North American Die Casting Association's President Steve Udvardy, reviews the Trump Administration, Macro Economics and Die Casting Markets in this three part series.
Good day everyone, and welcome to the latest update of the North American Die Casting Industry State of the Industry. I'm Steve Udvardy, and pleased to have the opportunity to speak to you today. (This is part three about the Die Casting Market.)
Die Casting Market
Now, let's shift to our markets that die casting service, and then we'll take a look at shipments. The number one market served by die casting is automotive. The second largest market is housing. It behooves us to track fairly closely what's happening in the auto industry and the housing market. Sometimes the housing market as our second largest market surprises individuals, but you have to look at what we roll into the housing market. It's not just lock and window hardware and the [inaudible 00:33:13] in your bathroom, et cetera. It's also things that new home owners buy, and that's what we roll into the housing market and what makes it then our second largest market served by die casting. Appliances, lawn and garden equipment are things that people buy typically when they buy new homes.
Let's take a look at automotive. 2016 and 2017 were stellar years for light vehicle sales. Depending on who you talk to, last year, we were at about 17.2, maybe 17.5 million units, slightly higher than what we were in 2016. Towards the middle of last year, there was speculation that the same levels of sales would not be sustained in 2018. In late 2017, the forecast was for some slight softening, and the forecast from the National Auto Dealers Association showed a projection of 16.7 million units being sold in 2018, so dropping below the 17 million mark, but still 16.7, although slightly softened as compared to 2016 and 2016, still a very healthy automotive market and automotive sales.
Here's historical vehicle sales going from again, our most recent recession period here, end of 2009 to present. We had this little blip shortly after the recession period and that was, if you recall, the Cash for Clunkers stimulus that I guess helped to a little extent, but really wasn't sustained and it dropped back down, and then we had monotonically increasing growth back to the 2016 period and now hanging fairly steady in terms of vehicle sales.
This chart shows the housing market and annual new starts for single family homes. Again, we see an increase from the most recent recession period, but look where we were back in the mid-2000s, the late 1990s, as compared to today. We like to see 1.2 million new starts per year for a reasonably healthy housing market. 2017 ended right at that 1.2 million mark, so barely hitting that healthy stage, and hence the title, the slight housing market shaping up, but still a little bit shy of being real healthy.
A forecast for housing is fairly flat from here out to the year 2020. Some are projecting for 2018 1.1 million units, and we're not going to get above that 1.2 million mark until we hit the 1.3, which is forecast by the year 2020. It's the next couple of years, we're going to be fairly level, and 2020 will exceed that 1.2 million mark.
Durable goods are tied to housing, and included in endurable goods are appliances. Household appliance production in 2016 grew about 4%, then another 3% in 2017, but with the housing market being reasonably flat from here on out through 2020, appliance production is projected to be fairly flat as well from here through 2020.
Now, we conducted a study a few years ago to find other market opportunities for die casters, and this was a list of a number of industries, potential markets, but industries that have had larger annual growth rates. The ones that you see with the arrows, computer systems and design, medical equipment, computer and peripheral equipment, wireless telecommunications, medical devices are all markets that die castings can certainly play a role in.
Maybe there's a few others here as well, but if these are some of the industries with a large rate of change, large rate of growth on an annual basis, it would behoove us to take a look at opportunities within some of these markets. Are there some die castings within these already? Yes, but I think there's additional opportunities. If you're looking to grow your portfolio, perhaps these are a few areas that you can take a look at in addition to automotive and housing.
Okay, with that, let's now switch to shipments. Here's information from the NADCA Quarterly Business Barometer. What we can see here is the percent of increase or decrease in shipments as compared to the prior quarter, and we have an overall change. We break it down between automotive and non-automotive, automotive being companies that are 75% or greater serving the automotive market, and then we also break it down to the major markets aluminum, zinc, and magnesium.
For instance, the first quarter of 2017, we surveyed the constituents and asked how shipments compared to the fourth quarter of 2016. Overall, the first quarter in 2017 was up 3.87% as compared to 2016. Automotive was up 3%, non-automotive up a little bit more than 4.25%, aluminum up 3.4, zinc up 7.5, magnesium down. Red numbers are negative change, down about 11.5%. At the end of 2017, the fourth quarter versus the third quarter was up 3.47%. Automotive was down, non-automotive up fairly substantially, aluminum down slightly, zinc up, and magnesium down.
Now, we also ask on a quarterly basis, "How do you forecast your sales for this year being as compared to the prior year?" In the second quarter of 2017, we asked how you forecast your 2017 sales as compared to 2016, and overall, the forecast was that 2017 was going to be up by a slight .2%. Automotive was going to be down one and a half, non-automotive up 2.6%, zinc up six, mag down .4 and aluminum down .4.
Here's what came in as we got further along in 2017. A little bit more optimism, more sales, more volume of production, overall anticipated to be 3.4% higher in 2017 as compared to 2016. Now, automotive went from -1.6 up to 3.5, non-automotive up .3. You see the numbers here for zinc, mag, and aluminum, and at the end of the year with the actual numbers, we found that we were up 2.42% in overall shipment in 2017 versus 2016. Automotive was up 1.54%, which makes sense. The auto shipments were up slightly, maybe 17.5 versus 17.1 million units thereabout. Non-automotive up higher, 3.2%, zinc up about three, mag up around 12, and aluminum up 2.3
If we now look at our most recent quarterly information, we're just getting ready to launch the second quarter barometer, but the results from the first quarter of 2018 show that as compared to the fourth quarter of 2017, overall up 4.17%. Automotive up 4.3%, non-automotive up 4%, aluminum up 4.2, zinc 3.7, mag 1.5. Now, with the automotive market showing some slight softening, the housing market fairly flat, towards the end of last year we projected that our shipments would be about the same or maybe a little bit softer as well since it appeared as though our two major markets were going to be just a little bit softer. This information is showing some degree of optimism and I hope these numbers are correct and not our impression towards the end of last year, and again as we get farther into this year, we'll see how things turn out.
The forecast for the year and what we asked in the first quarter was, "How do you project your overall 2018 volume to be versus the 2017 shipments?" Again, overall, 4.5%, automotive. Will it be up 4.15%? We'll wait and see, but there is some optimism, which is great. Aluminum forecast to be up 6.2%, zinc up 1.8, mag up 4.5%. When we asked the same question at the end of last year, you can see what the difference was, and this is kind of what we thought was going to happen this year, but a quarter later, little bit higher degree of optimism.
Those are the percentages. How does that translate to actual volume or weight of castings? Now let's take a look at that. The first chart here is from a 2017 shipment report from the Aluminum Association. It shows not only die casting but permanent mold sand and other casting methods just for aluminum, and this is all of North America. The black bars here are die casting. Now, the first thing that you see is die casting is certainly the large portion of all aluminum shipments, over 65% of all aluminum cast products.
We're looking at a shipment volume of 2017 of about 3.1 billion pounds of aluminum die castings for the US. This is about 3.4 for all of ... Well, actually, they report as North America, but it's the US and Canada. This is now strictly US shipments of aluminum die castings from 2007 through the end of 2017. We see that 2017 came down a little bit, but for three years in a row, above three billion pounds, and where we came in last year was 3.4 billion pounds of die castings shipped in the US. I had a chart of zinc, as well. Looks like that slid out here somehow, but last year we were at about 353 million pounds of zinc die castings produced in the US.
In our Business Barometer, we ask questions about die builds, energy utilization, capacity utilization. Here in the last couple slides, I'm going to cover new die builds first and then we'll look at what the percentages in die builds correspond to in terms of number of dies per company, utilization or capacity use, and then energy use.
New die builds, first off, 2017 versus 2016. 66% of the respondents reported that new die builds were up, and 16% reported that die builds were about the same in 2017 as compared to 2016. Overall, at the end of 17, die builds were up about 3.8% as compared to 2016. Automotive was about the same. Non-automotive was up in '17 as compared to 2016.
Comparing the first quarter of 2018 as compared to the same time last year, 36% of the respondents report that die builds were up. 28% report die builds about the same in the first quarter of 2018 as compared to the first quarter of 2017. Overall, new die builds were slightly above the same level as compared to the same time last year, so projecting a little bit of growth this year. Automotive was down a little bit more than 1.2%. Non-automotive was up about .6%. What that means in terms of number of dies, the overall average for 2017 was 20 new dies per company. On average, the automotive companies had an average of 12 new dies per company, and non-automotive had about 22 new dies per company.
Die casting capacity use, as recent as the first quarter of 2018, we had an overall average of 61%. We've got this split between automotive and non-automotive. For automotive, the average was 64% capacity use. For non-automotive, 60% capacity use. That has gone up slightly. If we look at Q3, the overall average was about 58% and about 59% for the fourth quarter of 2017, overall average. Overall average first quarter 2018 is 61%. Now, if you recall, the overall average capacity use for all of manufacturing was over 75%. Die casting is a little bit lower in the capacity use as compared to all of manufacturing.
Energy cost. This has gone up slightly. If we look at Q3 of 2017, it was fairly high there at 21 cents per pound shipped. Q4 dropped to 17 cents per pound shipped. The overall average for the first quarter of this year, 19 cents per pound shipped. We'll see at the end of the year what the overall average for 2018 turns out to be. The overall average for 2017, however, was 17 cents per pound shipped.
Drawing some conclusions. The Trump administration is doing some good. Manufacturing in general seems to have turned the corner. Sales, production, investments, et cetera are up. Our major markets for die casting are hanging fairly steady. Overall die casting shipments are forecast to be up about 4.5% in 2018 over 2017. Aluminum die casting shipments are forecast to be up 6.2%. This equates to an estimated 3.29 billion pounds shipped as compared to about 3.1 in 2017 and zinc die casting shipments are forecast to be up about 1.8%, and this equates to an estimated 378 million pounds shipped in 2018.
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