Considering the cupola.

Not so many years ago, the North American foundry landscape was dominated by cupola shops. However, the foundry cupola's future today seems uncertain. Is the cupola destined to the same fate as the ingot mold, or is there still a place for this foundry icon? TDC recently conducted a study that sheds some light on this subject.

Cupola Shop Census

Early this year, we set out to conduct a census - not just a survey - of foundries operating cupolas. The results offer a few surprises to those of us who have been close to the situation for some time, but have important implications for foundries, suppliers of raw materials such as coke, and for melt shop and other equipment producers.

Of the approximately 1000 iron foundries currently operating in North America, TDC's study reveals that only about 125 fully-active cupola installations still exist. Perhaps 15 other small, part-time or dormant cupola installations exist as well. Slightly more than three-quarters of cupola shops operate a single melt unit, while 16% operate two and 6% operate three or more. Just fewer than half of the cupola shops identified also operate electric furnaces for direct melting.

The primary common characteristic of the majority of today's cupolas is that they handle one type (gray or ductile, not both) and even one grade of iron. Prime examples are the ductile iron pipe shops, some of the high volume, single product automotive foundries, and the leading producers of counter weights and construction castings. Where multiple metals do exist within the same foundry, it is increasingly the rule to find both cupolas and electric furnaces operating side by side.

Considering the North American foundry industry as a whole, TDC's study reveals the following important statistics about the year 1995:

* daily cupola melt was around 47,500 tons;

* daily melt capacity is nearly 57,000 tons;

* average cupola capacity utilization was 83%.

Despite the industry's recent upturn, the ductile iron pipe market remains slow, with overall pipe shop melt capacity utilization rates in the 60-65% range. If pipe shops are removed from the analysis, the overall melt utilization rate jumps five more percentage points, underscoring the 1995 capacity crunch among producers of engineered castings.

The Future of the Cupola

While the cupola is here to stay, its niche and its role in the industry will most likely continue to shrink as customer demands and market conditions evolve. On the one hand, nearly a quarter of the cupola shops included in our study indicate that they will be adding cupola capacity over the next two to five years. The key movers here are the large, single product type automotive foundries.

On the other hand, and as TDC has pointed out many times in the past, today's customers want to match their casting requirements with the most appropriate alloy to maximize performance and minimize cost. This relatively new materials dynamic has contributed much to the fragmentation of the business once so completely dominated by gray iron. As a result, flexibility in the melt area has become an important competitive weapon. To illustrate this point fully, 20% of the cupola shops included in our study indicate that their foundries will be switching entirely to electric melt over the next two to five years.

In addition to these customer market and competitive forces, the future of the cupola is being impacted by yet another source - electric utilities. While lower, off-peak rates have been around for years, utilities are more and more offering direct incentives for foundries to switch from cupola to electric melt. In fact, utilities serving about one-third of the cupola shops included in our study are offering direct incentives.

Over and above these direct incentives, new utility rate structures - generally grouped under the heading of real-time pricing - are also making electric melting a more attractive and economical alternative. One such plan, currently offered as a pilot program by Pennsylvania Power and Light, serves nearly two dozen area foundries and offers them maximum flexibility in scheduling melt production to correspond to the utility's lowest rate for any time period during a given day.

Over the years, the battle debate between cupola melting and electric melting was one of cost vs. control and quality vs. quantity. For the future, where cost, high volumes and minimal variation in the alloy mix come together, the cupola will remain the melter of choice. In all other situations, electric melting seems destined to dominate.

Fortunately, if managed well, everyone can win in this scenario. Foundries will become more effective at meeting customer needs. Manufacturers of electric furnaces, furnace linings and related products and services will see their business within the North American foundry market continue to grow. Utilities have a unique opportunity to grow by gaining a whole new class of customer.

There is even somewhat of a silver lining here for producers of cupolas and suppliers of foundry coke. That is that other, non-foundry markets exist for their products, and offer solid potential for new sales and profits.

As is the case whenever market conditions change, winners and losers will emerge, and the difference between the two will be the quality of management. CEOs do have the power to choose their companies' fate. The winners will be smarter, will know the markets and the trends pointed out here well, and will adjust their management and marketing strategies accordingly. The others will not be so smart, or so fortunate.