The current economic turbulences prompted us to talk to José Javier Gonzalez of the Executive Secretariat of the World Foundry Organization (WFO) about the current economic situation. The focus was once again on the effects of a possible Brexit on all foundry nations.
José Javier Gonzalez: The global die casting production keeps showing a continuous growth in a global basis, especially in the figures from aluminum. The market trends and forecasts confirm so a bright future for the die casting industry, though it will be challenged by some global concerns and uncertainties affecting this manufacturing sector.
It is relevant to highlight that 80 % of the castings produced in Europe are consumed by the automotive industry. The use of aluminum in this sector has been growing steadily for the last 40 years, in response to the needs for highly durable and lightweight components and guaranteeing low emissions. This material is now leading the applications in powertrain or wheel, increasing its use in engines, hoods, doors and structural parts. The environmental regulations and the behavior of automotive as its main driver explains so largely the evolution in the die casting market, not only in Europe but in the rest of the world, fueling up the industry growth.
Thus, non-ferrous global market evolution is marked in general by the behavior of aluminum consumption. Nearly 60 % die casting market share remains in Asia-Pacific region, where some of the global top metalcasting producers are. Regarding this industry in Europe, where Germany and Italy lead the production figures when it comes to die casting, it follows the positive evolution of the automotive parts market in the region. We have seen in recent years that the total number of die cast parts used in the production of passenger cars has kept growing year by year, doubling the figures from some decades ago. This growth is expected to be maintained, though recent stagnation in the automotive sector in several countries in Europe can slightly change the tendency.
Die casting has attracted the attention from other sectors like machinery industries, piping, aerospace, or agriculture. Regarding market concentration, the industry is fairly fragmented, though in Europe the five main players account for a major share of it.
SPOTLIGHTMETAL: ‘Brexit’ has to be delivered with or without a deal. In this situation, what are the potential business opportunities in store for the European, the UK, American, Chinese and Indian die casting industry?
Jose Javier Gonzalez is working in the Executive Secretariat of the World Foundry Organisation. (Source: World Foundry Organization)
José Javier Gonzalez: The uncertainty in the possible outcomes from the political and economic situation around Brexit makes it very difficult for the industry to plan ahead. Business need political and market stability, and these uncertain prospects are not helping at all the die casting companies to establish the long-term strategies they need to face the future.
Despite this unknown future effects of Brexit in the market, in my opinion the die casting industry will be less affected by the final decision in the UK than by the shift that is being produced in the automotive industry. In particular, the effects of both “Dieselgate” and the evolution of electromobility (especially in Europe), can be the drivers for the challenges and the opportunities in the sector, as these factors will change the paradigm while the effects of Brexit may be sorted out in a mid-term.
Being the global die casting market so heavily focused in automotive industry, it’s probably that market forces will prevail after Brexit. For example, the biggest market for German BMV is the UK: though there will be for sure some short-term effects after October’s decision, the “market-pull” from consumers in UK will still be a driver, even if there is a no-deal situation.
Anyhow, Europe still means half the UK’s exports, so foreign and domestic investors are worried about a reduced access to EU’s single market. Companies like Honda have already relocated their activities abroad, to ensure their access to this market.
In UK, the non-ferrous sector benefited from the continued growth of the automotive industry in recent years, which resulted in strong demand levels and increased orders. The weaker pound is making exports easier but is also leading to a rise in the costs of certain raw materials.
Putting aside the existing uncertainties, the introduction of the e-car in the market poses an opportunity for the capabilities of die casting industry. In one hand, it is true that the combustion engine contains a number of die cast parts more than ten times higher than an electric one. On the other hand, electromobility will increase the needs for casing for the batteries and electronics, and the new demand for e-cars will also increase the need for lightweight castings.
The future major changes in automotive industry have increased the interest in die casting for alternative client sectors. The positive forecasts for future production needs in aerospace industry and its need for maximum precision, strength and weigh reduction, as well as some studies on a possible shift from some composite parts back to aluminum, are factors that have encouraged die casting companies to explore this niche. Medical technology devices pose also another opportunity area. An inner shift is also getting place in automotive market in Europe, where the opportunities in die cast parts for small commercial vehicles due to growing needs for logistics, are increasing over the ones in heavy trucks.
Regarding China, the country is now very focused on trade issues, as their companies are specially affected by this. In general, for Chinese die casting companies the biggest concerns now are the possible negative impacts from changes in policies from the US, UK, and the EU, such as raising tariffs, as well as currency depreciation, which could lead to a more complex international market and increase the price of die casting raw materials and some imported equipment. These won’t help to the export of Chinese die casting products.
Affected by the decline in production of automobiles and motorcycles, Chinese aluminum (magnesium) alloy castings experienced a negative growth last year for the first time, with a drop of 2.1 %. China is not so dependent from the automotive sector like EU (30 % of their castings are consumed by this sector), so this fragmentation can be an opportunity for die casting suppliers.
There is a focus now on infrastructure in India, that can be an opportunity for its foundries. Construction of roads and rural housing is pushing demand. The tractor industry grew by 15 % in 2017-18, so this can be also a market opportunity.
The actual good performance of the industry in the US is also reflected in the activity for die casting plants. As they are producing mostly for inner market, the opportunities for them are being developed inside their frontiers. One initiative they are developing is the creation of a die cast farm system, working with community colleges, with the aim of answering the problem of the lack for skilled workforce in the future.
SPOTLIGHTMETAL: In your opinion, what are the challenges that each of the above regions will face in the midst of Brexit.
José Javier Gonzalez: Regarding Brexit, all these regions are somehow concerned about the probable negative impacts on manufacturing in general and the possible challenges in how to face supply chain interruptions or changes if the market impact persist over time.
In the short term, as the United Kingdom is the most important sales market in the European Union for main automotive suppliers like Germany, the impact on sales, revenues and employment must be considered for die casting. Some studies suggest a reduction in sales of nearly 800,000 cars in the case of no-deal, which accounts to around 4 % of the EU’s current automotive manufacture. The direct and indirect dependency between die casting suppliers in European countries and UK can create a direct reduction in sales for this industry, in the case that the economy in UK comes to a recession because of the exit of the EU. This can evolve differently in other countries, depending on their sales level in UK. For example, the direct impact on US can be less severe, because their die casting plants export only a small part of the production to UK.
The possibility that companies in UK look for (or develop) new local suppliers, the increasing administrative costs, or a possible need for new warehouses (the deliveries from EU suppliers might pass new custom controls), are other factors that concern die casting suppliers in this scenario.
On a global basis, one of the greater challenges for the die casting industries will be the production of increasingly bigger castings, so demanding much bigger machines and closer tolerances, as the pressure to shed weight is impacting this sector too.
Something that will keep been a driver for this industry is the need for reducing CO2 emissions and the weight of automobiles, which means that the sector will have to keep also investing in developing lightweight solutions based on non-ferrous metals and special alloys. Linked to this idea, the strategy of investing in R&D will be also essential for competing in the sector. As the main players have showed in the past, focusing the use of their revenues in R&D comes up with better properties in die cast components and optimized alloys and processes.
As it happens with other casting segments, many die casting plants will have to prepare for structural changes in their demand, facing the impact of the shift from internal combustion engine to battery powered cars, additionally to the changes in the future for diesel. There is a political challenge also here, to connect betting on electromobility with the proper industrial strategies.
The so-called industry 4.0 is also posing some of the next challenges for die casting. In this direction, the die casting working processes are reducing costs and increasing productivity through the adoption of digitalization, exploiting data from digitized components, using machine learning, or deploying measuring and monitoring systems, among others. In the other hand, technologies like 3D Printing are still more used in this sector for tooling and prototyping.
Joint to the growth of die casting production in Asia-Pacific, the companies in these countries are facing in general a great challenge in terms of advancing their technology, final quality and processes. As it happened before in other industries, this is leading them to scale up the size of companies, with the purchasing of companies and merging processes.
The weak demand in India is a concern for its foundries, that are increasing their exports in the last years. One of the biggest concerns for its metalcasting industry is sand availability, which do not affect to Indian die casting suppliers.
Aluminum Alloy Adc10 Die Casting
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