Local foundry industry in dire straits

The South African foundry industry is at a crossroads according to the Scaw Metals Group. Not only is the industry suffering from the effects of a depressed market, but uncompetitive local raw material costs are threatening the future of the industry.

According to the Industrial Structures and Skills in the Metals Beneficiation Sector of South Africa report, the number of foundries has dwindled over the past couple of years. In the 1980s, foundry numbers dropped to around 450. In 2003 that number plummeted to just over 200. Between 2007 and 2011, the number fell by 13% and the employment figure in the industry fell by 30% over the same period.

Ufikile Khumalo, Executive Chairman of the Scaw Metals Group says the industry is in real trouble. “The local industry is in real trouble. Due to the continuing poor local demand experienced over the last couple of years, the remaining players in the industry have not invested in the required capital equipment and new technologies.”

Not only is the increasing input cost of raw materials like scrap metal to blame for the industry’s current dilemma, but the annual hike in electricity costs, poor and inconsistent local demand for foundry products and rising imports are all contributing factors.

“Scrap metal is the key raw material ingredient in the foundry industry. Competitive scrap metal pricing has the potential to reignite the local foundry industry. We regard the conversion of scrap metal into secondary metal products a priority against simply exporting a key resource such as scrap metal,” says Khumalo.

“The lack of skilled labour has also been labelled by Khumalo as being a concerning issue for the local industry. “New training for the employees of foundries has not been prioritised by local companies, which has resulted in the foundries generally having an ageing workforce,” says Khumalo.

Khumalo says that the only way for the local industry to get back on its feet is by the help of the South African government. The Department of Trade and Industry and the Department of Economic Development must implement the required measures, in a coordinated effort to support the foundries.

“Such measures can and should be both from the supply and demand side. These crucial interventions would yield benefits such as local ownership, skills development, job creation, job preservation and the increased beneficiation of our abundant raw materials,” says Khumalo.

The South African government has already started with some interventions in this regard, namely the policy directive related to limiting the export of ferrous and nonferrous scrap.

“This will assist local foundries to have access to scrap at better prices. The jury is still out on how the metal recycling industry will respond in terms of logistical issues as the matter has not been welcomed by the local recycling industry. The primary and secondary steel producers, however, have all welcomed the proposed intervention,” says Khumalo.

The local industry must make use of state procurement and funding by key parastatals, which will help support the existing foundry capacity and to invest in new technologies by channelling a large proportion of orders to local existing industries.

The Scaw Metals Group has put plans in place and acquired enough funds to expand its existing capacity and improve on its efficiencies.

“Scaw also has access to the latest technologies through long-standing partnerships with reputable international companies that supply the international foundry market. Scaw believes it can compete with international companies both on quality and price if new volumes are placed, which will make investment economically viable,” says Khumalo.

According to a 2013 report by the South African Institute of Foundrymen, local foundries are one of the most important role players as far as GDP is concerned. Foundries contribute R9 048 billion per annum to the South African GDP. Its eventual closure through policy neglect will severely impact the South African Economy.

“The study confirms clearly that an intervention by government to optimise the foundry and scrap metal industry in South Africa is needed and will be far more beneficial than a policy of “doing nothing”, allowing the current status quo to persist. Despite the need to sustain the foundry industry and the related downstream industries involved, such as the expanding automotive industry which is a key user of metal products, among others, the output and employment of the foundry Industry within the metal industry have steadily declined over the past few decades,” the report read.