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2010 Outlook

Dec. 10, 2009
The legend of 2009 seemed to be written before it had begun, but for metalcasters the tough times of the most recent 12 months have had some remarkable consistency with longstanding trends. Will the legend continue in 2010?

It’s not quite over, but 2009 is already legendary. It was the worst, the bottom, the collapse of all that went before, and the end of all the expectations that had been built up over preceding decades. We were reduced. We are humbled.

It’s all exaggerated, of course. It’s more accurate to say that the financial collapse of 2008 forced everybody to reevaluate assets and resources. This led to the economic panic of 2009: plans were abandoned, and options were withdrawn. Orders were canceled. Businesses were closed and jobs were lost. Bankruptcies were declared, and some assets were liquidated.

Even if this is concise, it’s correct. In capsule form, it’s possible to be reminded that what was notable about 2009 was not what happened, but how it happened everywhere at once.

All these things had happened before and will continue to happen, and metalcasters know this as well as anyone. What the 2008 collapse and the 2009 panic have shown is that capital and information are fully globalized now —available equally to everyone everywhere — and as a result manufacturers (as well as retailers, service providers, and so on) are in global competition whether they realize it or not, so they must achieve global competitivenes if they are to prosper.

The view from here
They may be competing against the entire global industrial market, but for metalcasters it’s critical to understand conditions in their own sector in order to know their starting point. Every fall we trust FM&T’s readers to supply a comprehensive outline of conditions in the metalcasting market, and notwithstanding the poor business climate their 2009 response is stronger than ever. Nearly 300 executives and managers from North America’s foundries and diecasters responded to our survey from late September to mid-October.

The respondents represent a reliable balance of foundries and diecasters, based on the metals they cast (aluminum, brass/bronze, ductile or gray iron, steel) and the sizes of their operations (less than 20 to 250 or more employees.)

These experts’ analysis of business conditions at the end of 2009 indicates things were just as grim as we thought they were in real-time: 77% of them confirmed that 2009 casting shipments will decline from their 2008 totals, a determination that was notably stronger for gray iron foundries and aluminum casters. Just 14% conclude that 2009 shipments will be the same as they were for 2008, and a surprising 9% of the responding metalcasters expect the current year to be stronger overall than 2008 in terms of shipments.

Taking a similar look ahead, our respondents have a hopeful consensus: 59% expect their shipments of finished castings to increase in 2010 versus 2009; iron and steel foundries and aluminum casters were nearly evenly balanced in this view. Only 11% of our respondents believe their casting shipments will decline in 2010, but 31% expect their totals to remain effectively even.

Capital spending is a convenient indicator of optimism for businesses and consumers alike, and our survey respondents appear to be taking a cautious approach toward 2010. Fifty-percent of all respondents plan to maintain their current (2009) levels of capital investment through 2010, an approach that appears to be strongest among aluminum foundries and diecasters. Among the remaining 50%, a slight bias forms against increased capital spending: 27% will cut their expenses in the coming year; 23% will increase their investments.

Even more revealing is the way our respondents characterized their 2010 investment plans: 45% of them — including a large majority of gray iron foundries, a plurality of brass foundries, and large minorities of aluminum, ductile iron, and steel casters — have no capital spending plans for 2010.

On the other hand, 42% of the respondents plan to install some new process equipment, and 17% intend to expand their existing facilities in 2010 so they must have a high degree of confidence about their future business prospects. Particularly encouraging is the fact that two steel foundries and a single gray iron producer who have new plants in their 2010 forecasts.

Amid such investments, what are our respondents borrowing plans for 2010? Forty-eight percent intend to maintain their current debt levels through the coming year, and just 6% plan to increase their debt loads. Admirably, 21% intend to reduce their debt next year, and a remarkable 25% of our respondents indicate they have no current debt.

The bigger picture
If these respondents are indicative of the entire metalcasting market, then it’s reasonable to conclude the industry is well prepared for the challenges of global manufacturing. Banks remain tentative about lending and private capital is more cautious than ever, so money remains scarce for new projects or even ongoing operations. Consumer and industrial demand for castings is still barely palpable, and global competition is a strong as ever.

But, according to Deloitte & Touche L.L.P.’s Tim Hanley there are broader issues for metalcasters to endure as they navigate into 2010:

• Federal spending was intended to liquidate capital markets and stimulate industrial spending, but 10 months into the program it’s apparent that the government’s efforts are disguising the true level of demand — so manufacturers cannot commit to capital spending plans. Obviously, this depresses demand for castings.

• Manufacturing supply chains and manufacturers’ “footprints” have become confused and less reliable thanks to geographic shifts and uncertain consumer demand.

• Commodity and energy prices are volatile, so manufacturers cannot forecast their needs and are fearful of future spikes when/if the global economy strengthens.

• Persistently weak and uncertain economic recovery means that manufacturers must continue to reduce structural costs, straining productivity.

• Enhanced global competition and weakened global demand limits producers’ ability to pass costs to customers.

• A shrinking pool of affordable and capable workers, engineers, and executives complicates long-range planning and growth potential.

None of these observations are surprising to the metalcasting audience. They mirror the conditions and difficulties that foundries and diecasters have been working around and through for a decade. The change in 2009 has been that metalcasters’ problems have become more global in scope and impact.

A year is an artificial concept: it measures a discrete length of time, but the circumstances prevailing during that period are fluid. The past overlaps and influences the present, and the future looms as a threat or a solution to all that’s happening in the moment. We deceive ourselves if we conclude we can manage either of these.

One year ago we slipped out of 2008 in a state of shock at the sudden collapse of financial markets, expecting 2009 to be a continuing ordeal. Even if we were right to think so, that provided no greater insights. A month from now, will we feel relieved to have escaped 2009? Or, will we feel we’ve been reduced to some new sub-standard of prosperity, with little expectation of rebounding? It would be enough to have a firm understanding of the present, and confidence about plans for addressing these conditions.