THE CASTINGS AND FORGINGS MARKET IN THE EU

Transcription

1 CBI MARKET SURVEY THE CASTINGS AND FORGINGS MARKET IN THE EU Publication date: April 2010 CONTENTS REPORT SUMMARY 2 INTRODUCTION 3 1 INDUSTRIAL DEMAND 4 2 PRODUCTION 11 3 TRADE CHANNELS FOR MARKET ENTRY 17 4 TRADE: IMPORTS AND EXPORTS 20 5 PRICE DEVELOPMENTS 30 6 MARKET ACCESS REQUIREMENTS 33 7 OPPORTUNITY OR THREAT? 34 APPENDICES A PRODUCT CHARACTERISTICS 35 B INTRODUCTION TO THE EU MARKET 42 C LIST OF DEVELOPING COUNTRIES 43 This survey was compiled for CBI by Facts Figures Future in collaboration with Effox Turbine and Gietech. Disclaimer CBI market information tools : Page 1 of 44

2 Report summary This CBI market survey profiles the castings and forgings market in the EU. The castings and forgings market in individual EU countries is discussed in CBI sector surveys covering the market in individual countries. Industrial demand The engineering industry offers good opportunities for developing country (DC) exporters, as this industry makes use of many cast and forged parts. Most of the relevant engineering categories performed well in the period Germany is by far the major market in most of the categories, while Italy is number two in most categories. In 2009, the output of the engineering industry has experienced a large decline, and as a result, the demand for castings and forgings in this industry has dropped. The year 2010 could again show some improvement. One major general trend that can be seen in the EU market is the increasing concern for the environment. A trend that is also partly environmentally-driven is the growing number of innovative applications of aluminium and magnesium. Production The EU industry is the second largest in the world for ferrous castings far behind China and the largest for forgings and non-ferrous castings. The foundry and forge industries performed well in the period ; 2008 already showed a decline in production, followed by a sharper decline in Trade channels for market entry The most common trade channels for DC exporters are direct sales to end-users, trade via traditional importers, sourcing agents, traditional agents, or subcontracting by EU producers. Although there are several options, supplying directly to end-users has some advantages and could be one of the most interesting trade channels. DC exporters should therefore put effort into building up supplier relationships with end-users in the EU. Imports The total EU imports of castings and forgings grew by 11% per year to 318 billion in The year 2008 was marked by a contrast; imports increased by only 0.4% in that year. Imports from DCs increased the fastest, which resulted in an increasing share of DCs in EU imports. China represented 41% of all imports coming from DCs, followed by Turkey (14%), Ukraine (9.6%), India (8.1%), Brazil (3.8%), Serbia (3.2%), South Africa (2.4%) and Egypt (2.3%). Among the DCs that saw a quick growth of the share in EU imports were Chile, China, Albania, Bosnia and Herzegovina and Mexico. Price developments After the quick increase of raw material and energy prices, falling demand from major enduser industries all over the world as a result of the financial crisis resulted in a quick drop of prices in the last quarter of Although this may seem positive to the material-intensive production of castings and forgings, the accessory drop in demand for end products indirectly also affects the suppliers of parts, among which are producers of castings and forgings. Opportunities and threats for DC exporters Especially when the cast or forged product is worked and the used material is not just iron but more sophisticated such as nodular iron or (stainless) steel, opportunities for DC exporters grow exponentially. The general rule is that the more sophisticated the casting referring to the material used and to the degree of working, the larger the labour factor in the landed cost price and the larger the interest of EU companies to outsource to DCs. Page 2 of 44

3 Introduction This CBI market survey profiles the castings and forgings market in the EU. The emphasis of this survey lies on those products that are of importance to developing country (DC) suppliers. The role of and opportunities for DCs are highlighted. The six product groups covered in this survey are based on the opinion of industry experts. The product groups are: Copper and zinc products Plastic and rubber products Parts of machinery, railway equipment or vehicles Articles of iron, steel or base metal Iron and steel products Light and ultra light products For detailed information on the selected product groups, please consult Appendix A. Please note that these product groups are only discussed in Chapter 4 (Trade: Imports and Exports); in the rest of the survey the general focus is on ferrous and non-ferrous metal castings and forgings for engineering applications, as that is a main market for both castings and forgings and also offers good opportunities to DC exporters. More information about the EU can be found in appendix B. CBI market surveys covering the market in specific EU member states, specific product (group)s or documents on market access requirements can be downloaded from the CBI website. For information on how to make optimal use of the CBI market surveys and other CBI market information, please consult From survey to success - export guidelines. All information can be downloaded from Go to Search CBI database and select your market sector and the EU. Page 3 of 44

4 1 Industrial demand 1.1 Market size Data on the industrial demand for castings and forgings are not available. However, the shares of the several market segments give a valuable indication of demand. Refer to Chapter 1.2 for more details, including data, on the major market segment, which is the engineering industry. Furthermore, Chapter 2 (Production) and Chapter 4 (Trade) may be used to get a rough indication of values and volumes in the EU. Main castings markets According to the European Foundry Association (CAEF), the most important market segments for castings in the EU are the automotive industry (50% of all castings), the engineering industry (30%), the construction industry (10%) and others such as the aeronautics and electronics industry (10%). While iron castings primarily go to the automotive industry (more than 60%), steel castings are especially used in the engineering and valve making industries. Main forgings markets According to the Federation of European National Forging Associations (Euroforge), as with castings, the major end-user of forged products is the automotive (cars and trucks) industry, accounting for 58% of total forgings demand. Beside automotive, mechanical engineering (11%; excluding agricultural machinery) and agricultural machinery (8%) are the most important segments for the EU forging industry. Mining machinery and railways both account for 2% and aerospace equipment accounts for 1% of the forgings market. Finally, Euroforge reports a relatively large group others (18%), which covers segments such as construction, electrical engineering, maritime and the power generation industry. Engineering As can be seen above, EU end-users of castings and forgings are operating in many different markets. The main market for both castings and forgings that is further described in this chapter is the engineering industry. DC exporters of castings and forgings may find many prospects in this segment. Beside the producers of end products such as machines, the sector consists of many subcontractors that produce assembled parts such as units, modules and subsystems. These subcontractors often small and medium-sized enterprises use a considerable number of castings and forgings. Most important is that quality requirements in this sector are not as high as in the automotive industry. Although the automotive industry is a very large segment, DC exporters of castings and forgings are advised not to focus on this segment. Quality requirements are usually very high, competition is mainly on price and, above all, the order quantities involved are far too large to be met by the average DC exporter. For more information on trade structures in the automotive industry, turn to the CBI survey covering the market for automotive parts and components. 1.2 Market segmentation Since the engineering industry uses many cast and forged parts and products, the production output of this industry is a good indication for the demand for cast and forged parts in those industries. Refer to Appendix A for examples of casting and forging applications in the engineering industry. This section will be concluded with a market segmentation by material used, as markets for one specific metal may be very different from markets for another metal. Engineering industry The EU production of the most relevant categories in the engineering industry showed good results in the period , as can be seen from Table 1.1. The only categories that showed a decline were machinery for textile production and electric domestic appliances (an average -14% and -7.7% per year respectively). The decline in both categories mainly Page 4 of 44

5 occurred in 2008 and was the indirect result of the financial crisis impacting consumer spending. Refer to Table 1.1 for more information on the production size of the several engineering categories, as well as the estimated shares of castings and forgings and sheet metal in these categories. As becomes clear from Table 1.1, agricultural machinery (+13% on average per year), driving elements and valves (+11%) and electric motors and generators (+10%) performed the best in the period Table 1.1 EU engineering production of most relevant categories, by category and including the production share of castings and forgings and sheet metal, , million Engineering category Share of * Production castings and forgings sheet metal CAGR** Pumps and compressors*** 50-70% 5% 34,960 36, % Lifting and handling equipment 15% 30% 36,394 40, % Cooling and ventilation equipment 10% 50-60% 33,942 39, % Driving elements**** 50% 5% 17,827 27,437 11% Machine tools 40-50% 10% 17,750 24, % Valves 60-70% - 15,332 23,123 11% Machinery for food processing 25% 25% 12,449 15, % Agricultural machinery 20-25% 40-50% 10,263 16,549 13% Machinery for textile production 60-70% 30% 11,293 6,271-14% Agricultural tractors 35% 10% 7,824 10, % Electric motors and generators 30-40% 20% 23,852 34, % Electric domestic appliances 5-15% 25% 30,768 22, % Source: Eurostat Prodcom (2009) * Based on estimations of industry experts and the German Foundry Association. Some of the categories do not have a high share of castings and forgings. Nevertheless, these are selected because of their high share of sheet metal, which can be seen from the extra column on sheet metal share. ** Compound Annual Growth Rate *** Pumps consist for about 70% of castings and forgings, while compressors consist for about 50% of castings and forgings. **** Driving elements include bearings, gears and other driving elements. Table 1.2 underneath analyses the competitive strength of the EU countries with regard to the most relevant castings and forgings consuming engineering categories. The first column shows the EU countries with the highest production, the second column displays the countries with the highest compound annual growth rate for the period Some major conclusions can be drawn from Table 1.2: Germany is by far the largest production country in most of the categories, while Italy is number two in most categories. Only for electric domestic appliances Germany is second largest, behind Italy. France is often number three, while the UK is number four in almost 40% of the categories. Central and Eastern European (CEE) countries are the fastest growing production countries in the EU. A major reason for this development is the fact that several Western European companies have transferred (parts of) their production to CEE countries. Page 5 of 44

6 Table 1.2 Category Pumps and compressors Lifting and handling equipment Cooling and ventilation equipment Driving elements Leading production countries (2008) and fastest growing production countries in the EU ( 04-08), by main castings and forgings consuming engineering categories Large and medium-sized production countries (share of total EU production) Fastest growing production countries (CAGR) Germany (30%), Italy (14%), France (7.3%), UK Estonia (+50%), Lithuania (+41%), Poland (6.6%), the Netherlands (3.7%), Denmark (2.8%), (+24%), Luxembourg (+18%), Latvia Czech Republic (2.7%), Belgium (2.4%), Sweden (+17%), the Netherlands (+13%), Hungary (2.2%), Spain (2.0%), Austria (1.8%) (+13%), Finland (+7.8%), Denmark (+6.9%) Germany (28%), Italy (20%), France (8.7%), Slovenia (+53%), Estonia (+36%), Latvia Spain (7.1%), Austria (5.7%), the Netherlands (+31%), Slovakia (+31%), Czech Republic (5.7%), UK (4.9%), Finland (4.4%), Sweden (+25%), Poland (+22%), Greece (+21%), (4.4%), Czech Republic (2.4%), Belgium (2.1%) Romania (+18%) Germany (25%), Italy (20%), France (12%), UK Latvia (+120%), Romania (+40%), Lithuania (6.9%), Spain (6.3%), Czech Republic (5.1%), (+35%), Slovakia (+29%), Czech Republic Belgium (4.5%), Sweden (3.9%), the Netherlands (+26%), Malta (+20%), Austria (+17%), (3.6%), Austria (2.8%), Denmark (2.1%) Slovenia (+15%), Estonia (+14%) Germany (45%), Italy (14%), France (10%), UK Finland (+37%), Bulgaria (+37%), Romania (4.1%), Slovakia (4%), Sweden (3.3%), Austria (+27%), Slovakia (+23%), Slovenia (+22%), (3.3%), Spain (3.2%), Poland (2.8%), the Czech Republic (+22%), Spain (+19%), Netherlands (2.4%) Poland (+19%), Latvia (+19%) Estonia (+72%), Lithuania (+45%), Latvia (+32%), Slovenia (+26%), Hungary (+26%), the Netherlands (+25%), Austria (+21%), Poland (+20%) Machine tools Germany (46%), Italy (24%), Spain (5.3%), Austria (3.3%), Belgium (3.3%), Czech Republic (3.2%), UK (3%), France (3.0%) Valves Machinery for food processing Agricultural machinery Machinery for textile production Agricultural tractors Electric motors and generators Germany (32%), Italy (27%), France (12%), UK (5.7%), Spain (3.5%), Denmark (3.2%), the Netherlands (2.3%), Sweden (2.3%) Germany (27%), Italy (21%), the Netherlands (11%), France (10%), Spain (6.2%), UK (5.6%), Denmark (5.5%), Belgium (2.7%), Sweden (2.4%) Germany (29%), France (14%), Italy (14%), Belgium (6.7%), the Netherlands (5.2%), Denmark (4.8%), Poland (4.1%), Finland (3.8%), Austria (3.3%), Sweden (3.1%), Hungary (2.7%), Spain (2.6%), UK (2.4%) Germany (41%), Italy (32%), Czech Republic (4.9%), France (3.7%), Belgium (3.3%), Spain (3.1%), Sweden (2.5%) Germany (37%), Italy (25%), France (13%), UK (9.2%), Austria (6.9%), Finland (5.4%) Germany (26%), Denmark (19%), Spain (12%), Italy (10%), France (5.9%), UK (4.8%), Czech Republic (4.1%), Finland (3.9%), Austria (3.2%) Electric Italy (29%), Germany (24%), Poland (9.6%), domestic France (6.7%), Spain (5.2%), UK (4.7%), Slovenia appliances (3.7%), Hungary (2.7%), Sweden (2.6%) Source: Eurostat Prodcom (2010) Lithuania (+80%), Slovakia (+61%), Czech Republic (+27%), Poland (+20%), Bulgaria (+19%), Austria (+17%), France (+15%), Hungary (+15%), Slovenia (+14%) Slovakia (+54%), Sweden (+16%), Belgium (+15%), Estonia (+14%), Czech Republic (+13%), Luxemburg (+13%), Latvia (+12%), Austria (+12%), Bulgaria (+11%) Latvia (+45%), Estonia (+33%), Sweden (+25%), Poland (+23%), Bulgaria (+22%), Hungary (+21%), Finland (+20%), Denmark (+20%), Germany (+16%) Bulgaria (+41%), Romania (+34%), Estonia (+34%), Malta (+24%), Lithuania (+23%), Slovenia (+12%), Poland (+11%) Bulgaria (+240%), Slovakia (+137%), Austria (+23%), Slovenia (+22%), Belgium (+21%), Czech Republic (+18%), Italy (+13%), Germany (+12%) Estonia (+48%), Latvia (+43%), Luxemburg (+37%), Lithuania (+33%), Denmark (+30%), Malta (+30%), Portugal (+29%), Hungary (+23%), Czech Republic (+20%) Latvia (+167%), Malta (+38%), Bulgaria (+22%), Poland (+17%), Romania (+13%), Czech Republic (+9.7%) From a technical point of view, for each engineering category, castings and forgings have their own characteristics in terms of complexity and material grade. As a general indication, industry experts have estimated the relative complexity and material grade of the castings and forgings within the several engineering categories. For producers, Figure 1.1 is a valuable tool to consider which engineering categories are potential customers for the producers products. Of course, the figure can be also used to decide on which actions to take in order to become qualified for supplying to a certain category. Page 6 of 44

7 Figure 1.1 Complexity/material grade matrix for the relevant engineering categories* high complexity / low material grade high complexity / high material grade Pumps and compressors Food processing machinery Textile machinery Cooling, ventilation equipment Electric domestic appliances Driving elements Valves Electric motors and generators Agricultural tractors Lifting, handling equipment Machine tools Agricultural machinery low complexity / low material grade Source: industry experts (2009) * The size of the circles corresponds with the size of the markets. low complexity / high material grade Note that Figure 1.1 is only meant as a general indication. Such matrixes could be elaborated more through a division in processes: castings, forgings, and additional machining, or through a division in major parts or in sub-segments. For example, within the pumps and compressors category, it is possible to distinguish between pump casings, impellers, pistons, cylinders and parts, crankshafts, and other pump and compressor parts. For agricultural machinery it could be valuable to distinguish between part types and sub-segments, for example: driving elements, and parts for harvesting and threshing machinery, parts for ploughs, harrows, scarifiers and cultivators, and parts for seeding and planning machinery. Outlook The year 2009 showed a large decline (-20%) in both production volume and value in the engineering industry, as a result of the economic recession that has had an impact on the demand for both capital goods and consumer durables produced by the engineering industry. According to the European Engineering Association (Orgalime), it it is stilldifficult to give a forecast for Page 7 of 44

8 Market segments per type of material As this survey covers many types of materials, including a very wide range of metals, and plastics as well, with different market segmentations, the market segmentation of most materials covered by this survey is discussed in this subsection. Please note that the segmentation data presented are not limited to castings and forgings only. Steel Roughly, the construction sector accounts for one quarter of the total steel demand in the EU. Other major end-users are automotive, mechanical engineering, metal ware (comprising a wide range of metal goods) and tubes (all 10-15%). Aluminium The transport (automotive and aircraft) industry is the largest consumer of aluminium in all forms, accounting for more than 35% of EU demand, followed by construction (about one quarter), packaging (15-20%) and engineering (12-18%). Because of the growing use of aluminium for the transport industry (refer to trends), the share of transport will slowly increase in the direction of 40%. Some more details on the market segmentation of aluminium semi-products are shown in Table 1.3. Table 1.3 EU semi-production of aluminium, by production type and including the shares of the major market segments, 2007 EU Production Market share Production type volume 2007 (million tonnes) Engineering Transport Construction Other Rolled products % 22% 13% 55%* Castings % 73% 8.0% 7.0% Extrusions % 17% 42% 25% Wire, slugs, powder Source: European Aluminium Association (EAA; 2009) *22% is aluminium foil and 19% is other aluminium packaging products. According to the EAA, rolled products are made in 56 production locations (rolling mills) EUwide, while the number of extrusion plants in the EU is about 300 and the total number of aluminium foundries is approximately 2,400. Some more available details on the use of aluminium per market segment follow below: Engineering: in the engineering industry, castings and forgings of primary aluminium compete with cast iron and steel. Transport: in the transport industry, castings and forgings of primary aluminium compete with cast iron and steel. Furthermore, aluminium competes with steel and highperformance plastics as a material for car frames and body panels. Construction: in the construction industry, aluminium extrusions and sheets compete with plastics in windows and doors and also with coated steel in industrial buildings. Profiles accounted for about 50% of the total market for extruded aluminium products. Furthermore, rolled products accounted for more than 20% of the total market. Finally, some 6% (approximately 200,000 tonnes) was used in castings for a wide range of building applications. Packaging: In the packaging sector, there is still some potential in the EU regarding the displacement of steel. There is competition for aluminium in larger sizes of containers from plastics and steel. The second largest aluminium application in packaging is foil, mainly competing with plastic and paper. Zinc The construction sector and the automotive industry are the major end-users of zinc. Zinc is especially used in the production of galvanising alloys (40-50%), brass (approximately 20%) and zinc alloys (about 15%). Zinc is also an important material for architecture and interior decoration, such as brass doorknobs, taps and lighting fixtures. The construction industry Page 8 of 44

9 accounts for about half of all zinc use, followed by the transport industry (approximately one quarter), machinery equipment, consumer durables and infrastructure (all about 10%). Copper Electrical cables account for almost half of the total demand for copper in the EU. Other major segments are construction (approximately one quarter), engineering and electrical equipment (both about 10%). From another point of view, construction is the largest segment with 40% of total copper use in the EU, followed by electrical and electronic products (more than one third), machinery and equipment (about 10%), transport (5-10%) and consumer products (about 5%). Copper is very important for fuel efficiency and safety in modern transportation systems. A normal vehicle uses about kilograms of copper in its ignition, brake-lighting and safety systems. Furthermore, the EU high speed train network uses 10 tonnes of copper per kilometre of track in the power cabling, signalling and electric motor components. Plastics The largest end-user of plastics is packaging applications, accounting for 35-40% of all plastics demand in the EU. It is followed by construction (approximately one fifth), automotive (5-10%) and electrical and electronic applications (about 5%). The remainder (roughly one third) is used by several other end-users, of which medical and leisure are a few examples. Rubber Three quarters of all rubber articles in the EU are destined for the automotive industry, with parts and components such as tyres, windscreen wipers, engine mountings, window seals and fan belts. The balance is left for a wide range of products for several industries, such as the construction and pharmaceutical industry. 1.3 Trends This subsection deals with trends that influence the demand for castings and forgings. Please note that some of the trends are product-related, while other trends are market-related. Innovative applications of aluminium and magnesium at the cost of iron castings In recent years, the EU has proved to be the worldwide leader in the innovative use of aluminium, ahead of North America and Japan. In several applications (but mainly in the automotive industry), the use of innovative aluminium applications has grown year after year. For example, it is estimated that the average use of aluminium in light vehicles production in the EU would total 124 kilograms in 2009, up from 118 kilograms in This trend is expected to continue, as the automotive industry seeks new ways to save weight and gain fuel efficiency and performance. Virtually every new model entering the market contains more aluminium castings than the previous model. In the long term, an alu-maximised small family car could be as much as 30-35% lighter than in Other segments will benefit from the experiences of the automotive industry as well. Contrary to aluminium, the use of magnesium alloys in light vehicles is still small; only 3 kilograms per vehicle. However, prospects for the use of magnesium are very positive. This is because magnesium has the lightest weight with the highest strength-to-weight ratio, and it is the eighth most abundant element in the earth s crust. Moreover, other minerals such as zinc and copper are much rarer. Despite the more expensive casting technology that is necessary for magnesium, this mineral remains a cheap solution. As soon as easy and low-cost technology is developed, the supply and the demand of magnesium will grow quickly. In the automotive industry, die casting applications of magnesium are expected to double in the next decade, and in the next 5 to 10 years additional sheet and extrusion applications of this metal are expected. Studies by major car manufacturers have even identified a potential for over 100 kilograms per vehicle, with most of the potential future demand expected to be for power train 1 Please note that in addition to passenger vehicles and, of course, aircraft construction, also other transport vehicles are increasingly constructed from aluminium, mainly in the form of rolled products and extrusions. Examples are passenger coaches for rail transport, road tankers and freight carriers, and ships, hulls and superstructures. Page 9 of 44

10 (engine blocks and transmission housings) and structural and crash safety applications (bumpers, crash boxes, doors and wheels). The green trend The care for the environment has become a strategic political issue in the EU. The search for energy efficiency and the limitation on CO 2 and NO x emissions has led to a growing application of energy-efficient electric drives in many industries, such as transportation and waste treatment. In recent years, the electric drives markets for wind energy, gas compression (a substitute market for gas turbines) and material handling have accounted for a relatively high growth. Like the electric motors market, the generators market has also shown good growth. Also in the years to come, the markets for electric motors and generators will continue to perform better than other markets. As a result, prospects for cast and forged parts in such applications are bright. 1.4 Opportunities and threats Trends and market developments offer opportunities and threats to exporters. A given trend can be a threat to some and an opportunity to others at the same time. The following trends should, therefore, always be analysed in relation to your specific circumstances. The main opportunities and threats for DC exporters are the following: The price pressure on parts (refer to Chapter 5) in former years as a result of a strong global competition, in combination with an ongoing strong demand for engineering products, has made room for increased sourcing of castings and forgings in DCs. As can be read from the CBI sector surveys covering the castings and forgings market in individual EU countries, several countries are still home to some low added-value serial production of castings. This offers opportunities for DC foundries that can take over this kind of production. Although most of the engineering categories are expected to show a decline in 2009, it is expected that some specific market segments continued to show some growth in Often, DC companies are still not capable of supplying the desired quantity and quality of cast and forged products that is necessary for the EU market. Refer to From survey to success: export guidelines for more information on how to overcome these hurdles and to become a successful exporter to the EU. Although European engineering production mostly showed good results in the period under review, production declined rapidly in 2009 as a result of the economic recession. Also the outlook for 2010 is not very encouraging. The production output of the engineering industry may pick up again after 2010 with this its demand for castings and forgings. Refer to Chapter 7 for more information on opportunities and threats. 1.5 Useful sources Some useful sources for further research include: European Engineering Industries Association European Aluminium Association (EAA) European Confederation of Iron and Steel Industries European Zinc Association - International Copper Study Group (ICSG) - International Magnesium Association (IMA) - News sites such as and and Page 10 of 44

11 2 Production 2.1 Size of production The EU foundry and forge industries are very differentiated and diverse. They consist of a wide range of installations, from small to very large, each with a combination of technologies and unit operations selected to suit the input, size of series and types of product produced in the specific installation. The production of both industries will be discussed separately. Consistent data on production value are not available, therefore only production volumes will be discussed. Castings The EU foundry industry is the second largest in the world for ferrous castings far behind China and the largest for non-ferrous. Table 2.1 shows an indication of the total castings production in the EU. The data have been collected by the European Foundry Association (CAEF) and contain not only data of member associations, but also data of non-member countries. Data for Ireland, Luxembourg and some of the new EU countries have not been provided; however, it is known that activity in these countries is low compared to the listed countries. In 2008, the EU production of metal castings totalled 16.1 million tonnes, an increase of 0.9% per year since The growth in production value in the period mentioned - although not exactly known was higher than volume growth; however this was mainly caused by increasing raw material prices (also refer to Chapter 5). Germany was by far the largest producer, accounting for more than one third of the total EU production volume. The German foundry industry performed well in the period under review (+3.8% per year), much better than number two Italy (+1.2%) and number three France (-0.8%). The countries performing best in the period under review were Sweden (+6.1% per year), Poland (+5.7%) and Portugal (+4.4%). The UK experienced a huge decline in output in the period under review (-18% on average per year), which was the result of several foundry closures in that period. The drop seems to be the largest in 2007, but this was the result of a major correction made by the UK foundry association in that year. Table 2.1 Production volume of metal castings by EU country, , 1,000 tonnes CAGR EU aggregate 15,538 15,614 16,184 16,485 16, % Germany 4,984 5,108 5,484 5,840 5, % Italy 2,521 2,541 2,646 2,751 2, % France 2,466 2,343 2,409 2,473 2, % Spain 1,309 1,307 1,330 1,433 1, % Poland , % UK 1,277 1,253 1, % Czech Republic % Sweden % Austria % Slovenia % The Netherlands * 157* 163* 159* 1.8% Finland % Hungary * 161* % Portugal % Belgium % Denmark * % Lithuania * -8.0% Source: CAEF (2009) * Estimations Page 11 of 44

12 As shown in Table 2.2, the total production of castings in 2008 consisted for the major part of ferrous-metal castings (almost 80%). Within ferrous-metal castings, iron castings accounted for more than half of the production. Nodular iron showed 4.7% growth per year between for a small part at the cost of malleable iron and in 2008 it accounted for more than 40% of ferrous-metal castings in the EU. Compared to non-ferrous metal castings (+0.2% per year between 2004 and 2008), ferrous metal castings performed better (+1.1%). This was especially due to the rise in production of nodular iron castings. Within the category of non-ferrous castings, the production of aluminium and magnesium castings grew slightly (+0.4% per year), while the production of copper and zinc castings decreased per year by 0.9% and 3.1% respectively. Table 2.2 EU production volume of castings by type, , 1,000 tonnes CAGR Ferrous metal 12,173 12,222 12,669 12,898 12, % Iron 6,890 6,656 6,673 6,606 6, % Nodular iron 4,302 4,545 4,913 5,245 5, % Malleable iron % Steel % Non-ferrous metal 3,364 3,392 3,515 3,586 3, % Light and ultra light 2,818 2,867 2,952 3,040 2, % Copper alloy % Zinc % Other alloy % Source: CAEF (2009) Forgings Table 2.3 shows an indication of the forgings production volume in the EU. In 2008, the members of the Federation of European National Forging Associations (Euroforge) produced 6.4 million tonnes of forgings, an average increase of 5.0% compared to Germany was by far the largest producer in 2008, accounting for 48% of the total of all Euroforge member countries. The Czech Republic accounted for the largest growth (+17% per year) in the period , for the major part due to a good growth in exports. The only two countries that saw a decrease in production were Belgium (-19% per year) and Sweden (-1.3% per year). Table 2.3 Production volume of forgings by Euroforge members, by EU member country, , 1,000 tonnes CAGR EU aggregate 5,551 5,528 5,810 6,400 6, % Germany 2,570 2,620 2,660 3,058 3, % Italy 1,210 1,261 1,236 1,318 1, % France % Czech Republic % Spain % UK % Poland % Sweden % Slovenia % Belgium % Finland * 20* 5.7% Source: Euroforge (2009) * Estimated As shown by Table 2.4, drop forging, press and upset forging grew by 3.3% per year in the period , open die forging increased by 6.4% and cold forging grew by 1.0% per year. Total production of Euroforge members increased (3.8% per year) while the number of associated forges decreased as of 2004 (-1.0%). This implies a growing output per forge (+5.3% per year). As the average number of employees per forge decreased from 120 in 2004 to 118 in 2007, the output per employee grew even faster (+6.7% per year). Page 12 of 44

13 Table 2.4 Production volume of forgings by Euroforge members, by type, , 1,000 tonnes CAGR Drop forging, press and upset forging 3,872 3,899 4,046 4,549 4, % Production of forging industry (subcontracting) 2,886 2,850 2,968 3,420 3, % In-house production of the automotive industry % In-house production of the finished assembly (subcontracting) % Forged catalogue items* % Open die forging 1,275 1,196 1,301 1,395 1, % Ring rolling % Other open die forging** , % Cold forging % Production of cold forging industry % In-house production of consumer industries % Number of forge plants % Source: Euroforge (2009) * i.e. producers of standard parts for resale, such as flanges & fittings, piping, connectors, armatures, tools, machineries, etc ** excluding forged steel bar, blanks and railway rolling stocks. Outlook As several market segments have been facing difficult times since the summer of 2008, the EU producers as suppliers to these markets have also experienced hard times. Since then, industrial order levels have dropped quickly and the order backlog of summer 2008 (6 months for foundries for example) for producers all over Europe has vanished into thin air. The year 2009 showed declines in both production volume and value, as a result of the economic recession impacting several end-user industries. Unfortunately, it remains difficult to give a forecast for 2010, as production is so dependent on several end-user industries. 2.2 Characteristics and trends In addition to the trends and characteristics already described in Chapter 2.1, a few more characteristics, trends and opinions related to castings and forgings production in the EU are described below. Characteristics of the EU foundry and forge industry Specialisation in the EU The enlargement of the EU has led to a growing interest in foundries and forges in the new EU countries in Central and Eastern Europe (CEE). For the countries concerned, the opening of their markets, combined with inward foreign investment, has led to the implementation of new techniques, resulting in rising productivity and a reducing impact of their production activities on the environment. Due to the (as yet) low wage costs in these countries, their competitive strength lies in jobbing foundries (small series factories) that mainly produce large castings and in foundries producing a broad range of products. To compete in the world market, Western European foundries now focus on their technological skills, selecting niche markets which require complex castings with high-precision and specific quality requirements. They have partially shifted towards higher-value, tailor-made products, such as products that provide extra corrosion-resistance to the exteriors of cars or white goods. This has also reduced their reliance on mass production of commodity steel with technical characteristics easily matched by competitors. Some industry specialists say that the higher raw material prices have helped in this. By way of illustration, if steel were to cost the same as dirt, customers would not necessarily expect so much from the supplier. As prices go up, there is more of a dialogue about technical improvements and value for money. Page 13 of 44

14 Additionally, all Western European foundries have also improved their delivery reliability in recent years, and some of them have even focused on casting parts that need a reliable and quick or just-in-time delivery. Foundries and forges integrated in the supply chain Historically, foundries and forges have strong relations with their customers. Most of the time, customers are located in the same region as the foundry. Already in the design phase of a component, the customers sales and product development experts work closely with the production experts of a foundry. The component is sent from the foundry to the customer or for further upgrading and finishing to a machine shop; this is also part of the supply chain. The delivery reliability in the supply chain in combination with product quality have a considerable impact on customer satisfaction, and it is this combination in relation to the Total Cost of Ownership (TCO) calculation, which is a major reason why many EU customers prefer to work with EU foundries. Large influence of the automotive sector The high dependence on the automotive sector has a major influence on activities in the industry; this concerns various aspects such as location, quality standards and innovation. One example of this dependence is that the automotive industry s shift towards lighter vehicles has led to an increased demand for aluminium and magnesium castings. Another example is the increasing use of high-strength steels by the automotive industry. A large share of the steel grades which are used nowadays were invented in this decade. Thinner automotive parts can be produced with the help of these new high-strength steels (tensile strength is between 270 and 700 MPa), ultra-high-strength steels (tensile strength of more than 700 MPa) and advanced high-strength steels (tensile strength of 500 to 800 MPa). Weight reduction and safety enhancement are the result, because high-strength steel is lighter, stronger, easier to form and has better crash energy absorption than conventional steels. The automotive sector is also the major instigator of efficiency improvements in the foundry and forge industries in Europe. For one thing, a few EU foundries that have invested in their production processes have been forced to do so because of the increasing cost price reduction demands from their automotive customers. Trends in the EU foundry and forge industry Structural changes in the industry The EU foundry and forge companies are basically small and medium-sized enterprises (SMEs), with 80% of companies employing fewer than 250 people. In the EU forge industry, for example, the average number of employees was about 118 per forge in In virtually all countries, the number of unskilled workers in the forge and foundry industries has gone down. This can be partly seen from the fact that in the EU ferrous metal foundries, the average volume output per worker increased from approximately 75 tonnes in 2004 to about 95 tonnes in 2008 (note: the volume output per employee in Western European countries is still much higher than in CEE countries). Please note that this was also caused by the increasing capacity utilisation rates in many EU foundries in this period. According to specialists, it was especially due to strong investments in innovative technologies that the EU industry succeeded in reducing the unskilled labour force and in improving processes and product quality. For the years to come, this trend is expected to continue, although to a lesser extent in CEE countries, because in these countries wage costs have usually not yet reached the level at which an efficiency increase is necessary to survive. Eco-efficiency In recent decades, the EU metal industry has focused on improving its so-called eco-efficiency. Regarding some of the major aspects of eco-efficiency energy productivity and CO 2 emissions - the steel industry is particularly representative: between 1975 and 2000 the EU steel industry has cut its energy consumption and CO 2 emissions by 47% and 50% per tonne Page 14 of 44

15 of finished steel respectively. Other major aspects of eco-efficiency are described in the following sub-subsections. Raw materials eco-efficiency Innovation in the EU has been focused on better functionality and a reduction in material used. Well-known examples are the steel and aluminium beverage cans, and one could also think of casting or forging a component without the need for working anymore, which is inevitably wasteful. The best example is probably the manufacturing of electricity cables, for which important improvements in materials consumption have been made. The thicker a cable, the better the conductivity and the lower the energy loss over the life-time of the cable. The copper itself contains part of the energy needed for the production. Through a Life Cycle Assessment, focused on energy, the industry has developed manufacturing processes based on an optimum consideration for the energy needed for the production, use and recycling of the cable. Recycling Recycling of metals accounts for 40-60% of EU unwrought metal output and is crucial for reducing emissions. Although currently used technologies are very efficient, the energy consumption in the process is still very high. Processing secondary metals saves energy and is therefore less environmentally intensive than producing primary metals, particularly in the case of aluminium and steel. For example, one ton of secondary steel generates only one fifth of the CO 2 emissions caused by one ton of primary steel production. Reduction of energy expenditure Forced by the higher energy prices (refer to Chapter 5) and the stringent environmental legislation, many European companies look for ways to reduce their expenditure on energy. This goes particularly for those companies which have to use large amounts of energy as part of their production process, such as foundries and hot forges. Although all European companies have experienced an increase of energy costs, the price of energy differs from country to country. In the Netherlands, for example, the supply costs of energy are among the highest in the EU and in the world. This is also the reason that reduction of energy expenditure has already become one of the key action plans for the Dutch Association of Engineering, Electronics and Contracting (FME-CWM). Supply risk In the period , the EU non-ferrous metal industry faced serious problems in gaining access to scrap metals at competitive prices, due to strong competition of some of the EU s largest trading partners, especially China. As a result, the industry has been forced to compensate for scrap material with ores and concentrates. In some cases, shifting to other input is not possible and has led to reduced production or closure of sites, for example in the scrap copper sector. Over the next decade, this trend is expected to continue and may force EU plants to cease operations. The producers to be most likely affected are aluminium and copper casters. Risk of shortage of technical specialists Both in Western European and CEE countries, the industry increasingly faces a reduced interest among youth and students to become foundry or forge specialists or metallurgic engineers. In the period , the UK, Germany and Spain reported their concern about a potential shortage of engineers. Without a sufficient labour supply, it will be difficult to keep ahead of competitors, in terms of technology development. 2.3 Opportunities and threats As wage costs keep on taking a large share in the costs of several cast and forged products (in the range of 15-40% depending on process type and order size) many of these products can very well be manufactured in DCs. Of course there are still processes in EU foundries and forges that can be automated further, but investments will always be Page 15 of 44

16 critically weighted against outsourcing to DCs. Especially when the cast or forged product is worked and the used material is not just iron but more sophisticated such as nodular iron or (non-ferrous) steel, opportunities for DC exporters grow exponentially. According to industry specialists, the general rule is that the more sophisticated the casting referring to the material used and to the degree of working, the larger the labour factor in the landed cost price (up to 40% in a DC) and the larger the interest of EU companies to outsource to DCs. The continuous increase in raw material costs until 2008 posed a major threat to DC exporters. It led to a further decrease of the labour factor in the cost price, which in turn lowered the competitive advantage of the DC exporter, to the extent that it was based on low labour costs. Now that raw material costs have dropped to a lower level, this threat has weakened. On the other hand, raw material prices are very susceptible to fluctuations in demand and supply. As a result, it has become increasingly difficult to incorporate profound material price forecasts in medium-term and long-term business planning. Environmental legislation has forced the EU metal industry to focus on improving its socalled eco-efficiency. This has resulted in many investments, which have also improved efficiency and, as a result, the competitive position of the EU foundries and forges. On the other hand, the increasing environmental legislation has led to (and could lead to more) plant closures and outsourcing of production to LCCs outside the EU. ency. 2.4 Useful sources Some useful sources for further research include: European Foundry Association - Federation of National Forging Associations - Umbrella site of the German Steel Institute VDEh, the German Steel Federation and other organisations and institutes - For examples of interesting players in individual EU countries, please refer to the CBI sector surveys covering the castings and forgings market in individual EU countries. Page 16 of 44

17 3 Trade channels for market entry 3.1 Trade channels Figure 3.1 gives an idea of the trade channels for castings and forgings in the EU. Of course there are other options and possibilities, depending on the product characteristics and the enduser. Figure 3.1 applies in principle to every EU country, although the shares of the several channels may differ from country to country and from product group to product group. Figure 3.1 EU Trade channels for DC exporters of castings and forgings Developing country (DC) exporter Direct sales DC Sourcing agent Subcontracting Importer EU Sourcing agent Agent Producer in EU EU end-user Relevant trade channels As can be seen from Figure 3.1, relevant trade channels in the EU are direct sales, importer, agent and subcontracting. These trade channels are specified below. As indicated by the thickness of the lines, direct sales is the preferred trade channel for exporting castings and forgings to the EU. Trade by importers mostly applies to so-called catalogue items, which are relatively standard products. Direct sales End-users could be both machinery producers and subcontractors of these machinery producers. Most often, these end-users in the EU buy their castings and forgings directly from an EU producer. The end-users assemble the product in a module (subassembly) or in a final product, such as a machine. Direct sales gives the best chance of a long-lasting relationship and therefore DC exporters should put efforts into building up supplier relationships with endusers in the EU. Quality is a major selection criterion. Although several end-users may manage supplier selection programmes with strict selection criteria, these companies know that starting a new supplier relationship takes time and efforts of both parties and that quality failures may occur in the first few months. A considerable number of (large) end-users have already developed a global sourcing management system in which the sourcing of parts in LCCs is an important aspect. Such companies with experience in sourcing from LCCs may be good prospects, but there are still many more prospects in the EU, without experience in sourcing from DCs. Importer Catalogue items are the products that are most suited to be traded by traditional importers. Examples are valves, flanges and fittings. Virtually all traditional importers of castings and forgings also arrange distribution of the product. They know local markets thoroughly and have a very good network in the EU target market. Most importers have built up strong relationships Page 17 of 44