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The castings industry will once again prevail

There is a foundry in nearly every country in the world, the global industry is still growing and has been doing so for 6,000 years, so we must be doing something right, says Andrew Turner, general secretary of the World Foundry Organization (WFO).

His enthusiasm and confidence sprang from a discussion about the current situation in the global cast metals industry and the future challenges in this “new world” scenario. For Turner and the WFO members it is clear: “I think the industry will be at the forefront of change towards greener living, whether this is electric, for now, and alternative fuel, maybe hydrogen, vehicles to provide less polluting individual transportation,” he tells Foundry Trade Journal.

But what of those critical matters affecting the sector right now. Turner says: “In the immediate term, it is supply of things, whether it is microchips that is affecting the industry’s biggest users of castings, lack of power to foundry businesses, increased raw material prices and a lack of transport logistics, but I believe these are all short-term problems, either as a normal economic cycle or a glitch due to certain influences in the last twelve months; none are systemic long-term problems. However, the environmental lobby and the motivation of young people by activists like Greta Thunberg, is now gaining significant traction, I believe the effect of this will shape our industry going forward.”

WFO general secretary elect, Jose Javier Gonzalez, is particularly concerned about failing logistics and availability of some materials and skilled people. “During the first half of the year, when anyone would have thought at first that production would have been the main concern for foundries, we have seen that the most frequently mentioned situation by managers was referring to their lack of professionals in foundry plants. The disruption caused by the global production shutdowns in the period going from March to May 2020 affected our industry in the composition of their workforce. While many plants restarted their activity, they discovered extra difficulties in finding suitable skilled professionals, and this trend has been present in so many different countries.

“Now, along with the stop in production derived from the lack of some components in industries like automotive and the problem of transportation, the most alarming threat to our sector is the cost and supply of energy and the increasingly high prices of raw materials, a situation which is really hindering the recovery process in our industry. This is especially concerning in the cases of our small and medium sized metal casting companies, as their profitability margins are at extremely low rates now, as a result of the impact of these cost fluctuations.

“Although we could talk a lot about the factors that are shaping this new supply reality, we can see some current major implications for foundry businesses: on the one hand, the failing logistics or unavailability of some materials for manufacturing components and cast parts in the plants, along with the lack of components in customer industries (like microchips in automotive). On the other hand, the alarming increase in prices for raw materials and energy. As a generalised effect, the actual supply chain for our sector is unreliable and much more expensive,” he says.

“These issues are provoking new shutdowns in the production of several plants around the world and a very reduced profitability in some businesses, slowing down the recovery path and especially putting at risk the small and medium sized foundry companies.”

 

The industry’s response

It’s been a particularly difficult period for manufacturing and professional engineering because of social distance restrictions resulting in legislative changes in working practices, along with the problems associated with raw material price and supply fluctuations. The foundry sector has had to cope with its fair share of challenges in the past couple of years and Turner sees the impact this has had on foundries in all parts of the world. “In general, the industry has coped well, having many governments around the world realise that the foundry sector is a strategic industry was a step forward,” he tells us. “The global pandemic and its restrictions on travel and working practices have actually in some cases meant that the profitability of the sector was improved, but this has now changed. The impact of so many things – some linked to Covid, some not – has led to a new challenge with material prices being inflated, transport logistics being complicated and hence increasing in cost and a major shortage of labour. The consequence is that the industry is still busy but at significantly reduced margins and under extreme cost pressure that will inevitably have to be passed onto the global economy.”

Javier Gonzalez agrees that it is, as he puts it, a “perfect storm”. He says: “2021 was a key year in terms of an expected production recovery, presumably driven by the restart of social and economic activity. Even with some very good indicators for manufacturing production, our metal casters have been hit by a perfect storm of supply shortages, problems with logistics and an incredibly high increase in prices for raw materials and energy consumption. A readjustment in the foundry market was expected as a result of the big interruptions of 2020, but the supply chain is showing itself more fragile than we could have imagined, especially affecting the profitability of our companies in the short-term.

“At this stage, the sector is working on the proper deployment of measures like an extremely tight control of finances (which also means a limited capacity for new investments), or flexible adaptation of the workforce, which also affects the industry value chain downstream. In the producing countries where a strong national industry strategy has resulted in better protection against the impact of the crisis, we can also foresee an increase in automation and use of smart technologies, as the new supply flows demand a more efficient industry.”

 

Current trading status

“To fully understand and see the whole picture for the actual trading situation for the sector, we need to focus on all its facets, as the trade flows are affected by so many factors right now,” says Javier Gonzalez “Looking first into production and order indexes, the outlook for this year and next year shows an expected recovery in manufacturing levels, including in the foundry industry. We have seen how our foundry plants all over the world have in fact re-started their activity during this year and the last part of 2020, so many of them are at high-level capacity depending on the industries they serve.

“Nevertheless, we also need to pay attention to some specific customer sectors and to profitability, to have a real understanding on how our market is evolving now. On the one hand, the automotive microchip crisis has affected so many foundry plants, which in some cases are stopping production every other week. On the other hand, the situation created this year with extremely higher costs of transportation, raw materials and energy, drives our industry into a scenario of a very reduced capacity to achieve expected profitability levels (which was also envisaged would help recover part of the high losses incurred in the general ceasing of activity from April to May 2020). Indeed, this may impact the opportunity for some companies to achieve any profitability. A risk here is that we can see plants accepting orders where they may lose money in the short term, because they can’t afford to lose the customer. This is a survival scenario, not sustainable for our smallest foundry companies in the medium-term.

“With this complex balance and if we want our industry to survive, the expected improvement in trading and the increasing demand for products won’t be the solution for recovery on its own. We will also need strong political support with bold protective measures that can assist in at least lowering the impact of some external factors that are threatening such a strategic industry.”

 

A global sector for local supply?

For many years we have been promoting the importance of a global economy and the (often price related) benefits of a wide-reaching supply chain. However, has the last two years taught us that on occasions, buying local is more reliable? The best placed people to answer this are WFO members, the national associations committed to an all-encompassing global organisation. 

Javier Gonzalez considers this. “What seems to be at stake is not only the way we understand the global supply chains but the globalisation concept itself, which was somehow losing its shine in the pre-Covid era indeed, as revealed by the increase in protectionism in some countries that now is gaining momentum. Supply chains have played a special role in the globalisation of industrial companies, where the increase in profits has been a major driver up until now in the deep belief that this was a reasonably stable equilibrium. In recent cases, like the disruption created by the Fukushima earthquake, the impact in the form of delays and unavailability was understood as an assumable risk. Now, we are learning that our supply chains are somewhat weak, not resilient to these big disruptions, and that once we have a significant impact like this, they do not return elastically to the previous state, as maybe it was unconsciously expected.

“In this context, our foundry industry is also setting its concerning sights on the global business model and trying to set a reaction. This depends on how the different metal casting countries are facing the crisis as a nation, and what their previous focus was with regards national production and supply. Countries like China, India or United States, which already had their own strategic industrial plans gambling on domestic production, have developed stronger policies in this direction. Countries like Mexico, for example, have realised that they can offer shorter chains to foundry clients in the United States, offering an alternative to Asian suppliers. Some other foundry nations depend almost totally on exports as their main customers are located outside, which makes it difficult to adopt this inner-supply shift.

“We are also witnessing a renewed interest in technological projects to substitute some raw materials, although this is a medium-term form of initiative that won’t solve the current problem.

“It is not easy to foresee from our companies a request for a total shift in the global supply chain, as this relies on complex mechanisms to guarantee the needs of very demanding industries, and the scale of the change for going from global-market to local-to-market seems too complex a development to be achieved in the medium-term.”

Turner is of the mindset that there could be a different balance of supply moving forward. “In some countries the effects of restricted supply chains was immediate and hugely beneficial with reshoring of purchasing giving significant boosts to the local suppliers,” he says. “This is also now being seen in many other countries where the benefits of cheap imports has been seen as a short-term issue and buyers are now buying with a ‘plan b’ attitude and having local suppliers as well as having a primary offshore supply. Whether the memory of this time will be short-lived and we return to the greed driven demand for cheap products is yet to be seen, but I do believe that there are other influences to be considered.”

Localising supply is reliant on local growth rate. Prior to 2020 there had been rapid growth rates for certain regions, but have the consequences of the past two years affected this, if so, how have these regions adapted to the changing landscape? “The coronavirus has hit developed and emerging countries hard, without respecting borders,” says Javier Gonzalez. “Its impact, however, has been geographically diverse, reflecting the different health and economic measures adopted by countries and the exacerbation of some previous economic and financial catastrophes.

“Before the coronavirus crisis, the external investment rates in these countries and their trading share was increasing exponentially, becoming key players as major exporters, especially raw materials. The added debt increase did not generate excessive concerns as long as financial and macroeconomic figures were favourable. But the pandemic crisis has shifted this context, and these two factors are now decisive to determine the adaptation in these nations. A third factor is the way the country is coping with the social, economical and industrial measures to confront the disease, including the access to vaccination.

“For understanding how the emerging foundry nations are adapting, we can take a look at the BRICS nations. In particular, the situation in China has completely deviated from that in other countries, because of its effective response to the coronavirus. China has avoided an excessive increase in the public deficit, while stabilising the labour market and reducing the impact on the country’s businesses and an extended decline in demand. China has been one of the few countries to achieve a positive GDP at the end of 2020. At the other end of the spectrum, we can see how countries like Brazil, which dealt with the crisis differently, have witnessed a very serious economic impact. The policies deployed have increased the country’s public deficit to historic levels, which also reflects in difficulties for the foundry sector.

“Also in our sector, there are now good theoretical possibilities for a recovery in these countries (increase of global trading, high need for raw materials…), but in many cases this recovery is slowed down by the effects of their policies against the disease and previous crises (excess of debt, dependency of service industry within the GDP,…). China emerges here as a leading and reinforced foundry nation.”

 

Politics

There have been many political changes over the past year, including unrest in the EU, Foundry Trade Journal questioned the WFO about how its member countries had been affected by this.

Turner tackled the EU question head on. “The EU situation is another short-term issue, the mentality of punishing Britain for leaving will eventually fade as the equilibrium of trade returns to normal,” he says.

Javier Gonzalez says the foundry sector itself should exert influence on the political agenda. “In general, one of the lessons coming out of this pandemic is the strong bond between the social and political strategy of our metal casting producing countries and their manufacturing response to a crisis like this,” he says.  “Maybe more than ever, we realise how we are not only relying on our managerial capacities to move within global foundry trading, but also on the ability of our governments to guarantee stability in global crises, like establishing and measuring proper restrictions or guaranteeing high access to vaccination, for example. Connected to this, we have seen that some countries have been positively able to exert influence quickly on their national industrial strategy.”

 

A changing environmental landscape

Having pinpointed energy supply and cost as a major threat to the sector, proposed legislation and ethical responsibilities are a significant aspect of future plans. How reliant is the sector on existing energy solutions and how will the sector adapt to meet international environmental commitments in the coming decades?

“The Paris Climate Agreement and the different deals following it are setting the pace for a greener industry. Foundry is a core industry for manufacturing, a vitally important part of the global industry value chain, and so it is affected by the necessity to comply with these agreements in the coming decades,” Javier Gonzalez says. “Energy is no more a cost factor for foundries, but a strategic aspect that will drive a transition to a carbon neutral activity by 2050. Foundry plants will need to evaluate properly their carbon footprint and to introduce climate-neutral technologies, in a paradigm shift that will affect our business. A paradox here is that our companies must face the global request from customers to be served everywhere in short lead times, while at the same time complying with a reduction in their environmental impact.

“The challenge for our foundries is in making this transition while remaining competitive, and there the new technologies have a special role. Foundries need to work on their own processes (raw materials and circular economy, use of energy...), but extra effort in co-operation with third parties for downstream areas like logistics, or end-of-life policies will also be necessary. Digitalisation will have a role here as well, as supply chain monitorisation and data sharing can be powerful tools.”

Turner says it is the casting industry that will offer solutions and “cast its way out” of the dilemma. “Many foundries still use fossil fuels, particularly coke, in their melting processes and the industry has always been a high demand energy user, so the effects of the supply of energy, whether electricity or gas, is going to be a significant issue,” he says. “The demand for more renewable energy sources can only be achieved by the supply of castings to enable this to happen, so I think that a global co-operation is required to see this technology adopted by certain key countries. China and India still produce most of their electricity in fossil fuel, inefficient power stations, negating the work of virtually every other country’s efforts, this cannot continue – these two countries alone use over 60 per cent of all the coal mined in the world! Economies rely on this, and demand means it is happening. It will take many more COP26 type events to change this but change it must.”

 

An optimistic outlook

One could be forgiven for thinking that it is all doom and gloom, but not so according to the WFO and its member countries. 

“Foundries and castings technologists have been at the forefront of developments in energy, transport and medical devices for many years and I see this continuing,” Turner enthuses. “The demand for energy efficient and environmentally sound transport systems will be driven by the castings sector, allowing the development of lighter more efficient vehicles and more efficient power generation to work towards the global need for greener living.”

Javier Gonzalez is equally positive. “This sector has always been inherently innovative, and this should not be removed from the agenda even when so many companies are struggling to thrive trough the complications created by Covid-19.

“Regarding the market, we all hope that the figures foreseen for the coming year can really set a new way of recovery for our foundries. The expected demand surge for 2022 can be a driver to introduce other actions in the companies in our sector, easing the way to new investments and strategies. Anyhow, what is critical in the short-term is to see when the supply chain misalignments can be partly corrected, at least creating a new stabilisation.

“For those companies that had started a digital transformation process before the pandemic outburst, the good news is that they have already initiated what seems the right way to succeed in a post-pandemic era. There is a great opportunity for the rest to join this movement, although this is highly influenced by an improvement in the situation that allows new investments in technologies like smart platforms, infrastructure for a more efficient use of energy or materials, or automation for improved productivity, for example. Post-pandemic, most successful foundries will be connected and ‘smart’ to be able to compete in the new reality.

“In addition to the external market-oriented vision or to the focus on processes, companies should also be looking into the new opportunities within their own boundaries, as so many countries are now focusing on reshoring possibilities, looking for shorter and more resilient supply chains. Some metal casting producers can offer a new value now to customers that look for guaranteeing this extra value.

“The challenges to reducing industrial COemissions and the transition to a carbon-zero industry, alongside the transition to electric mobility, will also create new opportunities for our companies. We need to not only maintain but increase the research and development in materials, as there is still so much knowledge to unveil that can help our castings to further improve their added value.

“Now that we are living a new paradigm where we can’t take for granted any kind of supply, it is also timely for foundry companies to work side by side with their national governments to establish a common national strategy to protect the supply of a strategic industry like the cast metals sector.

“Metal casting companies are working hard at adapting themselves because of this complex situation, being resilient, innovative and flexible, but more than ever, public and private alliances will be essential to protect our industry where the global situation is creating more vulnerabilities right now – areas where foundry companies can’t fight alone. The foundry sector is a strategic industry for the world, and the different national industrial agendas should be in tune to its needs.”

Turner agrees and is confident that the legacy and proven technology of the sector will adjust, as it has in the past, to new world thinking. “I believe, the castings industry will once again prevail.

“Mass transport systems will also be enhanced as will the infrastructure provided by engineers and designers. I think the current desire for greener living, often driven by young people, will gather even more traction and the move towards use, buy, grow and manufacture local will be a significant influence in the future.

“I think that the world is coming to realise that we can’t continue as we have done for the last one hundred years and that the technology that we in the west have developed to clean up our processes and industry needs to be shared with the developing countries that are still using the old processes and technology that are now obsolete or banned in many other countries. The main issue will be cost and who funds this change. An answer to that, I do not have, but can guess at, it requires people to pay more for things, that are made or grown locally, whilst understanding that this is the price we have to pay to ensure this world is still here for our children and grandchildren.”

 

Impact on the World Foundry Organization

One of the roles of the WFO is to bring people from all around the world together, Jose Javier Gonzalez and Andrew Turner explain how the organisation has adapted during a challenging period involving social distancing and travel restrictions.

“The pandemic time has forced us to focus on our core,” says Jose Javier Gonzalez. “We had to take some difficult decisions, like postponing our World Foundry Congress and the World Foundry Summit during 2020, with an added high level of uncertainty in when we would be able to offer this value to the industry.

“However, this break in ‘normal service’ reminded the WFO where our value is set. Focusing then not on the tools themselves, but on the value to be offered, which moved us to digitalise part of our services and start using virtual channels to establish this knowledge flow to our global foundries. We also worked with some of our member associations during the past year so they could also make this journey into the digital world, accompanying them in the process of offering new value to their own member companies.

“Now, we can see events in Asia celebrated by some of our International Working Groups offering online wider value to metal casting companies, for example. We can see that social distancing restrictions applied to the global community have helped us in our transformation into a more efficient organisation in offering value to the industry, developing tools and customs that will remain.”

Turner says the value of meeting up again is still important and will work in harmony with digital events.

“Although the WFO had to delay planned events, many of our national associations have held their events, but with local attendees only and restricted numbers. The effect of this has been increased costs and reduced networking. I believe, the industry thrives on face to face meetings made up of international and diverse audiences, so the desire to return to this is high. With the USA opening up again, I think this will be the stimulus to have many more attendees at international conferences in the coming months and we hope that the World Foundry Summit in New York in May 2022 will be one of the first to see a high level of engagement, there are already over 120 registered delegates from 15 countries for this and we expect it to be a sell out at 150 people.”

For more information on the World Foundry Organization visit: www.thewfo.com