Die Casting Outlook: Automotive to Lead the Way; A Slow Recovery Likely
The art of forming molten metal into a solid casting has become an increasingly important process for manufacturing components used in everyday products. Nonferrous materials such as aluminum, copper, magnesium, titanium and zinc are the primary materials used in die casting. Of these, aluminum castings make up the majority of sales and have been heavily relied upon for their ability to reduce weight, while maintaining rigidity. This characteristic has closely linked aluminum die castings to the transportation industry, more specifically the automotive industry, which makes up more than 50% of the customer base.
Worst case scenarios have come to pass
A perfect storm of economic conditions has led to consolidation and, at times, closures. Die cast machinery is directly tied to the goods it produces, and this industry’s largest customer has been struggling significantly with the economy. The transportation industry, specifically automotive components, continues to be the largest market for aluminum raw material consumption. The shift from large automobiles, such as full-size sport utility vehicles, to smaller, lighter ones inherently means fewer castings are needed. While the recent “Cash for Clunkers” government program was viewed as a success, to die casters, this may have only provided temporary assistance for the many operations not running at full capacity. This program temporarily increased demand and, therefore, increased the utilization rate for otherwise idle facilities — but only in the short term. It did not reach a high enough level to bring underutilized shops to full capacity, or more importantly, keep others in business. There is some hope for recovery as new uses for aluminum castings are being tested in an effort to shift away from heavier, iron pieces.
These “worst case scenarios” have, unfortunately, become a reality for many die casters. Die casting operations are typically small in size, relying on a few major customers, primarily from the same industry. When a main customer base is in the process of bankruptcy or reorganization, supplier payments fall by the wayside and accounts receivable time lengthens or disappears. Labor contract disputes and even temporary plant idling play a part in the demand and future of some die casting shops.
Demand for used die casting equipment weak
During 2008–2009, there were at least 12 major die cast used equipment liquidations throughout the U.S. and Canada, most occurring as a result of completely failed operations. This created a market in which die casting machinery was selling at depressed pricing, sometimes scrap value, and frequently not selling at all. Poor economic conditions, an increase in business failures, an increase in the quantity of used equipment in the marketplace and a more discerning credit market has had a severe impact on the industry, in general. This has lead to the “weeding out”, scrapping and/or disposing of older machines; machines with undesirable tonnage capacities; and/or machines with higher levels of technological obsolescence.
Complex castings returning to the U.S. for manufacturing
For a number of years, many die castings were outsourced overseas. Due to concerns over quality, customer–supplier proximity and overseas logistics; larger more complex castings are making a slow transition back to U.S. die casters. According to an industry survey conducted by the North American Die Casting Association, 78% of U.S. die casters reported that they have seen die casting parts come back from foreign operations during Q1 and Q2 of 2009. At this time, the influx appears to be in the higher tonnage machinery category that is capable of producing major engine and transmission components. But the manufacture of small castings, which are represented in machinery categorized as 600–ton and less, remain in tough competition between offshore and U.S. companies.
Slow recovery anticipated in tandem with automotive industry
While restructuring in the die casting industry has been painful and challenging, survivors will be well positioned to capture market share in the future. Manufacturers appear to be leaning towards consolidating demand with a reduced number of larger die casters. Automotive manufacturers, specifically Ford and GM, are starting to report increases in production. These bright spots, combined with the decrease in the die cast supplier base due to closures, has industry experts predicting that an uptick in demand for die cast products is coming…slowly.
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