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PEAK CASTINGS

Issued at 2017-03-29



Castings are a foundation industry of modern civilization. I have published correlations showing castings growing at about 0.75 of GDP on a global basis over the past several decades. In other words, in a world of 3 % nominal GDP growth, castings would grow at 2.25% annually. I have also shown that as an economy transitions from developing to developed, castings consumption on a gdp per capita basis declines. Castings consumption plateau even while an economy continues to grow.

A closer look at recent trends in emerging markets and in likely future changes in major castings markets has led me to conclude that we are experiencing peak global castings demand at about 105 Million mtpa. This is the first of what hopefully will be several articles exploring Peak Castings. For now, consider these points:

  • China castings production has likely declined 2 years in a row.
  • Practically all growth in global castings has come from China since 1985.
  • India is not likely to replicate China's growth rate in castings.
  • The largest castings market, automotive & truck, will soon be dramatically, and most likely negatively, impacted by Mobility as a Service (MaaS)
  • Likewise, dramatic improvements in infrastructure efficiency will decrease castings growth.
  • Finally, world population growth is slowing, and demographics point to aging populations practically everywhere -- meaning, less castings demand growth driven by basic people needs.

Industry and Cast Strategies LLC statistics

CHINA

Something strange happened in 2015: the production of castings declined in the People's Republic of China to 45.6 million mtpa, compared to 46.2 million mtpa reported for 2014. While small in percentage terms, 1.3%, this represents the first decline in annual Chinese production reported in at least 25 years. Final industry statistics are not yet available for 2016, but industry sources in China indicate production was flat, at best, and most likely declined.

This is a significant development because practically all global growth in castings production during the past 25 years can be attributed to China's insatiable demand for castings. Since 1990 the average annual production of castings globally, EXCLUDING China, has been 56.8 million mtpa. The trend line on Rest Of World (ROW) production, excluding China, is FLAT. China's surge in castings demand has been driven by the huge increase in automotive production, the extraordinary build out of infrastructure, and the requirements for durable goods and parts consumed both within China and for export. Of course, exports of castings, components, and durable goods have correspondingly decreased castings production requirements elsewhere.

Even during the Great Recession, when castings production declined elsewhere worldwide, China's infusion of capital into infrastructure as well as incentives on consumer durable goods spending kept castings production growing. It appears that China's castings requirements for growing domestic consumption has peaked. Infrastructure spending on a per capita basis has leveled out. Likewise, growth in automobiles has been slowing, and perhaps might even decline in the future (future article in MaaS). It's also fair to speculate that China has put into place great excesses of infrastructure, such as huge numbers of apartments that have never been occupied, and vastly underutilized airports and highways. Sooner or later, this excess will need to be absorbed.

One possible driver of infrastructure growth elsewhere in the world is China's "One Belt, One Road" Campaign. China plans to spend as much as $ 1 trillion over the next decade, and even $ 3 trillion longer term, in developing infrastructure outside China. Notably, China continues to announce new infrastructure projects at home, such as a recently announced $ 500 billion program to further build rail infrastructure by 2020. But, one has to wonder how much more debt an already overextended China can afford for infrastructure.

I believe China's days as the sustaining force in global castings growth are over.

In my next article I will address India. A hint: Yes, India will continue economic growth at a fast clip, but this does not necessarily mean a net contribution to global castings growth!


Source: Mike Swartzlander - Foundry Strategist



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