China Castings Production Data Analysis
These numbers are in from the China Foundry Association
Chinese castings production for 2014 was 46.2 million metric tons, an increase of 3.8% over 2013. Significantly, this is the 4th consecutive year of tonnage growth significantly lower than GDP growth. While China remains, by far, the castings behemoth of the world, it appears that the heady days of Chinese castings growth are over.
This trend of castings maturation is a much repeated economic phenomenon in many countries. In the early days of infrastructure build out, and as GDP per capita transitions to "middle income", castings production growth exceeds GDP growth, but finally levels off. In some economies, castings production then decreases with increasing per capita GDP. Overall, globally castings growth mirrors global GDP.
China's huge investment in physical infrastructure in the past decade in fact accounted for about 40% of its GDP growth. This lead to huge castings capacity increases and production gains far exceeding GDP growth. Likewise, a growing middle class led to China's phenomenal rise as the world's largest automobile producer. But now these trends have slowed, dramatically. Infrastructure spend is being deliberately moderated. Even automobile growth is slowing due to pollution and congestion concerns in the cities. Indeed there are even projections of decreased automobile growth in China beginning within the next decade.
What are the implications of the slowdown in Chinese castings demand and production? Here are some possibilities:
By many accounts castings production capacity now far exceeds production requirements, by perhaps 2x. As in the case of many commodities, easy financing has allowed foundries to overshoot the market demand leading to severe financial stress on the industry.
It's not likely that this situation will be self-correcting, as many foundries remain at least partly state owned and therefore subsidized in order to keep people employed. Additionally, even though there has been lots of talk at the Centralized Government levels of reducing the number of foundries, now exceeding 30,000, this is not likely to happen due to continued subsidization and investment at local government levels.
Chinese foundries have become even more aggressive as of late in their castings export activities, leading to significant margin pressures in many global markets. Likewise, Chinese foundry equipment and consumables suppliers are much more pro-active in seeking out overseas opportunities.
A fascinating development is unfolding rapidly that could address the Chinese overcapacity in commodities production, including castings, and that is India! The newly elected Government of India is aggressively courting infrastructure investment from numerous countries, including China. China is now actively engaged in huge Indian infrastructure projects, that, as part of the deal, will include Chinese-made durable goods, like pumps, compressors, wind turbines, railroad equipment, mining equipment etc -- all built with Chinese castings. Additionally, Chinese OEM's are now setting up shop in India to assemble goods, in many cases sourcing their castings from Chinese foundries.
There's never a dull moment in the world of metal castings!
