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Adapting to survive in a global environment

The European foundry industry accounts for 15 per cent of the world’s casting production, second only to China on 43 per cent(1). With its deep rooted tradition for quality components and cutting edge technology, the European foundry industry has seen its market attacked over the years from emerging nations which are quick to respond to the demand for cast products in what is, thankfully, an ever-widening customer market-place – most notably the automotive industry.
So what is the current situation? It has taken strong will and experienced resilience to bounce back from a hard-hitting downturn seven years ago across western and eastern Europe and future performance will surely have much to do with the region’s ability to adapt and survive in a changing world with more detailed demands.
Foundry Trade Journal editor Lynn Postle considers the current state of the European foundry industry based on the available statistical data and her travels in recent months.

Positive growth rates
There is a growing need for castings following the further development of the automotive industry, the energy sector and the construction sector and the signs are there for increased optimism in the European foundry industry, says Heiko Lickfett of The European Foundry Association, CAEF.
Speaking on behalf of 20 European nations, his report at the International Foundry Forum in September 2014 noted that whilst positive growth rates were being driven by the automotive industry, other sectors were also witnessing a change of fortune to help the casting industry move forward. 
According to figures calculated by the National Association of the German foundry industry, a good 50 per cent of the castings manufactured in Germany are, for example, supplied to the automotive industry, while just under 25 per cent are used in machine manufacturing. 
It seems that the non-ferrous sector has witnessed a more stable recovery since the economic downturn in 2008/2009 with the ferrous sector experiencing a slower climb out of the doldrums, partly due to the slow recovery of customers in the steel sector. Indeed the volume of non-ferrous casting production has almost returned to the levels prior to the crisis. A comparison of production figures from 2000 to 2012 shows that European ferrous foundries experienced a minus eight per cent drop in this period but non-ferrous foundry production levels were up twelve per cent since the start of the new millennium.
Dr Ioannis Ioannidis, vice-president of the European Foundry Equipment Suppliers Association CEMAFON and chairman of the board of the VDMA Foundry Machine Association, shares this view, emphasising in December 2014: “Business is slower at steel and iron foundries, whereas it is developing more positively at die and permanent mould casting foundries.”(2) 
Dr Heinz Büchner from IKB Industriebank expects demand for castings from the automotive industry to increase in general over the next decade. Rising prosperity in the emerging markets is likely to drive growth on the car market, while stricter legal regulations about energy efficiency and emissions should lead to higher sales in the European market. From 2018 onwards, there is also likely to be substitution of iron and steel castings with light alloy metal castings for certain parts when a switch is made to new car models(3).
The IKB market survey reveals that the markets for the European foundry industry will be shifting to a larger extent towards Eastern Europe and East Asia. China has become a more significant sales market for foundry machines again, which is associated with the anticipated expansion of casting capacities.

Although European castings are bound for use throughout the world it is noteworthy that whilst European nations export 36 per cent of their castings this is primarily to their neighbouring nations, only 14 per cent are directly exported outside of Europe. This very much follows the mantra of ‘producing castings where they are needed’.
One thing European foundries are known for is per plant production, where Germany is a world-leader. As an example an average company’s gross production value is €198,300 per employee. The amount of material (43.4 per cent of GPO)(4) used is €86,000 per employee and the gross profit is around €75,600 per employee.

Size and range
According to CAEF(5), in 2013 there were 1,992 ferrous foundries in Europe, employing 134,780 people and 2,767 non-ferrous plants employing 96,845. Note that these figures include Turkey.
Production levels are approximately 15.2m tons (11.6m ferrous, 3.6m non-ferrous) with an estimated value of €41.3bn (€22.2bn ferrous, €19.1bn non ferrous).

Geo-political turmoil
For the foundry equipment sector, uncertainty and trading bans have added another dimension to an already complex issue of selling equipment to countries around the world – one prime example of this being Russia. Although much of the concern has subsided recently, there is always another ‘political’ issue waiting to erupt, in our current rich landscape. Indeed much of Europe has been swept with election fever and that in itself brings uncertainty and instability into the market.
Gabriele Gallante of moulding manufacturer IMF in Italy is a supporter of turning international co-operation into the next step of actual production in emerging nations. “We have to re-think what we have learned,” he said. “The emerging market is establishing ‘benchmark’ prices and we European suppliers have to commit ourselves to exchanging information openly. Knowledge is our most important asset but the tendency to build where you sell is changing the situation.”
Europe is currently playing ‘catch up’ with many other regions in terms of competitiveness – with energy expenses being twice that of the US and China it is understandable that this may take some time. Marco Felisati, deputy director for industrial affairs at Confindustria in Italy said: “We need to find resources to boost the economy. Growth in Europe is lagging behind. A strong Europe does not help our exports. Certainly in Italy business confidence is down.”

Recovering from the recent past
It is perhaps in France and Spain where the greatest effect of the economic downturn was felt. There have been low levels of investment in the past three years in Spain with energy costs increasing significantly. With a significant amount of the industry reliant on the wind energy sector, the slump in this market had catastrophic impact on many foundries in Spain. Unemployment levels are still at an all time high.
Speaking at the World Foundry Organization general assembly meeting in 2014, Pierre Marie Cabanne from Rio Tinto considered the situation in the French foundry industry: “The outlook is not so good for the coming few months,” he told attendees from global foundry associations. “The automotive sector is the main customer for the majority of French foundries. The foundries are facing decisions about whether to remain local or to delocalise. The current bankruptcy rate is around ten foundries a year.
“The same levels of volumes of casting are no longer seen as they were before the economic crisis and there is a slight decrease in such levels year on year.”
He said that whilst the industry was fairly stable it is suffering from a very short order book.
For the UK, it really is a tale of two parts – whilst aluminium foundries were generally busy in 2014 there was still some fluctuation from quarter to quarter with die casters faring better than sand foundries. The requirement for added value parts continued to grow, with more companies looking at new arrangements for in-house or sub-contract machining. Ferrous founders reported improvement in order books and whilst there were exceptions, most appeared to be generally happy with their current workload. Foundries supplying the automotive sector reported good demand for castings destined for commercial vehicles and premium car brands.
However steel foundries only witnessed marginal improvement in business activity during the first quarter of 2014, many foundries remained subdued and some described the current business climate as “tough.”(6)
The Turkish foundry industry saw a 7 per cent growth in output in 2013 with a small drop in ferrous casting production but a massive increase in non-ferrous (60 per cent) hence there has been significant investment in high pressure diecasting facilities.
There was a near 25 per cent fall in automotive orders in 2013 for grey and SG iron castings but this made some recovery in 2014.
The situation for steel castings is very volatile with orders on short lead times becoming the norm.
Signs in the non-ferrous sector are encouraging due to new and high demand from new producers based in Turkey.

The future is advanced
Other than competition from different materials and casting processes, the main trends at present where European foundries can have a significant impact are: substitution of a component formed in a different manner for a casting, additive manufacturing, and smart castings produced by smart production.
3D printing technology is developing at a rapid pace, which is something foundries need to embrace to see how their customers can benefit from this additive manufacturing process.

Being smart
Traceability and coding are words we are all becoming very familiar with and this is a particular breakthrough for the metal casting industry. Equipment communicating throughout the process is nothing new for some industries but there are still some improvements which can be made in this matter for the foundry industry. A manufacturing process where equipment is interactively connected is one that should operate in a more precise and efficient manner. 
It is not just about production processes, a smart foundry is a sharp business unit, which is where data mining can really help. This is a process of analysing data from different perspectives and summarising it into useful information to increase revenue and cut costs. Software is available to help with this continuous process.
Communication is also a key factor moving forward – it’s no longer about having a user-friendly website, foundries now need to capture information about who is visiting the site, what they are searching on and what their individual needs are. 

An excellent track record
Perhaps the greatest advantage for European foundries – certainly in western Europe – is the many years of experience in terms of the production process and the changing business climate. Downturns, increased legislation and difficult trading conditions are not new phenomena to the European metal casting industry. It is possible to draw on past experiences to help with future developments.
Things are changing and this has been recognised – in 2001 49 per cent of the vehicles produced in Germany were sold worldwide, by 2013 this had dropped to 35 per cent. VW has announced plans to build four new plants in emerging markets up to 2017, the total supplier network for Audi has been set up in China to allow for customising vehicles to suit local needs. Future production capacity expansions will take place outside Germany, warns Dr Ralph Niederdrenk of PricewaterhouseCoopers with main automotive plants migrating to the US and China. This will result in the automotive value chain in Europe stagnating(5). 
One answer in Europe is to learn how to work globally and co-operate with lower cost economies; many European companies are setting up production facilities in other parts of the world. Further down the supply chain, for foundries, the answer will be to differentiate what they can offer from the competition. Critical issues will be the concentration of highly skilled workforces. Thankfully, strong manufacturing bases and a recent resurgence by many European countries to recognise the importance of the sector and its impact on overall economies provides optimism for the future.
It is also possible to learn from neighbouring economies, thus developing a more robust industry. 
Change is not new but the ability to adapt is fundamental for a sustainable future.

References

1. CAEF, moderncasting national association, Data 2012.
2. Estimation by CAEF and BDG 2012, in per cent of GPO (raw materials and supplies, without energy).
3. www.caef.org/statistics
4. www.thewfo.com
5. International Foundry Forum 2014