The Italian Foundry industry is
fighting back foreign competition by investing in technlogy
and innovation. Despite
the competitive pressure from Far East manufacturers as well
as cyclical difficulties in some client markets, some sectors
of the foundry industry are showing good results and positive
trends while others are struggling hard
Foundry Industry in figures (2002 data)
Grey Iron castings
Precision castings (lost wax)
Total non ferrous castings:
-Bronze & other copper alloys
-Magnesium and other
2 441 966 tonnes
3 095 000 tonnes
75 521 tonnes
1 400 tonnes
979 700 tonnes
777 000 tonnes
90 100 tonnes
19 900 tonnes
79 600 tonnes
13 100 tonnes
producer in Europe
1st Producer in Europe of Non ferrous metal castings
Number of plants
Cast iron foundries
Made to drawings
€ 9 billion (approx.)
1 The Production Structure
Over the last twenty years ferrous metal
foundry has been subjected to a re-organisation process that
has led to a substantial reduction of the production base.
Specifically, the overall number of enterprises dropped between
1980 and 2002 from 694 to the current 281, with a reduction
rate of 59% (-413 units).
The re-organisation process was more pronounced
in the first decade (between 1980 and 1990), over which period
282 enterprises discontinued their activity.
The data referred to recent years indicate that this trend
is accelerating once again, with reference to the cyclical
crisis of the sector, which has accentuated the difficult
situation experienced by a substantial proportion of the production
The main difficulties have affected, so
far, enterprises specialised in types of production for which
there is no longer any demand on the market or which are covered
at lower costs in other countries (ingot moulds, castings
for valves, counterweights, etc.), obsolete enterprises or
those situated inside urban areas, for which the entrepreneurs
did not have the resources required to move them to more suitable
Alongside these problems, which still exist for some production
units, there is a loss of the ability to compete against foreign
competitors, determined also by the size gap as compared with
other European competitors.
Although the average size of ferrous-metal
foundries has grown from 58 jobs in 1990 to 74 in 2002, it
is still below both the average thresholds and the levels
of France (152 jobs), Germany (155 ) and Great Britain (88).
In the field of non-ferrous metals foundries, fragmentation
is even greater. Specifically, at the end of 2002 the average
size in Italy was 21 jobs per foundry, in France 59 jobs and
in Germany 83 jobs.
Again with reference to non-ferrous metal foundries, another
significant feature is the difference between foundries operating
as independent divisions of vertically integrated enterprises,
or "captive foundries", and "pure foundries"
that are the only or core production base of an enterprise.
The problems encountered by the former differ
from those of the latter, and are caused by their size in
terms of production and employment, and by their different
types of production. In the foundry divisions of large enterprises
or groups, the production is frequently large-scale series
production using specialised systems suitable only for that
specific type of production, while pure Foundries were forced
to specialise in the production of smaller series of castings
and to adopt more flexible equipment to cover products for
several markets. The great majority of Italian non-ferrous
metal foundries (but also of ferrous-metal foundries), consists
of foundries of the second type, belonging to the category
of small and very small enterprises.
Another peculiarity of the offer structure
originates from the geographical location of the production.
The manufacturers are concentrated mainly in some areas of
Northern Italy, particularly in Lombardy, Emilia Romagna and
Veneto, where their customer businesses are based. In this
sector too, closeness to customers is a decisive factor for
the enterprise's ability to compete.
Within the twenty regions of Italy, there
are areas in which the presence of plants for the production
of ferrous and non-ferrous castings appears to be more concentrated
than in others. The causes of this are originated partly by
the fact that the areas with high concentrations of plants
are those were many sectors that use castings are situated,
first and foremost industries manufacturing means of transport.
It should be kept in mind that the availability
of a production technology in a given area, especially if
this gives rise to favourable results, induces the establishment
of other enterprises, perhaps started up by former employees.
If the process is also contributed to by suppliers, development
would appear to be even easier. A typical case in the framework
of non-ferrous metal foundries is that of the province of
Brescia, where there are over 300 non-ferrous metal foundries
that use the die-casting technique.
Although the new technology makes contacts easier, several
Customers prefer direct and permanent contact with their Suppliers,
also with a view to meeting delivery requirements. The closeness
of foundries to the industries they work for appears to be
a strong point.
2. The production
A comparison with other European countries
confirms that in spite of some recovery recorded over the
last 20 years, the average production of Italian ferrous-metal
enterprises is still lower than that of its main foreign competitors.
Italy (almost 5,000 tonns per enterprise) is far behind France
and Germany (over 13,000 tonnes per enterprise) although its
position is comparable with those of Great Britain and Spain
(about 4,500 tonnes per enterprise).
The production data per person highlight that France and Germany
differ considerably from the remaining European countries
with levels in the region of 80 tonnes/year, and that Italy
again occupies an intermediate position, better than those
of Spain and Great Britain, which are farther behind.
Care is needed, however, when making these
assessments, since a low value may be due to a higher concentration
of more complex production types, of high quality. The comparison
should be made on the sales figures, but this information
is not available for all countries.
3. Market Evolution.
Evolution of the market in latter years
has shown significant changes in consumption in the user sectors.
The production of cast-iron castings for
industries manufacturing means of transport has been conditioned
by the automotive crisis in addition to preferences for non-ferrous
alloys. In quantitative terms production has dropped by about
23% since the highest peak reached in 1997 and in 2002 it
accounted for 32% of the total production of cast-iron castings.
Supplies to the mechanical industry, on the other hand, reached
a new record level precisely in 2002, with 586,290 tonnes,
which result confirms the considerations expressed earlier.
The mechanical industry is thus the leading customer of Italian
cast-iron foundries and absorbs 42% of their production.
The arrival of a new enterprise manufacturing
pipes for water mains has led to a recovery for castings for
the building industry. Indeed, the increase caused by this
new production of pipes has to a great extent been offset
by the drops in other components of the market of castings
for the building industry and particularly radiators and boilers
for heating systems.
Nodular cast-iron for the mechanical and transport industry
has to be mentioned, having reached a new record in 2002 (443,840
tonnes), even though the proportion with the total production
is still lower than that recorded in the most important European
In the steel castings sector, production in recent years has
featured two trends: a drop in the production of castings
for valves, in which field Italian foundries had specialised
in the early nineties and the growth of supplies to the crushing
industry, with a strong presence on foreign markets.
The drop in the demand for castings for
valves was determined partly by Italian customer industries
which, having become multinational companies, turned for procurement
of castings for valves to cheaper markets, without specific
reference to the quality level.
The expansion of the production of non-ferrous metal castings
is continuing, although the growth rate of the last few years
appears to have slowed down by comparison with the past.
This growth has affected aluminium castings in particular
and, only in more recent times, magnesium, while the opposite
trend characterised bronze castings and those made of other
copper alloys which have dropped by 16.6% as compared with
2001, brass -1.3% and zinc -8.2%.
4. Performance Indicators
An analysis of the main economic variables
and profitability indicators shows that the field of ferrous-metal
foundries has experienced structural difficulties during the
last few years.
Specifically, the trend was even more negative not only than
the national average for the manufacturing sector but also
than sectors featuring similar market characteristics or that
are functionally linked to it since they are the outlet sectors
of foundry products (means of transport and mechanical instruments).
The trend of economic results in 2001 (more
recent data are not available as yet) indicates that, in spite
of the presence of a phase in the economic cycle that was
not negative affecting some outlet sectors, Italian ferrous-metal
foundries still recorded a drop in their turnovers by about
10% over the last 4 years.
This trend can be attributed to two factors: on the one hand,
as already pointed out above, foundries are suffering from
a process of sector-based competition originating in the first
place from the higher demand on the market for alternative
products, which are gradually excluding these enterprises
from some traditional outlet market segments. On the other
hand, there is a tendency towards containing the prices of
products, which tends to depress economic results.
On the average, in 2001 corporate performance levels in the
foundry sector were far lower than the one of their customers.
The ROI(Return On Investments), ROE (Return
On Equity) and ROS (Return Of Sales) are at levels of around
3% as compared with 4% in metallurgy and far higher levels
for means of transport and mechanical instruments, thus highlighting
the difficulties that foundries are encountering in remunerating
the invested capital as required and wished.
Deterioration of profitability can be attributed at least
partly to the sharp drop in gross operating margins, that
in the period considered fell by over 30%.
5. Strong and Weak Points of the Sector
Traditionally, the foundries sector has
played an important part in the Italian production system,
since some of the main fields of specialisation of the Italian
industrial system - such as the mechanical and automotive
industries, household appliances and buildings - are functionally
linked to it.
Development of the Foundry Industry, which enabled Italy to
occupy significant positions in the European scenario, was
facilitated by a series of factors that are still the main
strong points of this sector:
- the high level of integration of the foundries system with
strategic sectors of our production system. The development
of the mechanical industry and other sectors was able to count
on the presence of a sector that ensured a constant supply
of semi-finished customized products. The strong concentration
in some areas of the country of companies belonging to the
same production sector enabled a system of relations to become
consolidated, and these are still one of the strong points
of the Italian industrial system;
- the presence of a highly dynamic segment
in this sector, albeit not including a very high number of
enterprises, and which in recent years has invested heavily
in technological innovation, reaching competitive levels comparable
with those of the main European partners.
This segment of enterprises enables our country to maintain
a positive trade balance, thanks in particular to European
markets (65% of the total exports), where the factors of competition
are the quality and innovation of products;
- specialising in several particularly favourable
market niches in which our enterprises have reached positions
of leadership on international markets.
In spite of the presence of these strength
factors, the prospects for development of the system of Italian
ferrous-metal foundries are now threatened by the appearance
of signs of difficulty, which have been revealed in the worsening
of some performance indicators in the sector and meant a crisis
for many production facilities.
What is more, trends on the domestic market have been penalised
over the last decade by the increasingly visible presence
of foreign competitors able to count on labour costs lower
than those which Italian manufacturers face.
The pressure exercised by Far East manufacturers
has increased considerably in recent times. They pour onto
the Italian market products that are basically standard, sold
from their catalogues, the prices of which are sometimes extremely
low in spite of the higher transport costs.
It is a well-known fact that competition
on the part of those countries is based above all on cost
advantages (low labour costs plus practically non-existent
It is difficult, objectively, for Italian enterprises to compete
from this point of view due to the high level of production
costs, which it is not easy to keep down.
The greatest critical factor penalising Italian foundries
consists of the cost of power and of scrap metal.
These are problems that affect Italian industry as a whole,
but which take on greater importance in sectors such as the
foundry sector, in which the cost of raw materials has a decisive
impact on the end price of products.
The estimates have highlighted that Italian enterprises are
penalised by a cost differential in production inputs of about
10% as compared with the main European competitors.
This situation leads to a loss of the ability to compete on
a market that is becoming more and more open and competitive.
Yet another critical factor consists of
the increased constraints of an environmental nature. Starting
in the nineties, the adoption of new standards for limiting
the emissions from industrial facilities led to the need,
on the part of Italian foundries to initiate processes of
adaptation of their plants, the cost of which has made their
products less competitive even on the Italian market.