(This post is from a Dec 10, 2016 Foundry Management and Technology Staff article which ran in Foundry Magazine. Read it online here.)
Managers and executives of North American foundries and diecasters evaluate current business conditions, and give their perspectives on the factors shaping their sector’s activity in the coming year.
Looking around, looking ahead
Tepid growth
Respondents’ sense
Turning the lens
As 2017 arrives, metalcasters can be confident they have the personnel, insights, and resources to drive growth: What they need is the opportunity to grow.
Metalcasting Business Outlook Data — 2017 It seems fair to assume from this moment in time that metalcasting is a permanent fixture in the manufacturing supply chain: other processes may displace some functions or applications of metalcasting, but as a forming technology it provides advantages in terms of material science or industrial technology that cannot be displaced. And yet, matching those advantages to a particular requirement, at a specific time, is the unending challenge for metalcasting professionals.
The goal of FM&T’s annual Business Outlook Survey is to interpret their challenge at this particular time, as 2016 closes and 2017 begins.
Each year during October, FM&T surveys metalcasters to capture the insights, concerns, and expectations of men and women working in North America’s foundries and diecasting plants. We seek to identify their operations’ current situations, 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 four weeks. The results include responses from dozens of readers who represent the full variety of foundries and diecasters: 20.9% named steel (of any alloy or quality) as the principle metal cast at their plant, and the same percentage cast mainly gray iron. Ductile iron foundries comprise 18.6% of the respondents; casting aluminum alloys is the main line of business for 17.8% of respondents. While brass and bronze alloys represent 9.3% of the respondents, 12.4% of the respondents cast alloys categorized as “other,” which may include magnesium, titanium, stainless steel, or some other unidentified material.
In a similar way, we sought to categorize our respondents with regard to the scale of their metalcasting operations: 24.0% of the survey respondents are attached to large foundries, with 100 to 249 total employees; 20.9% represent mid-sized foundries, and a nearly equal portion (20.2%) represent small plants, with 20-49 employees. 18.3% of respondents are associated with the smallest operations, less than 20 employees, and 12.4% are employed at the largest plants, where there are over 250 employees. Thus, the survey respondents represent the broad scope of individual activities and experience that shape metalcasting in North America, and their responses and assessments are the basis of our report.
To understand metalcasting’s prospects it’s necessary to gage manufacturing’s prospects. The most reliable index to manufacturing activity is the Institute for Supply Management’s Purchasing Managers’ Index, which measures activity by supply-chain decision-makers in an extensive selection of industrial sectors, some of which are critical consumers of cast metal parts. So, the logic goes, if those sectors are improving, demand for metalcastings will be strong, too.
Through October 2016, PMI determines that manufacturing is “growing,” with new orders rising (though at a slower pace than in the recent past), production rates accelerating, and employment increasing. Also, PMI determines that manufacturing inventories are contracting (a trend that has been in place for 16 months), while customers’ inventories are gaged to be too low. Manufactured goods prices are considered to be “too low”, the purchasing managers concluded. Overall, from the PMI evaluation, the overall economy is growing, as it has done for 89 consecutive months.
Projecting from these readings though, the ISM report suggests consumer activity will continue to be critical to keeping U.S. economic activity growing in 2017: a robust recovery in industrial spending is the necessary factor that would drive real economic growth. There are signs in the October PMI report, as there has been over recent months, that the industrial economy may be preparing for that breakout in the coming weeks.
Looking Around, Looking Ahead —
The Purchasing Managers’ Index assesses the manufacturing sector generally, but metalcasting has its own variables and prerogatives, and we started our Outlook survey by gaging readers’ sense of recent and current metalcasting business conditions — using casting shipment volumes (tonnage) as a frame within which to characterize their circumstances. A plurality of all respondents, 42.1%, indicated that 2016 shipments will fall below 2015 shipments; the remaining respondents were nearly evenly split, with 29.4% saying the current year’s shipments will increase over last year, and 28.6% concluding that 2016 shipments will be about the same as the 2015 tonnages.
The sizes and types of metalcasting operations offer no clear explanation for their 2016 outcomes: iron and steel foundries seem nearly as likely as aluminum and nonferrous operations to have improved. Aluminum foundries are slightly more likely than ductile iron and steel foundries to indicate 2016 shipments increasing over 2015, but again, DI and steel plants were equally likely to report current year’s totals will trail last year’s results.
Smaller (20-49 employees) and large (100-249 employees) plants were equally likely to report 2016 results will improving on 2015 results, but the those smaller plants (20-49 employees) were even more likely to note this year will end with lower volumes shipped, and that total is equal to the number of midsized (50-99 employees) plants, and only slightly more than large (100-249 employees) plants, expecting lower shipments levels.
Tepid Growth —
Let’s look deeper. Starting with the latter set, we learn that even those respondents whose current year shipments are on track to improve over the 2015 results are not growing vigorously: 55.3% of these respondents indicated that the current year’s results will rise 1 to 10% over last year; 27.7% are expecting 10-25% improvements; and 12.8% are expecting a 26-50% improvement. Just 2.1% anticipate an improvement of 51 to 75%, and an identical 2.1% expect a 76-90% improvement.
On the other hand, of respondents who are anticipating an overall decline in 2016 year-over-year shipments, 23.7% expect this year’s results to be 1-10% less than the 2015 result; 37.3% anticipate the current year’s tons/shipped to fall 10-25% lower than last year’s total, and an equivalent 37.3% indicate that 2016 tons/shipped will fall 26-50% below the 2015 total. Just 1.7% reported that 2016 shipments will fall 51-75% lower than 2015 shipments. The survey took the same approach to gain metalcasters’ evaluation of their 2017 business prospects. In this instance, a majority of all respondents, 54.4%, expect that they will see better results in 2017 will — i.e., ship more tons of castings — than they will do in 2016. More than one-third of respondents, 34.4%, believe that tons/shipped will remain even from 2016 through 2017, and 11.2% expect a decline in shipment totals during 2017. Ductile iron, gray iron, and steel foundries are equally as likely to forecast increased shipment volumes in 2017 as they are to call for decreased volumes. Aluminum operations are nearly 10% more likely to forecast an increase in shipments.
Large (100-249 employees) operations are decidedly more likely than other types of foundries to forecast improved shipment totals for 2017 than they’ve had in the current year. Small (20-49 employees) and midsized (50-99 employees) are slightly above the average in their optimistic outlook about 2017 shipments.
Among the more positive respondents, we found that 45.8% expect the 2017 improvement to range up to 10%, and 37.5% expect it to rise between 10 and 25%. 11.1% of these anticipate improvements of 26 to 50%, and 4.2% are forecasting improvements of 51 to 75%.
Among the less optimistic segment, 54.2% foresee tons/shipped falling by some figure up to 10% of the current year’s total, while 29.2% expect a decline of 10 to 25% of their 2016 total. Among these, 12.5% anticipate a decline of 26-50%, and while no respondent foresees declines from 51-90%, there is a 4.2% segment predicting a 2017 decline in shipments over 90%.
Difficult to Quantify, Interpret —
“Business confidence” is difficult to quantify, and difficult to interpret as an economic indicator, but when evaluating the narrower circumstances of a single manufacturing sector (i.e., metalcasting), the implications are clearer. What will foundries and diecasters do next?
We asked survey respondents to project their capital-expenditure plans for 2017. A plurality, 43.2%, indicate they will be increasing capital spending next year, while another 36% note they will be maintaining their 2016 levels of investment; 20.8% indicated they will decrease capital investment totals for 2017.
Among the respondents, ductile iron foundries are equally likely to be planning an increase or a decrease in capital investments for next year, and that is true for steel foundries, too. Aluminum foundries are three times more likely to report they will be increasing capital investments in 2017.
Large foundries (100-249 workers) are the most likely to be planning to increase capital investments in 2017, while very large foundries (over 250 workers) are the most likely to be planning to decrease spending – though that total is still somewhat lower than the number of operations planning to increase their spending.
The scale of capital-investment increases or decreases also is indicative of business confidence: 47.5% will be raising their capital outlays by 1 to 10%, and 36.1% will be raising the current total by 10 to 25%; 13.1% will increase their 2017 expenditures by 26 to 50%.
On the other side, 62% of the respondents who plan to decrease 2017 capital investments over current-year totals will be doing so in the range of 1 to 25%, while 13.8% will be decreasing the total by 26 to 50%, and an equal percentage will be decreasing their expenditures total by over 90%.
On the matter of how they will invest in 2017, our respondents are somewhat clearer: 60.3% plan to acquire new production equipment, and 19.8% indicate their investments will cover expansions or additions to their existing plants. 2.4% of respondents will be investing in new plant construction.
The value of planned 2017 investments is another important indicator of business confidence: 42.5% of respondents indicated their capital outlays will total $100,000 or less; 17.5% will be investing $101,000 to $250,000; and 14.2% will be investing $500,000 to $1 million. Worth noting here is that 6.8% of respondents represent organizations that will be investing more than $5 million in 2017.
And what will be the source of those investment dollars? 51.2% of respondents indicated their borrowing plans for 2017 will not be increasing debt totals, while 11.2% intend to take on more debt.
As to what those investments will accomplish, the list is extensive. We invited respondents to indicate all types of process equipment and technology they plan to invest in during 2017, and the results show there is a desire (or a need) across the metalcasting production sequence. The most popular choice (23.9% of all respondents) is for new product testing/inspection technology; grinding equipment (22.9%) was the next most popular choice, followed by pollution controls (22.0%) and blast cleaning equipment (21.1%.) These are followed by robotics technology (19.3%) and, in a tie, laboratory testing equipment and melting systems (both at 18.3% of the total.) The full list is an impressive array of big plans and process technology.
Respondents’ Sense —
The same, multiple-choice approach was offered to gage respondents’ sense of business conditions and managerial problems facing metalcasters, in 2016 and 2017. For the current year, 46.0% of all respondents identified the “Lack of orders” as a “significant problem,” a plurality that reinforces the previous conclusion that 2016 will result in lower shipment volumes than 2015. Other significant problems in the current business climate are “Human resources” (33.3%), “Shortage of qualified workers” (31.0%), “Imported castings” (27.8%), and “Energy costs” (27.0%). “Medical/insurance costs” (24.6%) and “OSHA requirements” (23.8%) also were identified by significant numbers of respondents.
We asked survey respondents a similar question to evaluate their level of concern over different issues going forward. The “Lack of orders” again led the list of concerns, drawing 39.5% of all respondents on this multiple-choice list; and the “Shortage of qualified workers” (29.0%) also continued to concern our readers. “OSHA requirements” is a matter of ongoing concern, as is “Energy costs” (25.0%), “Imported castings” and “Medical/insurance costs”, the latter two each drawing 23.4% of respondents’ concerns. “Human resources” again ranks (21.8%) among the most common concerns.
Turning the Lens —
Narrowing our inquiries to metalcasting industry concern gives a unique insight to their view of this core market. Taking their perspective on the broader economic picture turns the lens in the opposite direction, and gives us their particular understanding of the wider economy. FM&T Outlook survey respondents may be described as “sanguine” to “confident” in their view of U.S. market prospects for 2017: while 31.7% indicated U.S. economic performance will be “about the same” as it has been for 2016, a somewhat larger segment, 39.7% forecast improvement from the current situation. A not-inconsiderable 18.3% of respondents are expecting U.S. economic conditions to decline next year.
And, in a further reflection on those opinions, 50.8% of respondents told us they would not be increasing employment totals in 2017, though 49.2% will add new workers.
One of the more admirable aspects of the metalcasting industry is its collegiality, and the professional solidarity among businesses and individuals. They appreciate their opportunities, they understand the importance of their work and their products, and they seek to improve the prospects for metalcasting. We sought respondents’ opinions on how to encourage professional growth in the industry: 42.4% of respondents advocated additional or alternative training programs; and 30.5% expressed a desire for more involvement by metalcasters and their organizations in trade and professional development programs.
We also asked respondents to identify market segments that would support metalcasting industry growth and improvement: “Infrastructure and construction” programs were identified by 21.1% of respondents, while “Oil/natural gas” projects were tabbed by 18.7% of respondents.
As 2017 arrives the metalcasting industry can be confident it has the experienced personnel, strategic insights, and technological resources to drive almost any growth strategy, or to combat any challenge to its stability and resourcefulness. What it needs, what it hopes for, is the opportunity to grow and expand, and to demonstrate the breadth of its potential.