. On the other hand, the roller bearing prices are witnessing acceleration in the pace of growth in whole sale price index on y-o-y basis from 10.44% rise in July 2008 to 13.86% rise in August 2008 to 17.2% growth in October 2008. On a sequential basis as well, the sector recorded 17.8% increase from an index of 131.3 in April 2008 to 154.7 in October 2008.
Ferrous and non ferrous metal prices have crashed, especially since October 2008. The copper prices at LME crashed from US$ 8985 per tonne on 3rd July 2008 to US$ 3721 per tonne on 27th October 2008, a crash of nearly 59% in less than four months. Similarly, aluminium prices at LME crashed from US$ 3291 per tonne on 11th July 2008 to US$ 1876 per tonne on 27th October 2008, thereby witnessing free 57% fall in about 2 and half month period. Similarly, HR coil 2.75 mm steel prices in China tumbled down from Chinese RMB 6154 per tonne on 28th July 2008 to RMB 3735 per tonne on 24th October 2008, evidencing a crash of about 61% in less than two months.
The commercial vehicle production grew by mere 4.35% to 255796 units in the first half of the current fiscal. But passenger vehicles recorded decent 11.91% growth to 9.33 lakh units while two wheeler productions grew by 14.08% to 44.37 lakh units during this period. Overall, the auto sector recorded 12.7% growth to 58.81 lakh units during this period. But Tata Motors, Ashok Leyland, Bajaj Auto, TVS Motors etc have indicated that they are planning to cut production in order to match the slackening demand. As a result, we expect sharp deceleration in auto production in the second half of the current fiscal, and this will mean lesser growth in demand for bearings the key user sector automobiles. Also, the index of industrial production grew by mere 4.91% in the four months ended August 2008, with just 1.27% recorded in August 2008. This means, host of user industrieswill also record slower growth in demand for bearings.
Bearing sectors is witnessing challenging times ahead, largely due to sluggishness in demand, especially in auto OEMs and industrial segment. On a relative basis, the ball bearing segment was neither successful in passing on the rise in costs nor able to significantly improve volumes in the auto OEM segment. But they were quite successful in increasing the prices in the industrial segment. Further, the huge capacity additions in various industries have brightened the medium term prospects in the bearings demand from industrial sector. So, players are planning to scale up the share of supply to industrial sector in their total sales. Meanwhile, the recent softening of steel and non ferrous metal prices augurs well, much depends on the player’s ability to hold on to prices and increase volumes. Overall, the near term outlook is neutral with positive bias
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