Risks and Opportunities in the Foundry Industry: Outlook to 2030

Higher energy prices are a burden on European and German manufacturing

In the short term, economic developments and persistently high energy costs are weighing on the German foundry industry. On average across the sector, production and new orders are likely to be significantly below last year’s levels in the current calendar year. Signs of a slight, gradual improvement in the situation were recently provided by the sentiment survey conducted by the European industry association CAEF, which recorded a rise in the indicator for the third consecutive month in March 2024.

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Medium- and long-term trends in the sector provide insight:
Depending on the product range and the customer sectors, the opportunities and challenges facing the foundry industry vary considerably. Following the recent recovery, automotive production will grow only marginally in Europe and North America in the medium and long term, yet it will remain a significant sales market for castings. In the medium term, this applies in particular to iron and steel castings, given that the ramp-up of electromobility in Europe is evidently taking place more slowly than expected. Stronger impetus is expected from the commercial vehicle market due to upcoming fleet modernisations. A temporary boom is expected in North America in 2025 and 2026 for all commercial vehicle classes over 6.5 tonnes, due to the significantly stricter EPA emissions standards coming into force from the 2027 model year onwards. Overall, aluminium casting will continue to gain in importance as electric mobility takes off and the trend towards lightweight construction continues. A sharp rise in turnover is anticipated in the global mechanical engineering sector by 2030. Key drivers include ongoing digitalisation and the associated need to modernise machinery fleets. The global construction industry also remains on a growth trajectory in the long term, with infrastructure projects in particular being the main driver here. As for demand from the energy sector, the planned expansion of wind energy is providing a particular boost, especially in Europe.

The casting forecast depends on the data as well as on geopolitical and technological assumptions

Until now, IKB’s forecasts for the global foundry industry have been based on the data published annually by the Modern Casting Census. However, contrary to the usual pattern, the production data for 2022 had still not been published by mid-April 2024. For this reason, some of the figures underlying the forecast for 2022 are still estimates or are based on rudimentary press reports. As such, the current foundry forecast is provisional in nature and may be adjusted further should the publication of an updated Modern Casting Census reveal a different overall picture with regard to historical production data.

The geopolitical assumptions include the expectation that the Russia-Ukrainewar will come to an end within the next two years, that the current conflicts in the Middle East will not spread to other neighbouring states or will be resolved in the Gaza Strip by mid-2025, and that no new conflicts of international significance will break out in Asia.

The impact of the technological developments outlined in the ‘Industry Trends’ section – in the fields of e-mobility, mechanical engineering and the energy sector – on the forecast production figures is based on current capacities and supply chains. Geopolitical developments, along with the EU’s increased efforts to build resilience in conjunction with industrial policy programmes such as the IRA in the USA, may therefore lead to regional shifts in the forecast production figures.

Contrasting trends in the global grey and ductile iron casting sectors

In 2020, the COVID-19 pandemic led to a sharp decline in iron casting production; however, by 2022, only a few regions had managed to return to 2018 levels. China was able to expand its dominant position in the short term, but will be hampered in the long term by lower demand from the construction sector. Japan and South Korea will also lose market share. The rest of Asia, like the rest of the world, will see average growth. India, which has a high demand for infrastructure investment, will experience stronger growth; Vietnam and Indonesia will follow in the coming years. Within Europe, we expect stronger growth in the Eastern European countries, including Turkey, which is currently still being affected by Russia’s war in Ukraine. Spain could benefit from the wind energy boom in the medium term.

The trend towards lightweight construction using aluminium continues

The trend towards lightweight construction in the automotive sector and other areas of application is leading to rising demand and material substitution, and thus offers very good future prospects for aluminium casting. China will continue to expand its dominant market position in this regard. Within NAFTA, Mexico is likely to achieve greater growth in the medium term. In Western Europe, positive momentum in 2023 – particularly in Germany – resulting from the automotive industry’s recovery was overshadowed by economic developments, notably slumps in orders from the mechanical engineering sector. Turkey and some Eastern European countries (e.g. Romania, Slovakia, Hungary) are benefiting from greenfield investments by Western European foundries in castings for light vehicles, meaning that, overall, the medium-term growth outlook for aluminium casting in Europe is favourable.

Conclusion: Many opportunities and challenges

High energy costs in Europe, and particularly in Germany, continue to weigh on the foundry industry. The path towards the desired climate neutrality entails significant investment requirements for the industry, but also stimulates demand from the energy sector. Ongoing digitalisation and the development of AI present both technological challenges and sales opportunities. To some extent, the customer industry is relocating to other regions, but a number of new markets, particularly in Asia, also offer new sales opportunities, such as Vietnam, Thailand and, above all, Indonesia. However, we are also seeing the emergence of new competitors in these countries, who could, in the long term, become rivals on European sales markets as well. Consequently, it is all the more necessary for German foundries to further strengthen their financial capital, to consistently develop strategies for reducing energy and resource consumption, and to retain skilled staff in the long term.

Dennis Rheinsberg

Director
Head of Energy, Utilities & Resources

Telephone: +49 (211) 8221-4305
Mobile: +49 (172) 5236245
Email: Dennis.Rheinsberg(at)ikb.de
Website: http://www.ikb.de