Metalcasting has an eternal quality that fascinates those who make their careers in the science and the industry. The products have permanence, so the process gains our trust. The materials are recyclable, lending value to our efforts. The processes are dynamic, encouraging us to do more, to do better. And still, we demand results.
For that reason we return to our readers for the information that will bring us up to date on the state of metalcasting in North America. Their insights help us evaluate the state of the industry as the current year closes and 2016 approaches.
Each year, during September and October, FM&T surveys metalcasters to measure the outlook of men and women working in North America’s foundries and diecasting plants. We seek to identify the problems they face in their businesses and the economy, to learn what plans they’re making for the coming business cycle, and to understand better their expectations for the year now approaching.
We surveyed readers by email over a period of six weeks. The results include responses from nearly 200 readers who represent the full variety of foundries and diecasters: 25.7% named steel (of any alloy or quality) as the principle metal cast at their plant; 18.4% gave aluminum as their main material; 15.6% are casting mainly gray iron; 13.8% are casting mainly ductile iron; and 8.3% are casting brass or bronze alloys. 18.4% named some ‘other’ material as the principal metal at their location.
In a similar way our survey respondents represent metalcasting at various scales of activity, including shops with less than 20 workers, 23.2% of respondents; plants that employ 20-49 workers, 17.6%; plants with 50-99 employees, 17.6%; and operations with 100-249 workers, 21.3%. The largest operations, plants with over 250 workers, were represented by 20.4% of the field. These readers represent the full spectrum of metalcasting in North America, and their responses and impressions are the basis of our report.
Manufacturing mindset — Domestic manufacturing remains a vibrant and creative sector of the overall economy. It’s still an attractive place for long-term investors seeking a healthy return, still a dependable stage from which to launch an engineering or managerial career, and an increasingly reliable venue for testing new technologies. In recent quarters, though, manufacturing has been an unreliable sector for economic growth.
U.S. manufacturing expanded in October but at the slowest rate in more than two years, according to the Institute for Supply Management. Various indexes have shown orders for raw materials and capital equipment falling flat or declining through much of 2015. The ISM survey of manufacturers’ purchasing managers showed the index rising to 51%, where 50% indicates the separation point between expansion and contraction. The same survey found manufacturing employment at the lowest level since mid-2009, the bottom point of the most recent recession. Still, there is confidence among manufacturers, as ISM’s new-orders index rose to a three-month high.
Year After Year
The metalcasters in the FM&T Business Outlook survey had a somewhat better evaluation of current conditions. We asked respondents during the September-October period to compare their understanding of their current business activities to their recollection of business activity in 2014. Specifically, how will their operation’s final 2015 shipments compare with the 2014 shipments: 30.7% of respondents told us this year would be about the same as last year, and 13.7% told us conditions would be worse. More than half, 55.6%, expect to ship more castings in 2015 than in 2014.
The respondents expecting improvements in shipping for 2015 were most likely to be gray iron foundries, though steel and aluminum foundries also show some optimism about the current year. Plants with 20-49 employees and 250 or more employees also figured to be most likely to hold that positive view.
In the next stage of the Outlook survey we asked respondents to compare their understating of the current year to their expectations for next year. Specifically, how do they expect 2016 shipments to compare to 2015 results? A slight majority of all respondents, 44.8%, expect shipment volumes to be essentially the same in 2016 as they are now, and 41.9% expect results will be better next year. 13.3% of respondents expect casting shipment volumes to decrease. 69% of gray iron foundry respondents, and 59% of aluminum metalcasters, believe 2016 shipments will be better than this year has been. 55% of the brass/bronze foundry respondents expect next year’s results to be more or less even with this year’s results.
As for plant size influencing expectations for next year, 70% of the respondents from plants with 20-49 employees expect shipping volumes to improve next year, as do 60% of the 250-and-over plant respondents, along with 59% of those at plants with 100-249 workers. The ‘stay the same’ crowd is dominated by respondents from plants with 20 workers or fewer.
Over the years we have conducted the FM&T Business Outlook survey we have seen our respondents grow more confident of the role that their individual plants and the domestic metalcasting industry plays in the larger economy, including the global economy. They draw insights from their business — customers’ orders and specifications, resource and raw material costs and availability, regulatory standards — and they incorporate that information into their outlook. For 2016, 32.7% of survey respondents expect the U.S. economy to perform ‘about the same’ in 2016 as it has done this year, in terms of GDP. 27.9% expect GDP to improve in 2016, but 26.0% anticipate declining GDP in the coming year. Exactly the same percentage of respondents, 6.7%, offers the view that GDP will improve significantly and that it will decline significantly.
As for how these outlooks may influence their business plans in 2016, 26.5% of survey respondents report they will be increasing their plants’ employment totals next year; 73.5% will not be increasing employment totals.
Proposal stages — Like the ISM Purchasing Managers’ Index, we propose that capital expenditures plans are an indication of business confidence and long-term growth. We asked our readers to gauge their 2016 capital investment plans, and 57.9% of all respondents indicated their capital spending would remain unchanged from this year to next year.
Respondents among all metals and alloys showed similar inclinations in this category. Gray iron and steel foundries are slightly more likely to expect no change in 2016 capital spending strategies, and ductile iron foundries were barely more inclined to indicate plans to cut capital spending, but the spread across all metals was essentially indistinguishable.
As for plant size, 10% of foundries with 100-249 employees intend to cut spending next year, but 59% of them intend to increase outlays. 70% of plants with 20-49 employees will be increasing spending in 2016, as will 60% of plants with 250 or more employees, and 59% of plants with 100-249 workers.
A number of respondents (57.1%) nearly identical to those who would maintain capital expenditures totals from this year to next year indicate their purchase plans involve new production equipment. 15.2%, a not insignificant number in such a survey, indicate plans to expand their production space during 2016, and 1% of survey respondents plan to invest in a new plant next year.
This spending is not very likely to involve new debt obligations; only 5.8% of all survey respondents indicated plans by their companies to increase their debt positions in 2016, and 45.2% noted they plan to keep their obligations unchanged.
What really matters in a business outlook is how the respondents plan to carry out their plans for growth. We asked respondents to identify the types of capital spending projects they have planned for next year. Allowing our respondents to select more than one answer, we asked them to identify the types of technologies and machinery they intend to acquire or invest in during 2016. By a wide margin, 32.2% of all respondents, FM&T Business Outlook survey respondents will be investing in new testing and/or inspection equipment during 2016. A further 22.2% will be investing in new laboratory equipment.
Also earning attention by a large number of foundries (21.1% of our survey respondents) will be new grinding equipment and (20.0%) machine tools.
Blast cleaning equipment will be the investment choice for 17.8% of survey respondents.
Deciding, managing, … competing — Being a decision-maker in a metalcasting enterprise is to be a problem-solver, or at least a problem-manager. There is an array of problems that shape metalcasting businesses, and the ability to manage them or resolve them is frequently an unquantifiable asset. From year to year, we aim to identify the problems occupying our survey respondents, as a point of reference in evaluating conditions in the metalcasting industry.
Close to half of all survey respondents, 46.7%, identified the “Lack of Orders” as the problem afflicting their businesses during 2015. No other concern came near to that degree of commonality among respondents. “Human Resources” concerns — broadly defined to mean the availability of skilled or trained workers — is a concern for 30.5% of respondents, while “energy costs” are a concern for 23.8%. Medical/Insurance Costs concern 27.6% of respondents.
From the vantage point of late 2015, and with such issues already occupying their concerns, we asked survey respondents to identify the problems they anticipate facing in 2016. Again, the “Lack of Orders” topped the list of respondents’ concerns at 44.6%, leading to the conclusion that business conditions for domestic metalcasters appear to be tracing that line between success and failure – just as the latest ISM Purchasing Managers survey indicated: Manufacturing, and metalcasting, is not in a crisis, but the sense of confidence and security that would be expected among the decision makers in an expanding, dynamically growing industry, is undetectable here.
That reading also explains the second-order concerns of FM&T Business Outlook survey respondents: the 28.7% who cannot seem to find the talented or skilled personnel to make their businesses thrive; the 28.7% who worry about how to manage Medical/Insurance Costs, and remain competitive; and the 24.8% who worry about keeping Energy Costs from eating into their profits.
It is also a mark of the state of the domestic metalcasting industry that once-standard issues about competitiveness — 16.8% still worry about the quality of their cast products; 10.9% worry about on-time delivery — have receded in prominence. These are not inconsiderable factors in determining metalcasters’ outlook for 2016: they are important at all times for any manufacturer seeking to grow and succeed. Metalcasters have acknowledged and incorporated that concern. It is the unknown, and the unknowable, that shapes their tentative outlook for business in 2016.