Seeing the Light

After a brutal period, ferrous foundries are seeing a rejuvenated market. However, smart operators realize that to thrive over the long term will require investments to ensure that they remain viable when the next downturn hits.

During the first several years of this decade, the foundry business has suffered from the same problems that many other companies affiliated with the scrap recycling industry have faced: slack markets, slumping prices and surging markets outside North America.

As a result, a slew of foundries closed down in light of their inability to compete. However, the markets have strengthened throughout the last several quarters, which, many hope, will give many hard-pressed foundries the opportunity to clean up their balance sheets and to improve their operations.

ECONOMIC IMPROVEMENTS. Steve Livingston, president of Strategic Materials, a South Gate, Calif.-based stainless and carbon steel foundry, says his company has seen a definite improvement in market conditions throughout the past 18 months. Prices have improved, demand continues to grow, and the foundry business is much healthier than it has been.

While the foundry business is healthier now than it has been in many years, other foundry executives say that after sustaining serious losses for many years, some of these same companies are only now starting to recoup their looses from the leaner times.

The improvement can be attributed to an overall improvement in the global economy, Livingston says. For Strategic Materials, which makes pumping valves, the offshore business market has been good. With orders to the Middle East, South America and the Far East, Livingston’s company has been able to grow.

While Strategic Materials has flourished during the past several years, Livingston isn’t resting on his laurels. While markets are healthy, one of the advantages Strategic Materials holds is that its product line is geared toward a niche market. And, even more beneficial to the company, its orders are much smaller, making it less feasible for large foundries to go after the business, he says.

Despite presently being sheltered from significant competition in light of the smaller size of the shipments, foundries that have been able to carve out a niche are still aware that it is only a matter of time before greater attention is turned toward many of these smaller markets.

While the turnaround in the foundry business has been significant, other factors are working in the United States’ favor. Jim Simonelli, executive director for the California Cast Metals Association, El Dorado Hills, Calif., says, "Our biggest advantage is that the U.S. remains the largest consumer of goods in the world. And for product runs that have short turnaround time, we are in the backyard of the customers."

Livingston agrees. "What really helps our business is the response time. We can respond to customers quickly."

TURNAROUND SPECIALISTS. Simonelli adds that a key strategy for domestic ferrous foundries is to work closely with their customers. "Stay close to the customer and cater to their needs. Consistently remind the customer about value-added aspects of the product," he says.

"Second, one must understand its competition, its goals, strengths and weaknesses. This was easy when the competition was across the city or state line," Simonelli adds. "But when the competition is across the world, it is easy to let this issue slide."

Other foundry officials echo many of these statements. While price is always a large issue for buyers, the ability to quickly ship products is a major selling point. When comparing the foundry business in the United States against foundries in other countries, domestic companies cite the much shorter lead times. "Our lead times are much better," one foundry executive says.

While developing a closer working relationship with customers is a wise step, it’s not always an easy one to carry out. "Customers demand a lot. It is often a one-sided equation," one source says. "We need to re-establish our value to the company. We need to provide the value-added service to our customers."

In addition to the relative speed in which U.S. foundries can get products to their consumers, many of the foundries that have survived the shakeout have invested money to make their operations more technologically savvy. This also is giving many of the domestic foundries an advantage over foreign competitors.

Finally, another benefit for some foundries that seek business offshore has been the weakening U.S. dollar.

While in a macro sense a declining dollar is a tricky proposition in the world market, the cheaper U.S. dollar makes U.S. products more reasonable.

One caveat to the weaker dollar is the special case of the Chinese currency, which, some say, is unfairly pegging to the U.S. dollar. Some economists say this move has undervalued the Chinese Yuan by as much as 40 percent.

Alfred Spada, of the Schaumburg, Ill.-based American Foundry Society Marketing Division, sees steady-to-strong growth throughout the different segments of the foundry business. He forecasts that overall shipments will likely increase 11 percent during the next four years. If this forecast proves accurate, it will be the strongest market in 25 years.

Spada adds that his association is forecasting the export of significantly more ductile iron pipe around the world in light of better global economics.

Michael Emericks, with Pacific Steel, a Berkley, Calif., iron and steel foundry, also sees a decent turnaround in the foundry business. However, while many foundries are now seeing some decent market conditions, the improvement has followed what he terms "the perfect storm" for an extended period of time.

"We have come through 10 terrible years, Emericks says. "The market shook out many of the weaker players."

While the foundry business is rebounding nicely, the number of iron and steel foundries still in operation have declined. At the present time, there is an estimated 800 iron and steel metal casters operating right now, a far cry from several years ago.

Pacific Steel also recognizes that operating in a single market can often lead to serious problems. "You have to diversify your product line. You can’t put all your eggs in one basket," Emericks says.

However, while many foundries have diversified to include a much wider swath of products, the reality is that when there is a downturn in manufacturing, "there is little you can do," Emericks adds.

IMPEDIMENTS TO OVERCOME. While the iron and steel foundry business has been enjoying a bit of a rebound, it hasn’t been without its problems. One such area of concern has been the soaring price of ferrous scrap. As the foundry business has rebounded, so has the scrap recycling industry. Despite a recent retrenching of ferrous scrap prices, the levels are still far higher than they were several years ago. The result has been that foundries are paying much more for raw material than in previous years.