Industrial Insight

Bright Future | May 4, 2010

I remain optimistic about the future of our industry. Making a component by casting it is the most efficient process and allows the highest performance and most elegant design. Much of our research is developing the manufacturing, design and inspection technologies we need to exploit the potential of our products. Steel castings can experience a breakout with new and challenging products undreamt of today.

I am also optimistic because steel casting will be in strong demand as we invest in capital equipment needed for the expanding global economy. The inserted graph shows the year to year change in the producer price index PPI in red and the consumer price index CPI in blue.

In the inflationary late 1970s, the PPI outpaced the CPI and steel foundries were able to raise prices and operate profitably. Much of the capital investment that we have today in infrastructure and manufacturing capacity was made in the 1960s and 70s. From 1980 onward, PPI was often negative, we were reducing our prices while CPI was modestly positive. Our excess investment in infrastructure and capacity was being liquidated by inadequate price realization.

Eventually, the growth in global economies and the liquidation of capacity led to a shortfall in supply. After the recession starting in 2001, the obsolete capacity overhang from the 70s was liquidated and with global demand increasing commodity prices rose sharply. This led to steel foundries operating at near capacity. Price rose to reflect this new imbalance between supply and demand.

The mismanagement of the financial system provided money to fuel the sharp price rises in commodities. This financial mismanagement was compounded by the shift from a capital infrastructure with excess capacity to one that was limited in supply. The breakdown of the financial system dumped the economy into a hole that saw a sharp decrease in demand for all commodities. This is a temporary downturn and has the perverse effect of liquidating additional capacity that will be needed to meet future requirements.

So, as soon as the credit system stabilizes so that large capital projects can be released, Steel casting demand will push us back to operating at capacity, likely to happen by the middle of 2011 if not sooner. The ability to invest in new or expanded capacity will be limited by the 30 years of mostly excess capacity, the memory of this economic downturn, and the lack of willing lenders or capital. We have not needed the large capital investments in infrastructure and capital since the 1970s and public policy is a disincentive to make these critical investments.

Existing plants will be able to reap the strong returns because of the lack of capacity and should be able to recapitalize and modernize their plants.


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About author

I'm the executive vice president for a steel casting trade association, the Steel Founders' Society of America. I've got a crazy wife, five crazy children, three crazy people that married into the family, and two crazy fun little grandsons.







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