Iron and steel prices surged in 2010 as the global economy returned to growth.
New York, NY (PRWEB) March 15, 2014
The Ferrous Metal Foundry Products industry, which sells iron and steel castings to manufacturing and construction industries, has struggled with declining demand for the past decade. Ferrous metal foundry products are used in a variety of industrial applications, including farm machinery, engines, turbines, power transmission equipment, automobiles and railways. According to IBISWorld Industry Analyst Leah Goddard, “As the US subprime mortgage crisis triggered a worldwide recession, global trade contracted and industrial activity in Canada plummeted.” Uncertain economic conditions caused businesses to delay buying new machinery and equipment. In turn, manufacturers cut production and reduced purchases of inputs, including iron and steel castings.
As the primary inputs into the casting process, purchases of ferrous metals constitute the largest cost for industry operators. Since iron and steel are primarily used in construction and manufacturing, their prices dropped during the recession as activity in these sectors contracted worldwide. Iron and steel prices surged in 2010 as the global economy returned to growth, led by emerging markets. While foundries can pass on some of the increases in input costs to customers, extreme fluctuations in iron and steel prices have put downward pressure on profit margins over the period.
Fortunately for foundries, demand for castings has slowly recovered as industrial capacity utilization in construction and manufacturing markets increased from a low in 2009. Thus, despite volatility, industry revenue has trended upward, rising at a modest annualized rate of 1.9% to $1.2 billion over the five years to 2014. However, even with a boost of 1.0% in 2014, industry revenue still remains far below prerecession levels.
In the five years to 2019, industry revenue is forecast to continue trending upward. Despite moderate revenue growth, the industry will struggle with significant challenges. “Rising prices for steel inputs and electric power, in addition to persistently high prices for iron inputs and labour, will continue to raise operating costs and decrease profit margins,” says Goddard. Meanwhile, companies will have to increasingly compete with imports from foreign foundries in developing countries that benefit from lower energy and labour costs, such as China. The industry will consolidate as smaller foundries are acquired by larger operators, unprofitable facilities are closed and staff sizes are reduced.
The Ferrous Metal Foundry Products industry has a low level of concentration. This low level of concentration reflects the specialized nature of most foundries. Foundries in developing countries with lower wage and energy costs are able to produce low-value, high-volume castings on a mass scale, passing along cost savings to customers in the form of lower prices. In order to compete, domestic foundries have moved toward providing value-added products and working with customers to develop customized castings that are able to be inputted into customers' assembly lines immediately. As a result of this specialized production, most operators lack the ability to capitalize on economies of scale. Some foundries are incorporated under larger manufacturers to produce specific castings in large quantities. While this type of foundry can benefit from economies of scale, they are unable to expand their market share beyond the manufacturers' operations.
For more information, visit IBISWorld’s Ferrous Metal Foundry Products in Canada industry report page.
Follow IBISWorld on Twitter: https://twitter.com/#!/IBISWorld
Friend IBISWorld on Facebook: http://www.facebook.com/pages/IBISWorld/121347533189
IBISWorld industry Report Key Topics
Companies in the Ferrous Metal Foundry Products industry pour molten iron and steel into moulds of a desired shape to make castings. Companies purchase ferrous metal inputs from iron and steel manufacturers. The industry does not include companies that cast iron and steel they manufacture themselves.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
About IBISWorld Inc.
Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US and Canadian industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com or call 1-800-330-3772.