An interesting dilemma.

During the last few months, MODERN CASTING has been publicizing a potential shortage of capacity' that is forecast to occur in the U.S. metal casting market in 2007. To quote from an article that ran in our September 2005 issue (p. 36), "By analyzing specific market sectors, a potential shortage of capacity is forecast for ductile and gray iron castings made on vertically and horizontally parted molding machines."

While the article provides detail on this capacity shortage, the closing of plants and capacity within the last five years has created a U.S. market with high levels of utilization (greater than 85%) and demand to supply ratios of greater than 0.92. As the demand on both of these segments of the industry is expected to increase in the next few years, our industry will need to either increase its capacity by adding shifts, increasing productivity, making capital investments, etc. or risk our customers going to foreign competition to meet the demand. However, if our industry does add capacity, looming on the horizon in 2010-11 is another forecasted economic slowdown that potentially could push back total tonnage of castings shipped to 2001-02 levels.

This situation poses an interesting question:

Do we increase our capacity to ensure we can meet the demand that will be placed on us in 2007, or do we maintain status qua and hopefully ensure pricing leverage over our customers? Do we risk having greater amounts of open capacity when the forecasted downturn returns, or do we make as much profit as we can during the next three to four years and hold on during the downturn?

Normally, I would take this opportunity to present my opinion. Instead, I am going to present both sides of the argument.

On one side, our industry can't stand pat with capacity and potentially let orders go to our foreign competition. While we may be able to push prices up due to the spike in demand, we are telling our customers it is OK to find someone else. We are telling them it is OK to pick up their pattern (for what I am assuming is a profitable job that fits your niche) and take it elsewhere. Why would we ever want to do this?

On the other side, this open capacity is going to become a liability in a few years if the forecasted downturn hits. The result is that plants will continue to go out of business because of bad capacity expansion decisions, just like those made in the late 1990s.

But what does it say about our industries' business model that we would only rely on supply tightening for pricing leverage and higher profits? Experts say that successful firms offer capabilities that deliver pricing leverage at all times. Other experts say that non-growth industries such as U.S. metalcasting must make their profits during demand spikes because it is the only guaranteed time to do it.

Forecasts show that our industry will add capacity the next few-years to help meet demand. Maybe this is moving to three shifts, six days week. Maybe this is through the addition of automated pouring systems. However, when I talk to various metalcasters about their future plans, the opinions I hear don't support that assumption. Many metalcasters seem to see this as the time to stick it to our customers with prices, make up for the downward price trend we were forced to deal with from 2000-2003 and hold on during the forecasted two to three year downturn.

Which path should we follow? Only time will tell. But I'm asking your plant to put together a plan for success for the next 5, 10 and 15 years, not just a plan for survival.

If you have an opinion on what gray and ductile iron metalcasters should do, email me. Maybe as an industry we can collectively devise a strategy to ensure a prosperous future for all.

Alfred T. Spada, Editor-in-Chief

If you have any comments about this editorial or any other item that appears in MODERN CASTING, email me at [e-mail].