The Assofond 2022 Sustainability Report: all the details
The instabilities that have characterized the economic framework in recent years have not weighed too much on the centrality that foundries have for the entire manufacturing industry.
The foundry remains an irreplaceable player in the global manufacturing system. The same can be said in a more specific European and Italian context. This is confirmed by its ability to react to the shocks of the international financial crises (2008), as well as to speculations linked to geopolitical instability - supply crisis following the Russian invasion of Ukraine - and to the so-called black swans, such as the Covid-19 pandemic.
This is what emerges from the medium-term analysis of the economic performance of the sector contained in Assofond's 2022 Sustainability Report, which clearly highlights the ability of companies in the sector to resist the instabilities that have characterized the economic situation in recent years.
From the financial crisis to Covid-19: a decade of great changes worldwide
Retracing the decade 2008-2019 and taking the first year not only as a statistical reference, but as linked to the largest banking crisis after World War II, we observe a dynamic of structural, identity and geographical adjustment of foundry companies, worldwide.
Today, almost 49,000 foundries are active in the world, producing a total of about 110 million tons of castings. Of these, 49% are produced in China (2020 data), whose market share has grown by 16 percentage points in recent years (from 33% in 2007 to 49% in 2020). A truly significant figure, which can be considered an index of two factors:
- 1. Western markets (Europe and the USA) are increasingly oriented towards outsourcing "heavy industry" activities;
- 2. Chinese manufacturing is confirmed as a point of reference for world industry.
It follows the interdependence, which is typical of globalization, between those who design and those who produce. But will it still be like this in the next few years?
Pandemic and geopolitical crisis: paradigm shift in sight for foundries?
The 2020 economic crisis, due to the Covid-19 pandemic, may have represented a first significant break with this evolutionary model. Precisely this awareness has led to the performance indicators relating to 2020 not being considered in the Sustainability Report, except for a few variables: in fact, it was such an exceptional year that it cannot be placed on the same level as the previous ones. And even less with those who are following him, given the uncertainties and unknowns still to be resolved.
However, it must be said that the aforementioned global interdependence was significantly frustrated by the lockdowns, above all considering that in China these continued until a good part of 2022, with the port of Shanghai which only resumed normalization in the month of June his activities after almost two months of paralysis. Supply chains have been interrupted, jammed and now – also overwhelmed by the Russian-Ukrainian conflict – are being redefined. Hence a legitimate doubt: in a world that could move towards a new opposition of two blocks, can China continue to be the main supplier of fusions for the Western world? Or is it possible that the United States and Europe will reabsorb a share of the market?
A further question follows: what can be the spaces for European and, more specifically, Italian foundries to recover the lost positions and acquire greater competitiveness? How will employment change in the foundry sector?
The foundry in Europe and in Italy
In 2019, around 4 thousand foundries were active in Europe, for a total of 270 thousand employees, generating a turnover of 40 billion euros and producing almost 16 million tons of castings. In aggregate terms among the EU member countries, the Old Continent ranks third worldwide for production, after Asia and America.
Within the European market, Italy, with a share of 15%, confirms itself as the second foundry industry in Europe, ranking ahead of France (13%), Spain (9%), Poland (8%) and behind only Germany (37%). The Covid-19 pandemic caused, in 2020, a very strong contraction in the production of castings in Italy, which stood at just over 1.5 million tons. However, the Italian slowdown does not constitute an anomaly in the European comparison. Looking at the other major European economies, Italy actually shows a relatively contained contraction in growth rates, as well as greater reactivity to the pandemic shock, which has allowed it to maintain the percentage weight of 15% compared to European production.
Broadening our gaze beyond the time limits considered in the Sustainability Report, we then note that 2021 brought a very significant recovery for Italy, especially in the context of non-ferrous metal foundries which, with a production rebound equal to about + 34% on 2020, they have taken first place in the European ranking.
The evolution of the Italian foundry in recent years and the prospects for the future
A reflection on the historical transformation of Italian foundries can act as a stimulus to recovery. Until the end of the last century, the sector was highly concentrated in supplying the national market. The situation changed in the fifteen years preceding the 2008 crisis, in which there was a strong growth in the dynamism of foreign exchanges. Exports of ferrous castings almost quintupled between 1993 and 2007. Subsequently, the need to recover after the 2008-2009 break led an increasing number of foundry entrepreneurs to look beyond national borders to make up for the stagnation of requests from the internal market. Alongside the strong vocation for exports, investments in tangible assets and human capital have resulted, with the consequent ability to create process and product innovation and generate wealth for the main stakeholders. An added value with concrete results both for the areas covered by the individual companies and for the environmental and social sustainability of the entire sector. All this in the name of efforts and sacrifices. The climate of uncertainty and economic instability often prompted caution, especially in the second five-year period of the ten years under review. In 2019, Istat found that investments in material assets in the foundry sector reached 386 million euros, with a growth of +26% on the previous year, despite the fact that turnover remained substantially stable.
It is the demonstration of the strengths of the sector stated at the beginning of the chapter on economic performance in the report:
- 1. SUPPLY CHAIN INTEGRATION
- 2. TECHNOLOGICAL COMPETITIVENESS
- 3. DIMENSIONAL SPECIFICITY
- 4. ECONOMIC SUSTAINABILITY
Strengths that are confirmed by going into further detail on the data relating to exports: from the years immediately following the financial crisis of 2008-2009, exports grew more in value than in volume, contrary to what happened before.
Some hypotheses can be advanced on the relationship between the greater competitive pressure and the increase in the average unit value (AVM) of Italian exports common to various product sectors. A first hypothesis is that the foundries have operated a qualitative upgrading in order to position themselves in market sectors less subject to direct competition from emerging countries, which in the 1990s was mainly given by the intense presence of low-tech products originating in Eastern Europe (at the time not yet integrated into the European Union), which competed aggressively thanks to the exploitation of cost advantages.
Secondly, it is reasonable to think that there has been an improvement in the overall quality of exports, but that this is mainly due to the loss of competitiveness of more standardized productions. From this point of view, upgrading would be a consequence of the exit from the market of lower quality products, which have suffered more from the competition of emerging countries ("induced upgrading"). This reading is also confirmed by the statistical analysis of the mix of exported castings, which reveals a strong rise in those that can be categorized as more technologically complex products with higher added value. Precisely the data on added value is confirmed to be, since 2008, in structural improvement: it goes from 22% of revenues in 2008 to 29% in 2019, a sign that the Italian foundries, in recent years, have conceived and developed ever more in line with the needs of its customers in terms of uniqueness, utility and originality of its offer. A further demonstration of the ability of companies in the sector to stand out from international competitors in an increasingly complex and competitive market.
Two years after the 2019 data, the final point of reference for the analysis of the report, it cannot be said that the international situation has improved. Pandemic, Russo-Ukrainian war, energy crisis, speculation and shortages of raw materials, most recently the very high expectations of the European Union in terms of ecological transition. There is no shortage of sources of concern. However, the ability of the sector to evolve in the changes and difficulties that have characterized the last few years leads us to be optimistic about the possibility that the Italian foundry can maintain a leading role in European and world manufacturing.
Source: In Fonderia – ll magazine dell’industria fusoria italiana