The results from Foundry Management & Technology’s annual Business Outlook Survey paint a picture of a somewhat schizophrenic industry. That is to say that the actual data show the industry, along with the U.S. economy, to be experiencing some sort of recovery, yet the pervasive mood of most metalcasters still remains fairly negative. It is certainly understandable. Manufacturing in general has born the brunt of the economic downswing roughly dating to September 11, 2001, though many would argue it began earlier than that. Coupling that fact, along with the concern that many of the jobs lost have permanently moved overseas, and it is no wonder that the mood is still a bit grim.
Nonetheless, the numbers indicate that things are moving in the right direction. The industry can’t get healthy unless conditions improve for the entire economy, and more than 60% of our survey’s executive respondents surveyed expect to see the U.S. economy either greatly or somewhat improve in 2004.
Shipments Staying the Course
In comparing 2003 shipments to last year, the numbers show some improvement. In 2002, 40% of metalcasters saw their shipments decrease. This year only 26% saw them decrease. That isn’t to say that business was exactly booming, as most respondents (41%) reported shipments stayed the same. Yet a healthy 33% did report an increase.
Steel foundries posted the best numbers with 44% reporting an increase in shipments, with aluminum foundries a close second (37%). Brass and bronze foundries were hurt the most, with 36% reporting a decrease in shipments, a —-3.7% net change over last year’s numbers.
Size did seem to matter, with the somewhat larger foundries doing better. Nearly half of the foundries in the 100- to 249-employee range saw an increase in shipments, a net change of 2.5% over last year. But the smallest of foundries didn’t do too badly: 30% reported an increase in shipments, and 39% were on par with last year’s numbers.
Looking ahead to 2004, most survey participants are looking for an even better year. More than 40% expect to see an increase in shipments and only 8% expect a decrease.
Steel foundries lead the pack, with 50% looking to increase shipments. Aluminum foundries are again a close second with 45% expecting to see an increase. Least optimistic? Gray iron foundries, with 63% predicting no change over this year. Small to mid-size foundries are looking for better numbers in 2004, with 51% employing 50-99 people expecting an increase in shipments and 48% of those employing 20-49 people looking to improve over 2003. Overall, the industry hopes to see a net change of 4.3% in 2004. Perhaps not dramatic recovery, but showing signs of life nonetheless.
A slight up-tick in the buying plans for the coming year seems to be another indication that perhaps the worst is behind us. New equipment purchases head the list of expenditures with 57% expecting to invest in new equipment. Grinding equipment heads the shopping list again this year with 18.5% of plants planning to buy. Rounding out the top of the list are melting equipment (17.3%), pollution control equipment (16.8%), machine tools (15.3%), and conveyors (14.3%). In terms of other capital expenditures, only 6% of respondents expect to invest in plant additions and only 1% plant to purchase a new plant.
Whose doing the shopping? Steel foundries, not surprisingly, head the list with 25% expecting to increase capital expenditures in 2004. In second place are ductile iron foundries (23%) followed closely by gray iron foundries (21%). Nonferrous foundries expect to do the least amount of spending, with only 16% of aluminum foundries and 14% brass/bronze foundries looking to increase spending in the coming year.
Debt-wise, 32% of those reporting expect to carry the same amount of debt in 2004, while 27% expect to retire debt in the coming year. Only 8% foresee taking on more debt, while 33% are carrying no debt at the present time.
Capacity Utilization Improves Slightly
Average monthly capacity utilization levels in 2003 were up just slightly at 68.6% over last year’s 67.6%. Gray iron casting producers were above industry average at 71.9%, as were aluminum metalcasters (69.3%), and steel casters (69%). Brass/bronze foundries were at the bottom of the list with 62.8% capacity utilization.
In this area, the larger foundries definitely fared better with those employing more than 250 at 74.1% capacity utilization. The smallest of foundries posted the weakest numbers at 65.5%.
Up Against the Great Wall
What keeps you up at night? Nearly 80% expect to be worrying about medical insurance costs in the coming year. Making the jump to number two on the worry list in 2004 is the impact of imported castings on U.S. foundries (61%). A quick review of the comments that our survey respondents offered (see sidebar, p. 26) shows that its not just any imports you’re worried about, it is mostly Chinese imports. More and more of you are losing business to China. One respondent related that one of his customers had parts delivered from China cheaper than if this foundry heat-treated them. With environmental regulations virtually nonexistent in China, and human rights, let alone workers’ compensation, a foreign concept, the ability to compete with China will be a looming problem for U.S. foundries for years to come. How to remedy situation in the context of conventional U.S. economic policies (i.e. without government subsidies) will be difficult.
Workers comp costs rings in the new year at number three on the list of worries at 52%. Lack of orders falls to number four on the list of worries down from last year’s number two spot with only 50% anxious about orders in 2004. Rounding out the top five is concern about high labor costs (39%).
Best of the Best
Manufacturing, and metalcasting specifically, helped build the U.S. into the superpower it is today. Those involved with the industry have much to be proud about. Regrettably, the last few years have seen many foundries shut their doors. Many surveyed seemed uncomfortable that some resurgence in their business can be traced to picking up orders from those that had to fold. There is no doubt that as the metalcasting sector moves forward, only the very best of U.S. foundries will be able to withstand the mounting pressures presented by unprecedented global competition.