Is sand supply a casting concern?
The metalcasting industry uses an estimated 100 million tons of sand annually, including recycled and new material, to produce a majority of its castings. According to a 2014 Metal Casting Design & Purchasing survey of metalcasting facilities in the U.S., nearly 50% used a green sand casting process, (horizontally and/or vertically parted) while 35% reported nobake casting capabilities. (Note: Respondents may use both.)
Of the 100 million tons of sand in use annually, metalcasters only purchase somewhere between five and six million tons, meaning much of the supply is reused for an extended period of time through many production cycles. Still, considering the ubiquity of sand in metalcasting operations, both for producing cores and molds, issues related to supply and demand could significantly impact the industry's ability to produce timely, cost-effective components.
The Recession & Fracking Boom
The recession of 2008-2009 resulted in a considerable decline in metalcasting production, leading to facilities consuming less sand. During this economic downturn, however, the oil and gas industry experienced a significant boom in fracking, thanks in part to technological advancements in horizontal drilling. Fracking, or hydraulic fracturing, is a drilling process that uses silica sand to fracture subterranean rock to release previously unavailable oil and gas reserves. Fuel suppliers pump a slurry, which includes silica sand, into wells at high pressure.
Fracking is forecast to consume approximately 60 million tons of sand a year by 2017. Prior to this recent surge in demand, the entire industrial sand market was roughly 30 million tons. The metalcasting industry is the third largest consumer of sand at roughly five million tons per year, slightly behind the consumption of glass producers.
With the fracking boom in full swing during the metalcasting industry's recovery from the recession in 2010-2011, the sand market went through a turbulent period. When the glass and metalcasting industries exited the recession looking to increase consumption, the fracking industry already had purchased much of the available capacity. There was a real shortage for many metalcasters because major sand producers were running at or near capacity.
But metalcasters were able to procure the necessary sand as the production of fracking sands boomed. Suppliers who had long serviced the metalcasting industry were able to modestly increase the amount headed for metalcasters, while the total capacity of silica sand increased dramatically.
Considering the growth in both supply and demand of fracking sand, the average price for industrial silica sand as a whole has increased substantially since 2007. Sand destined for the metalcasting industry had remained relatively stable until the shortage in 2011. According to the Bureau of Labor Statistics, the average price then jumped nearly 20% (see Table 3). Since then, the price appears to have stabilized, with the 2011 price increase a part of a new normal.
Due to a number of issues including differing technical specification, the price of sand destined for metalcasting facilities is significantly lower than sand used in fracking. A relatively insignificant cost for oil and gas producers, sand is a material integral to the metalcasting industry's ability to run smoothly. This difference in price has led some sand suppliers to focus primarily on fracking operations, but the metalcasting industry still has options in acquiring its necessary volume of sand. Also, sand destined for metalcasters is less profitable per ton, but the industry provides stability when compared to oil and gas producers.
Fracking sand is influenced strongly by the price of gas and oil, meaning suppliers can go from not being able to produce enough sand to a situation where they can't stop production quickly enough. In contrast, the price of castings has been relatively stable. Consequently, the oil and gas market can go through two or three economic cycles for every one of other industries based on a variety of worldwide economic factors. Additionally, metalcasters tend to require a more standard amount of sand per month at fixed locations, while fracking demand can spike in disparate locations when particular wells require large amounts of sand.
Forecasting Sand's Future
Barring significant economic unrest, the supply and pricing of metalcasting sand should remain fairly stable in the next few years. That being said, the possibility for a crisis in the industry's sand supply is not zero, though many would argue it is remote. The biggest threat would be a massive surge in demand for fracking sands, which, considering the growth in overall capacity in recent years, remains unlikely.
Predictably, the further one looks ahead, the more uncertain the market appears. Many analysts expect natural gas and oil prices to increase sharply near the end of the decade, making sand for fracking a more valuable commodity. If the price difference between fracking sand and metalcasting sand becomes sizeable enough, suppliers may migrate toward the more lucrative market.
Since the advent of the fracking boom, the relationships between metalcasters and sand suppliers have grown a bit closer. Metalcasters can avoid problems in their sand supply by getting to know their suppliers. That way, they get a sense of the supplier's dedication to the metalcasting market and whether it will be tempted by the fracking industry if prices reach a certain point.
Metalcasting will be around for a long time--as long as there is a need for manufacturing. Many sand suppliers understand it is a stable market that represents a decent volume of material. The number of customers for the material is healthy, so a supplier can diversify its customer base by dealing with the metalcasting industry.
DAVID JABLONSKI, BADGER MINING CORP., BERLIN, WISCONSIN, AND NICHOLAS LEIDER, ASSOCIATE EDITOR