The performance of foundries in the second quarter of 2022
According to what emerges from the latest quarterly survey carried out by the Assofond Study Center, in the second quarter of 2022 the foundry sector recorded overall positive performances.
Turnover grew by +15% over the previous quarter, above all thanks to the defense of sales prices following the rise in production costs. However, there is no shortage of positive signals from the market, which for the moment seems to be holding up and which supported a quarter judged, on the whole, not negative and an improvement on the previous one.
Among companies, however, there is not particular optimism for the second half of the year: the confidence index for the next six months (SIX Index), although slightly improving compared to the previous quarter, remains at a very low level.
Growth of the foundry market: turnover still grows by 15% on the previous quarter
The weighted change in turnover is positive and records an increase of +15% over the previous quarter. 67% of the foundries that responded to the survey reported growth in revenues. 82% of the sample indicated, among the reasons for the increase in turnover, the increase in sales prices, while 47% indicated it as the sole reason. In 42% of cases, then, an improvement in market demand (new customers or new access markets, new orders or production of new models) was indicated among the reasons for the increase.
The year-end projection on the change in turnover compared to 2021 is equal to a growth of +14%, with over 74% of the sample predicting an increase compared to last year. In the latter survey, exports support general demand, but are slightly down. The ACT index measures the judgment on how companies spent the reference quarter and is weighted by turnover size: in the second quarter of 2022 it gains nine lengths and stands at 58 points, identical value to that of the third quarter of 2021. The picture the economy is therefore defined as normal, and indeed an improvement compared to the previous quarter, the one marked by the start of operations for the invasion of Ukraine by Russia.
There is an increase in foundries that give a good judgment on the economic results of the quarter (51% of the sample), as well as those who define it as optimal (6%). On the other hand, the percentage of companies that give a negative opinion decreases, even if the number remains quite significant (33%).
The SIX index summarizes the responses on expectations for the six months following the survey: the curve rears its head, but the 38 points in the second quarter of 2022 still denote a feeling of uncertainty. Even if the majority of foundries (51%) believe in a stable scenario, there is still a 37% of the sample who see the picture as worsening. However, those who predict an improvement are increasing (12% of the sample).
Foundries in the second quarter of 2022: the use of production capacity is growing, but also the use of social safety nets and the visibility of orders is slightly down
The visibility of orders is on average equal to three months, slightly down on the previous quarter (-1.4%). The GVO Index (which measures the judgment on the visibility of orders achieved in the reference quarter) is just over 50 points (50.5) on a scale of 100. 65% of respondents believe that the visibility of orders is only sufficient, while only 14% consider it optimal. This indicator also highlights a certain concern on the part of foundries in relation to the second half of the year. The use of production capacity (UCP index), also weighted by company size, increased to 80.6% in the second quarter of 2022: it is the best result of the last four quarters.
The overall recourse to social safety nets is also on the rise, involving 30.6% of foundries: this is the highest value in the last four quarters. The increase is determined by the greater use of the C.I.G. ordinary (24.5% of the sample), while C.I.G. extraordinary (4.1%) and solidarity contracts (4.1%). This indicator signals a worsening of the economic situation, in apparent contrast with the increase in the use of production capacity; indeed, the UCP index, on the rise, was affected by the weighting by turnover, meaning that it is the larger foundries that benefit most from the economic increases commented up to now.
Analysis by sector: growth in revenues for cast iron and non-ferrous metals, but sharply declining confidence
Turnover is growing in all sectors, although for steel foundries the increase is smaller (+5%) than for those of cast iron (+18%) and non-ferrous metals (+13%).
The quarter is judged positive overall: in all cases the majority of companies responded that they had recorded an increase in revenues due to an increase in sales prices, contextual, however, to strong increases in production factors. However, market dynamics are also evaluated positively: 50% of non-ferrous metal foundries declare an improvement in demand, followed by cast iron foundries (45%) and steel foundries (25%). Nonetheless, confidence in the coming months remains low.
The performance of foundries for the first half of 2022
“Despite the strong fears that the Russian invasion of Ukraine had raised among our associates in recent months - underlines the president of Assofond - we are closing an overall positive first half of the year 2022. The market still benefited from the push that had allowed us to recover, in 2021, the gap with the pre-pandemic period. Nonetheless, the survey numbers do not say everything. Turnover has grown at a sustained pace and the projection for the end of the year speaks of a double-digit increase, but the reasons behind these data do not leave us calm. The average spot price of electricity in Italy, in July, exceeded 540 €/MWh: it means +400% compared to August 2021 and even more than 800% more than January 2021. The foundries had to increase sales prices to contain the effects of the enormous increases in production factors and safeguard, at least partially, margins. Furthermore, the strong inflationary dynamics on energy and raw materials are significantly shifting the financial balance of foundries due to the values involved and the large difference between the payment terms for purchases (short, zero or even upfront) and for sales (heavily delayed). With the increase in interest rates, this phenomenon will constitute a further problem for the economic sustainability of the sector.
Responsiveness and prudence remain the watchwords for the coming months that await us, hoping to be able to produce continuously to satisfy a demand that remains at satisfactory levels despite the prices currently applied".
Source: In Fonderia – ll magazine dell’industria fusoria italiana