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Metal Casting Technologies : September 2007
www.metals.rala.com.au 2007 OVERVIEW AsianFoundry PERIOD MAJOR EVENT - NATIONAL FOUNDRY INDUSTRY EVOLUTION 2000-2006 WTO in 2001, Insurance & banking sector reforms. Currency appreciation to 1US$ = Rmb 7.9. Continued FDI flows in manufacturing sector. GDP growth at 7-8% but this time the gear is towards economic growth with equal emphasis on environment improvement and energy consumption reduction. Universities shrink the scope of foundry education, all metal forming sciences clubbed in one specialization, may lead to future shortages in engineering scientific talent expected. Growing gap between the rich coastal regions and relatively less developed west/inland areas. The government plans to reduce energy consumption by 20% age points for every GDP point growth. Higher value added castings exports via highly dedicated, smart and technology intensive machining centers invested by the successful foundry groups. A merger in SoE foundries elimination of idle installed capacity, reduce waste and improve efficiency is the mood. Development of homegrown MNC foundries for international markets. Highly competitive with economy of scale upgrades in mind. Foundry industry is a national preoccupation; the government will do whatever it takes to protect this sector. Commodity prices up, getting scarce. Air, water pollution controls and the reduction of energy consumption will take the lead from now on. Expect closure of loss making privately and the SoE foundries. Expect mergers and further consolidation in the sector. Installed capacity will not change much, about 20 m tonnes of castings only the distribution of the castings grades, also and the types will find only those enterprises that are up to date technology, cash and market network driven. 2006 and beyond Future moving towards sustainable stability with improved living standards for the rural mass. This will attract home grown capital investments from already rich coastal and urban Chinese investors along with the usual FDI as China continues to attract world capital for many a years to come. Castings are difficult to travel long distances as the real growth potential in future is in rural areas where the infrastructure is yet to catch up with the highly developed SEZs and coastal zones. The future success of the castings enterprises depends upon the intrinsic competing strengths of the locally operating foundries be it SoE, Chinese owned, JV or wholly foreign owned entity. Exports can gown only if the domestic castings business succeeds! THE CASTINGS EVOLUTION IN CHINA-VOLUME TO VALUE PATH By Gopal Padki, CEO & Chairman, Sinocast China Globally, today, nearly 65 million tonnes of castings are being cast and consumed. This is expected to grow in excess of 85 million tonnes over next eight to ten year period. Of this nearly 50% of the growth is expected from the internally driven demand for continued improvement in the Chinese life style that will in turn bring about changes from being a commodity type volume supplier to a value added business partner for both domestic and overseas consumers. This migration towards value chain has been possible owing to market reforms during early 90s and the legal and environment reforms after WTO accession. The increased trend in FDI-direct foreign investment with capital, technology, and training followed by Chinese entrepreneurial & scientific skills, work discipline and government support to the castings industry has further catalyzed the mindset change. Evolution towards value chain is in early phase today but it is already nucleating in terms of benchmarking with western standards for costs, quality, resources, government subsidy for export and imports, IP, HSE and last but not least the quality of life. The purpose of this paper is to capture these developments in a changing landscape with some specific real-time data for castings business perspectives benefiting all those networked with the Chinese foundry industry. 1.0 A glimpse of the Chinese foundry industry The foundry industry is the mother of all industrialized economies driven by motor, rail ship, air or engineered components for life inputs such as food, medicine, leisure, sports and so on. The Chinese economic miracle witnessed by the world today is also driven by the same factors. The past two decades of transformation of the mindset from the planned economy to the current WTO ruled market economy with an unprecedented GDP growth per year in excess of 8 + % and the FDI investment of US$ 40-60 billion of which nearly 70% consumed by the manufacturing sector has resulted in a robust economic performance similar to what Japan witnessed during the initial phase of the 80s. 26