Casting imports: what to expect in 2003.

Imported castings in relation to total casting demand have shot up more than 50% over the last six years. New data confirms the expectation that imports will continue to gain ground in 2003.

Editor's Note: Instead of the regular update on industrywide market trends and conditions that is prepared for AFS Corporate Members and MODERN CASTING, Stratecasts focused its third-quarter installment on the casting import situation for the coming year. This data complements much of what was initially shared at the AFS Trade Forum in Washington, D.C., last spring.

While a healthier picture for U.S. casting demand appears on the horizon in 2003 (14.6 million tons), casting imports are expected to gain share at the expense of domestic producers again next year. Based on recent interviews, casting imports to the U.S. are forecast to increase to 2.2 million tons in 2003, representing 15% of the total casting demand in the U.S, and more than $4 billion in sales.

About 20.3% of the demand for gray iron casting shipments will now be imported, while imports' penetration of bronze and diecast aluminum are projected to reach 18.6% and 17.8%, respectively. Market sectors such as municipal, highway and street construction; valves and fittings; farm and construction machinery and equipment; diesel engines; and motor vehicles; will feel the effects of the increase the most.

This article examines some of the important trends as well as recent data on some of the major casting exporters to the U.S.

Imports

Based on selected interviews designed to update a database on international transactions, the estimated imports of metal castings in the U.S. are shown in Table 1.

The projected 2.2 million tons of casting imports cover many market sectors. The casting sectors that have the highest ratio of imports-to-total shipments are municipal (43%), valves & fittings (36%), gray iron diesel engine (50%), automotive iron (17%) and automotive aluminum die cast (20%). Table 2 summarizes the casting import forecast.

Municipal--About 97,000 tons of manhole covers, frames and grates are expected to be imported (primarily from India) to the coastal regions of the U.S. Many of these municipalities purchase castings through firms that formerly sold domestic-made castings. Another 123,000 tons of cast pipe, hydrant castings, centrifugal pipe, and fittings and other construction cast parts are expected to be imported for construction projects and for part replacement.

Valves & Fittings--In addition to the 118,000 tons of gray iron and 92,000 tons of ductile iron expected to be imported, about 15,000 tons of malleable iron threaded pipe fittings are expected to be brought to the U.S. in 2003, primarily from Thailand and other Asiatic nations. Most of the valves and fittings are imported as finished parts and are not classified as castings in the government statistics. It is estimated that imports amount to 35% of the demand for iron valves and fittings.

Internal Combustion Engines-The lack of supply of gray iron engine castings in the U.S. has resulted in a need of 232,000 tons of gray iron engine castings (35% of the casting demand) from foreign foundries. Blocks and heads are imported from Brazil, Mexico and Germany for diesel engines made by Cummins, Detroit Diesel, Deere and others. Prices paid for blocks and heads now appear to be at levels that appear to be in the "dumping" range. This activity is forcing U.S. foundries to operate at low profits, and may result in the closing of operations.

Farm Machinery & Equipment-Next year's forecast calls for 54,000 tons of gray iron and 13,000 tons of ductile iron (exclusive of engine castings) to be imported, primarily from China and other Asiatic countries.

Construction, Mining & Oil Field Equipment--About 108,000 tons of ferrous castings are expected to be imported in 2003 for consumption in machinery and equipment produced in the U.S. This figure is 12% of the demand.

Pumps & Compressors--Approximately 27,000 tons of gray iron and 10,000 tons of ductile iron castings are purchased abroad and imported as either completely or partially machined parts.

Refrigeration & Air Conditioning--U.S. manufacturers are expected to purchase 22,000 tons of gray iron compressor and other castings in 2003 from foreign sources. Diecast aluminum imports also are increasing.

Passenger Car & Light Trucks--Led by blocks and heads from Mexico and Brazil and rotors from Canada and Mexico, 241,000 tons of gray iron cast parts are expected to be imported in 2003. Ductile iron imports, led by exhaust manifolds from Canada and miscellaneous castings from China, Japan, Korea and other Asiatic nations, are forecast to reach 139,000 tons. Imports of aluminum die castings are predicted to exceed 160,000 tons in 2003. Approximately 135,000 tons of aluminum permanent mold and sand castings, including engine blocks and heads, are expected to be imported from Mexico, Brazil, Canada, Japan and European foundries.

Railroad--It is forecast that 60,000 tons of carbon and low alloy steel castings are to be imported from foreign competitors in 2003.

THE KEY PLAYERS

The following section provides information on some of the major casting exporters to the U.S, including currency exchange rates and recent pricing data. (For Stratecasts' shipment forecasts on the nations below, please visit www.moderncasting.com). The "estimated critical currency exchange rate for export" illustrates the critical exchange rate at which a given market is attractive for U.S. buyers. As other currencies weaken in relation to the U.S. dollar, goods become less expensive to the U.S. market.

Japan

* GDP is predicted to increase to 2% after many recessive years.

* Yen is expected to strengthen slightly to 115 Y/US $ despite efforts to weaken.

* Motor vehicle production is forecast to increase to 10 million unit levels in 2002 and continue to rise to 11 million units in 2003.

* Labor Rate @ 120 Y/$ = $21, including fringe.

Following are estimated cost breakdowns for cast components produced in Japan based on an estimated comparative cost of 120 Y/$.

Ductile Iron Caliper$/Ton

Material Cost                     630
Labor Cost                        170
                           (8 Man-hours/ton)
Overhead Cost                     660
Total Cost                       1460
Estimated Price in U.S.          1700

Estimated critical currency exchange rate for export: 150 Y/$
Alum. Diecast Trans. Case  $/Ton

Material Cost               1300
Labor Cost                   500
Overhead                    1270
Total Cost                  3070
Estimated Price in US       3400

Estimated critical currency exchange rate for export: 148 Y/$

Despite the strong Yen, many iron and aluminum cast automotive parts are imported by transplants and OEMs. A weaker Yen in the near future is not expected.

Korea

* GDP is expected to drop to 4.5% in 2002 and grow slightly to 6% in 2003.

* Currency exchange rate is forecast to drop to 1100 Won/$.

* Motor vehicle production is forecast to increase to 3 million vehicles by 2003.

* Labor rate forecast for 2003 = $5.40/hr, including fringe.

The following is an estimated cost breakdown for a 10-lb automotive casting made in Korea with an estimated comparative cost of 1100 Won/$.

10-lb Automotive Iron Casting        $/Ton

Material cost                         350
Labor cost                             92
                               (17 Man-hours/ton)
Overhead cost                         172
Total cost                            614
Est. Price in the U.S.                870

Estimated critical currency exchange rate for export = 800 won/$

Having led the world in casting production since the breakup of the U.S.S.R, the U.S. lost its seat to China in 2000, which surpassed the U.S. by 824,529 metric tons of castings shipped.--MODERN CASTING 35th World Census of Casting Production

The weak Won (above 800) has enabled Korean foundries to export castings and finished parts of all metals to the U.S. at less-than-normal prices.

China

* GDP is expected to rise 8% in 2003 after a 7% rise in 2002.

* The currency exchange rate is not valued against other currencies for comparative purposes because it is not relevant when comparing prices or costs.

* China increased production of motor vehicles from 1,781,000 vehicles in 1999 to 1,925,000 in 2000 and 2,025,000 in 2001. It is forecast that 2,200,000 vehicles will be produced in 2003.

* China has 13 major foundries producing steel railroad castings for freight cars for domestic use and export.

* China is reported to be exporting more than 1.5 million castings in either raw, semi-finished or finished parts.

* Labor rate is estimated at less than $1/hr; however, it is insignificant because it is believed that the government subsidizes some sales and therefore prices can be dictated by what is required to land the business.

It is difficult to compare costs of specific castings made by Chinese foundries, since many costs are unknown. It is believed that castings are shipped at prices that will be competitive in the "country of import."

It also is strongly believed that the dumping of castings in the U.S. exists, and that many castings imported into the U.S. receive a subsidy in China. It is also possible that U.S. companies that ally themselves with Chinese foundries are parties in setting prices that are less-than-normal value, and are injurious to the U.S. foundry industry.

Cost studies have been made, and cost estimates prepared, to indicate that it is difficult to produce and ship castings to the U.S. at the lower-than-normal prices without incurring sizeable losses.

India

* It is forecast that the GDP of India will return to 6% in 2003.

* Currency exchange rates are expected to average 48 Rs/$ in 2003.

* Production of motor vehicles in India was approximately 860,000 in 1999 and 2000 and is expected to rise to 1 million by 2003.

India has been allegedly subsidizing foundries and assisting in the export of municipal castings into the coastal regions of the U.S. for many years at prices below those in India. The municipal casting industry in the U.S. has constantly fought this practice and has been rewarded with the imposition of anti-dumping duties on foreign competitors. While these tariffs have been successful in thwarting imports, they continue to be high.

Like in other industries, it is likely that U.S. manufacturers continue to aid in the dumping practices by importing the municipal gray iron castings at prices less-than-normal and then reselling them to municipalities. Indian foundries also are exporting engine and other iron castings to Europe and other regions at low prices.

Other Asiatic Nations

Taiwan and Thailand have been active in the exporting of gray, ductile, and malleable iron threaded pipe fittings and other valves and fittings. Antidumping tariffs have been levied on some products, reducing imports.

Taiwan produces nearly 1 million tons of ferrous castings and 250,000 tons of aluminum castings that are exported primarily into the U.S. Cast products are sold to U.S. consumers under contract at prices that are believed to below-normal prices.

Thai foundries have been exporting malleable iron threaded pipe fittings through U.S. exporting companies and sold by major retailers for many years.

Mexico

* The real GDP has been averaging 3.5% and is forecast to improve to 5%.

* The currency exchange rate is averaging 10 Pesos/$ this year and is forecast to drop to 9.1 in 2003.

* The production of motor vehicles was down in 2001 after growing to 1.9 million units in 2000. Production is projected to reach a record level of 2 million vehicles in 2003

The Peso is now exchanging at 10 Pesos/$ and is expected to remain in the 9 to 9.5 range in the near future. The critical rate is difficult to determine, since the labor rate paid to workers in U.S. currency does not seem to vary with the rate. The present labor rates in foundries averages $2/hr.

* It is reported that Mexican foundries are exporting gray iron engine and other miscellaneous castings to U.S. customers at below-normal prices.

* There have been no reports of subsidies by the government, however, the lower-than-normal prices are causing injury to U.S. foundries.

Brazil

* The Real has strengthened to 2.9/$ despite a record exodus of capital.

* The production of motor vehicles was down in 2001 but is expected to rise to the 1997 level of 2 million vehicles by 2003.

* Labor rates in U.S. currency now average $3.50/hr for foundries.

* Foundries have been accustomed to subsidies in the past through Befiex ageements; however, this type of subsidization has been discontinued, according to the government. It has been alleged that some former agreements are still in effect.

* Engine blocks and heads are presently being exported from Brazil at below-normal prices in the U.S.

The following is an estimated cost breakdown for a small iron 6 cylinder block made in Brazil in $/ton.

Iron 6-Cylinder Block  $/Ton

Material Cost           200
Labor Cost              140
Overhead Cost           400
Total Cost              740

This brief cost analysis indicates that special Brazilian foundries can be competitive in the U.S. but might require subsidies to guarantee to be the low price producer.

Europe

* A recent IMF forecast for the Western European economy predicted a growth of only 2% after growth of 1.8% in 2001. Two down years are forecast for automotive production, followed by a growth year in 2003. Auto sales are not expected to reach 2000 levels until 2005.

* The Euro is expected to decline against the Dollar to a level above parity and thus lower export potential.

The European foundries have been very competitive in the U.S. market at 0.9 Euro/$, however, at parity levels they have lost some advantage. It is forecast that a stronger Euro will make the foundries in most West European countries non-competitive in the U.S. marketplace.

Conclusions

Some conclusions can be made following a recent analysis of the data surrounding casting imports:

* It is believed that castings are being exported to the U.S. through export and trading agents, and through alliances with foundries and casting consumers, at prices that can be classified as less-than-normal (or "dumped") value. Practices of this type have caused injury to the U.S foundry industry through the lowering of capacity utilization, reduced profits, bankruptcies, and cessation of operations.

* In the present wartime economy, it is important that actions are taken and petitions made to the government to have duties imposed on foreign competition that dumps castings and cast parts, both partially and finished machined, that are injurious to the U.S. foundry industry.

* Overvaluation of the U.S. dollar has been a serious cause of lower exports. It is forecast that the continuation of the present trend toward a weakened dollar against most currencies could result in the increase of casting exports to 10% of shipments in 2003.

* Import and export data is difficult to obtain from U.S. government publications since value-added operations to metal castings often changes the classification of the cast parts. Efforts need to be made to quantify imports and exports of all cast parts.

* Recent analysis of import data reveal cope and drag and horizontally parted matchplate machine foundries are hurt the most by imports. Medium size and small jobbing iron foundries are very vulnerable to imports and from dumping practices.

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Table 1

2003 Forecast of Metal Casting Demand & Imports in the U.S. (Millions of
Tons)

Metal                      Total Demand *  Imports  Percent of Casting
                                                          Demand

Gray Iron                       5.52        1.121         20.3%
Ductile Iron                   4.301        0.350          8.1%
Carbon/Low-Alloy Steel         1.101        0.15          13.6%
Aluminum Diecast               1.367        0.244         17.8%
Aluminum Perm Mold & Sand      1.014        0.175         17.2%
Bronze                         0.337        0.063         18.6%

* Demand is shipments + imports - exports
Table 2

2003 Forecast of Casting Imports in Major Market Sectors (Tons)

Market Sector                  Gray     Ductile  Carbon     Alum.
                               Iron      Iron     Steel   Diecast

Municipal Total                220,000        -        -        -
Valves & Fittings              118,000   92,000   25,000        -
Internal Combustion Engines    232,000   10,000     1000   12,000
Farm Equipment                  54,000   13,000        -        -
Construct/Mining/Oil Field      46,000   26,000   36,000        -
Pumps/Compressors               27,000   10,000    2,000        -
Refrigeration/AC                22,000     5000        -     9000
Light Vehicle                  241,000  139,000        -  164,000
Medium-to-Heavy Truck           22,000   22,000    8,000
Railroad                             -        -   60,000        -
Other                          139,000   33,000   18,000   59,000
Total                        1,121,000  350,000  150,000  244,000

Market Sector                  Alum.
                             PM/sand  Bronze

Municipal Total                    -       -
Valves & Fittings                  -  23,000
Internal Combustion Engines     3000       -
Farm Equipment                     -       -
Construct/Mining/Oil Field         -       -
Pumps/Compressors                  -       -
Refrigeration/AC                2000       -
Light Vehicle                135,000       -
Medium-to-Heavy Truck
Railroad                           -       -
Other                         35,000  40,000
Total                        175,000  63,000

For More Information:

Visit www.moderncastng.com for Stratecasts' "Casting Production Forecasts on Japan, Korea, China, India, Mexico, Brazil & Europe."

RELATED ARTICLE: Two Decades in the Making...

* Imported castings in the U.S. first started up in serious quantities in 1982 and then accelerated sharply in 1983. This practice was supported by direct participation by U.S. firms in foreign nations.

* A big surge of Asiatic imports took place in the late 1990s as currency exchange rates weakened relative to the U.S. dollar.

* Dumping tariffs were placed on municipal casting shipments from India in the 1980s and 1990s. Alleged dumping by others continues today.

Export Opportunities Exist with Weakened Dollar

A weakened dollar is forecast to assist in increasing casting exports to 10.6% of U.S. casting shipments. If this dollar exchange is sustained, further. growth may be possible. Exports of mining, farm and construction equipment, and other machinery that consume metal castings, also are forecast to benefit by favorable currency exchange rates and lead to increased casting demand in these sectors.

Based on the forecast for currency exchange rates, exports of castings from the U.S. are expected to reach 1.49 million tons in 2003, led by automotive castings. U.S. foundries are expected to be competitive with European foundries in the markets in third world countries, but cannot compete with most Asiatic countries where subsidization exists.

Exports of U.S. castings are forecast to increase in the next few years in the following marketplaces:

* pressure pipe;

* industrial valves;

* high production gray and ductile iron automotive castings;

* diecast aluminum auto markets;

* hydraulic matchplate molding castings.

Exports & A Nation's Direct Correlation with Ability to Consume

The U.S. is the world's largest market for casting sales, and the world knows it. To understand current and potential agendas for exporting to the U.S. and other high-consumption nations, one must consider a nation's casting capacity and the ability of its people to consume manufactured goods.

The chart below illustrates the casting shipments in 2000 (in kilograms) per capita population. This chart shows where the greatest casting needs currently are relative to population. In other words, France, Germany, Italy, Japan and the U.S. all have very high rates of casting utilization, and are developed markets that would appear, on the surface, to be at the greatest vulnerability to nations with a mandate to export castings.

This chart also illustrates potential but perhaps long-term opportunities for additional casting application and production. Large-population nations such as India and China both have low utilization rates when looked at on a per capita basis. As infrastructures and economies develop, one would expect a greater need for internal casting capacity, perhaps suppressing internal motives for export markets. As this happens, logic says costs will rise as well.

In that same vein, examining a nation's ability to consume manufactured goods is quite telling. The widely cited Purchasing Power Parity (PPP) index uses a standardized dollar price weight, which is applied to the gross domestic product in a given economy. This PPP data provides comparison of economic well being between nations.

While the U.S. and Japan enjoyed 2000 PPP figures of $30,200 and $24,500, respectively, the purchasing power of India (the world's sixth-largest casting producer) was $1600, while world leader China's was $3460. Other top-10 casting producing nations with low PPP figures are Russia ($4700), Brazil ($6300) and Mexico ($7700).

Over the past five years, China's casting shipments have grown by 27%, Brazil's by 14% and Mexico by 112%.

Michael J. Lessiter, editor/publisher

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About the Author:

2002 marks 50 years in the foundry industry for Ken Kirgin, who has held foreman level to CEO positions at three foundries as well as executive posts with both a foundry supplier and consulting organization. He formed the metalcasting-specific Stratecasts organization in the early 1980s to provide domestic and international forecasting and trends analysis and strategic planning. Stratecasts has handled market consulting duties for AFS since 1993.