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Global Foundry Review 2019 – changing down a gear for automotive suppliers

By far the greatest influencer for the global cast metals sector in the past year has been the continued crisis in the automotive industry. The scandal of dieselgate, the ‘drive’ towards lower emissions and electromobility and a general decline in passenger vehicle sales during a prolonged period of world-wide economic uncertainty, thanks to trade disputes and political unrest, have all had an impact with automotive manufacturers suffering accordingly.

With the reliance on the automotive sector for the largest percentage of castings, the industry is thus feeling the pressure. Almost all contributing countries to the WFO Global Foundry Report 2019, cited the slump in the automotive sector as having an effect on national foundry production, with some suffering more than others. Indeed, the gloomy picture in Europe for diecasters and foundries supplying the sector was echoed in Asia, most notably in China which reported that automotive casting output declined for the first time in many years, whilst castings for industries such as agricultural machinery, power generation equipment and electricity also declined significantly. A consequence of the decline in the automotive sector saw aluminium and magnesium castings production drop by 2.1 per cent in China.

In contrast for China cast pipes and fittings, construction machinery and rail transportation experienced a relatively positive growth in 2018 of 7.2 per cent, 11.9 per cent and 9 per cent respectively. Hydraulic parts and pump valves in general machinery also maintained high positive growth. This all resulted in a slowing down of the high-speed growth rate witnessed from 2000 to 2011, with total casting output in 2018 being similar to 2017 at around 49.35m tons.

Meanwhile it is a different picture in the United States where there was an overall growth in financial worth of casting production in 2018 to $33.1bn, an increase of ten per cent over 2017. Growth in terms of value in 2019 is estimated to be at 1.9 per cent to $33.7bn in casting sales. Aluminium, magnesium and investment cast steel are expected to witness the hightest rates of growth over the coming decade at annual growth rates above three per cent.

With around 80 per cent of German casting production being destined for the automotive and mechanical engineering industries, German foundries have continued to see a downward trend. Although there was a slight overall growth rate in 2018 of 0.8 per cent, the outlook for 2019 is less positive. The largest contributor to the slowdown is the demise of the traditional automotive industry. As would be expected, this had the greatest impact on non-ferrous foundries, which reported an overall production decline of 2.4 per cent. In contrast German iron foundries benefitted from positive economic developments in the mechanical and plant engineering industry but were still unable to expand production beyond 2 per cent.

In 2018, Italian foundries recorded a production growth rate of 1.2 per cent, which was greatly reduced from the +7 per cent witnessed in 2017. The slowdown in the automotive sector and the construction sector was a significant factor and, whilst castings destined for the mechanical industry sector continued the upward growth trend, the level was much reduced to that of the previous year. In general the poor trend across the board was due to a contraction in domestic demand and a slowdown in exports. There is, however, optimism for steel foundries, specifically for those with mechanised systems for the production of small castings for the mechanical industry.

There has been a general slowdown in the fast growing economy of India. The casting production figures for 2018 are expected to be in the region of 12.7 to 13mt but indications from the Institute of Indian Foundrymen are for a decline in 2019 of 10-15 per cent on this figure. This is largely due to the decline in demand for automotive components and uncertainty surrounding e-mobility, which is delaying specific investments.

The Korean foundry industry is also suffering from the demise of the automotive sector, which is compounded with a decline in the shipbuilding industry. However, it is hoped that governmental support for specified materials and component manufacture will encourage investment and development in the foundry industry in the country.

The volume of casting production in Japan has remained even for the past five years, with 2018 witnessing an increase of 2.1 per cent over 2017. However, with around 60 per cent of Japanese castings destined for the automotive industry concerns are high with regards future output. With the majority of car manufacturers looking at the next generation of electric and hybrid motors and many committing a large percentage of development to this, automotive foundries in Japan have been adopting new strategies to adapt to the changes. Imports of castings are decreasing but so too are exports with the majority of castings now supporting the domestic market, with many being self-consumed within fellow group companies.

A large number of Austrian foundries are also anticipating little or no growth in 2019 because of the pessimistic automotive sales forecast. However, Austrian foundry output increased by 2.9 per cent in 2018 and sales figures followed suit with an increase of 4.2 per cent. The majority of the increase was instigated by higher demand for iron and steel castings (up 4.8 per cent with sales up 4.6 per cent), with non-ferrous castings registering a much lower increase of 1.1 per cent (sales up 4 per cent).

In Romania structural changes have been witnessed with the non-ferrous sector (especially diecasters) performing better than ferrous foundries, where production decreased. However, it is anticipated that the increases in high pressure diecasting will cease in 2019 because of the downturn in the automotive sector.

Spanish foundries have also suffered from slumps in various customer industries, most notably the automotive sector. Consequently, foundries in the country have continued the predicted positive trend but with a less steep growth curve. As with most countries, there was a decline in aluminium casting production because of the automotive sector issues. However, with 88 per cent of casting hailing from the ferrous sector, the impact is less dramatic.

The picture is more optimistic in Sweden because although around 70 per cent of the castings produced in the country are for the automotive sector, Scania is in the process of building its new iron foundry and fellow Swedish truck manufacturer Volvo has also committed to update its iron foundry to the tune of €150m. Overall, production levels grew by 5.1 per cent in 2018, with the anticipated growth in aluminium and magnesium ‘lightweight’ castings as dictated by automotive customers.

At 1.78mt, casting output in French foundries in 2018 is similar to that of 2017. Once again foundries supplying the automotive sector are suffering. This is reflected in a decline in light alloy production, although magnesium and titanium castings destined for the aerospace sector are faring better. A positive light is seen in steel foundries, which appear to be witnessing growth in orders. There are also signs of potential increases in iron castings, relating to pipes, street and heating parts.

Debatable topics

Whilst the downturn in the automotive sector has clearly been a contributing factor, other elements are currently dictating the economic performance of many nations and the fate of the foundry sector in those regions. Most notably exchange rate fluctuations and the demise of the industry’s skill set, the latter being a matter that many countries are keen to address.

Market conditions are affecting the ability for many to invest at a level they would want to such as in the Czech Republic where those foundries running high volume are able to benefit from investment in equipment to improve productivity but elsewhere investment is stagnating. Automotive foundries and diecasters are suffering because of a downturn in the market. Although production levels for 2018 will be similar to 2017 (around 418,500t), the current economic situation means companies cannot build reserves resulting in them falling victim to fluctuations in market conditions.

Concerns have arisen in general across the industry in Egypt because of the devaluation of the Eqyptian currency coupled with the industry’s reliance on imported material, a continuous rise in energy costs, lack of skilled labour and poor investments due to a lack of incentive regulations. However, on a positive note two new foundries are set to open in Egypt, one of which is an automotive foundry at Helwan Iron Foundries, with the capacity of around 30,000t per annum of brake discs and brake drums.

With export being an important aspect of Serbian casting production, the country has suffered from fluctuations in the international market and from imposed sanctions. Also, the Serbian foundry sector is almost fully dependent on import of materials and equipment. Skilled labour is again cited by many as “of concern”.

The Czech Republic reports that production growth has stalled, in part down to a lack of skilled labour. Austria, Eqypt, Japan and the UK also noted that improved training and sector-specific skills was imperative.

Despite a diverse range of capabilities, South African foundries are still suffering from lack of a skilled workforce, high energy costs, ageing equipment and lack of investment to rectify the situation, along with noncompliance to environmental laws for some facilities which places them at risk of closure.

Although there is positive progression since the economic downturn in 2008, a number of concerns remain in the Spanish foundry sector such as political uncertainties surrounding Brexit and its impact on the European community, along with new tariffs and trade wars beyond Europe; high energy costs and the impact of electromobility.

Finnish foundries benefitted in 2018 from higher sales prices, in line with global prices. Thus, despite a drop in production levels, value increased by 16 per cent.

French foundries are still achieving a good price for castings and maintaining their reputation for production of complex castings.

Positive support and investment plans

In many parts of the world, regional and national support, along with development plans are available to improve the situation. One example is in India where there is a focus on infrastructure in the country and it is envisaged that the construction of roads and rural housing will result in increased demand for earthmoving and allied equipment. Greenshoots are also visible in mining, commercial vehicle, railways and the defence sectors.

The casting industry in Poland relies on a high level of export success, in particular to neighbouring Germany, Italy, France, Czech Republic and the UK. Therefore it is hoped that the industry will be further boosted by new investment as a result of the initiative to designate the country as a special economic zone, which means tax exemption for new investments for up to 15 years.

Although a relatively small industry in global terms, Australian foundries report a busy year across the board. However, in general, investment plans to replace ageing equipment are partially on hold whilst the industry awaits the release of the new governmental energy policy.

In general, 2018 was another successful year for Hungarian foundries, with moderate growth. Of particular note is the year on year growth for investment casters. The industry remains optimistic for 2019, despite an enormous reliance on the export market, with around 85 per cent of castings headed out of the country.

The UK is also optimistic about its investment casting sector and is responsible for 50 per cent of the market share for the EU for investment castings. In general UK foundries report increases in turnover and orders for 2018. Whilst, thus far in 2019 UK ferrous foundries have benefited from an increase in orders with delivery times being stretched out. The aerospace sector has also improved and the defence sector remains strong. However, offshore oil and gas projects, which witnessed some recovery last year, are now slowing again.

Clearly the transformation to electrical drive-trains will have a big impact on the foundry sector. To assist, the Scandinavian Automotive Supplier Association has launched a national project in Sweden for sub-suppliers which produce components for combustion driven vehicles to help them adjust to demand for different components.

In 2018, Norwegian foundries achieved higher turnover than expected and a slight increase in volume. This positive development is expected to continue into 2019.

In both China and Belarus, international quality standards are now being implemented.

In Slovenia, the outlook is positive with trends including digitalisation, interconnectivity, lightweighting and sustainable production, dominating investment, helping the Slovenian foundry sector to realise a moderate growth rate in 2018 of around 2 per cent.

The foundry sector in Spain is also reacting to the need to develop advanced technologies to meet Industry 4.0 and provide ‘smart’ manufacturing, which will require more education and development amongst foundry personnel.

Swiss production was positive for 2018 and there is a slight growth rate expected for 2019.

The Turkish economy continues to grow and the foundry sector has taken its place amongst the top three producers in Europe. This has been achieved against a backdrop of volatile macro-economic conditions and is a result of increased investment to the value of €173m in 2018, up 44 per cent on the previous year. Investments were mainly in moulding lines, sand reclamation, simulation software and energy efficiency projects.

Difficult exchange rates, along with high energy and raw material costs plus an overall 30 per cent increase in wages have had an impact. The 9 per cent decrease of motor vehicles production and a drop in domestic sales of 35 per cent are also of concern.

The information in this report has been interpreted and compiled from extensive data published in the WFO Global Foundry Report 2019. The Report is available from the individual national member associations of the World Foundry Organization (WFO), to access their details visit: www.thewfo.com alternatively contact WFO general secretary, Andrew Turner, email: andrew@thewfo.com

Some data is not available and is thus missing from regions such as South America and Russia.