In a recent report the management of Atlantis Foundries has emphasised that its focus going forward is to secure new business, products and customers, in addition to servicing the company’s existing clients. Traditionally the company has been recognised as a specialist in manufacturing medium and heavy-duty engine blocks for trucks and for industrial and marine applications.

“We were unable to source new business under the ownership of Daimler, as it was not part of their strategy,” said Atlantis Foundries’ chief commercial officer Sally Redshaw in a report published in Engineering News.

German automotive manufacturer Daimler AG/Mercedes Benz South Africa, which has Mercedes-Benz as its flagship brand, sold its shareholding in Atlantis Foundries in 2015 to new owner Neue-Halberg-Guss (NHG), a German foundry group. NHG has plants in Leipzig and Saarbrücken, in Germany.

Founded in 1756, NHG produces cylinder blocks for cars and trucks, as well as cylinder heads for trucks and other automotive components.

Atlantis Foundries opened its doors in 1979. The company was established by the South African government to produce Mercedes-Benz and Perkins diesel engines for the South African commercial and agriculture markets, and for military vehicles such as the Ratel, Buffel, Casspir and Samil.

“We produce heavy-duty engine blocks for Daimler, which are exported to Mannheim, Germany, and to Detroit Diesel Corporation, in the US,” said Redshaw.

“These blocks range from 407 to 447 kilograms in weight. We also produce the 400 series Mercedes-Benz engine blocks that are predominantly used in buses. These are also generally exported to Germany.”

“In addition, we produce V8, V10, V12 blocks that are used in a wide range of applications, including marine. These are exported to MAN in Germany.”

Atlantis Foundries has a full machining facility and fully machines V Blocks and in-line blocks for MAN.

“We also still produce and fully machine a small volume of four-cylinder blocks for Perkins, which are exported to the UK, Brazil and China. These are used in off-road and agricultural applications,” says Redshaw.

Unfortunately for Atlantis Foundries, production volumes in the last 12 months have been declining, in line with a tight global economy. Atlantis Foundries sold 150 581 units in 2016, amounting to 59 127 tons of castings, compared with 183 898 units sold in 2015 (72 931 tons).

“The difference has no relation to the change in ownership, but is a reflection of the market demand and cycle,” explained Redshaw.

“The volumes expected for the market in 2016 did not materialise as forecast and impacted on our production levels negatively.”

Long-term contract
“Daimler still remains our biggest customer. We have a long-term supply agreement in place and, therefore, they will remain an important customer for Atlantis Foundries for the foreseeable future.”

The outlook for 2017, according to the company, is a sales volume of 133 300 units or 55 500 tons of castings.

“This is heavily influenced by the truck market in the US and, to a lesser extent, in Europe,” noted Redshaw.

“Some supply contracts for older generation blocks were also concluded at the end of 2016 and, therefore, non-Daimler business should be lower in 2017. The demand for blocks for older generation engines and the aftermarket declines over time. Around 99.9% of Atlantis Foundries’ volumes are exported.”

South African advantages
“There are benefits to producing castings in South Africa. We have access to natural resources, such as sand, which is a core part of the moulding and casting process. In addition, despite high inflation, labour costs are still slightly lower than in other parts of the world,” said Redshaw

“There are also important and beneficial trade agreements in place that make buying automotive products from South Africa beneficial to the customer. Schemes such as the Automotive Production and Development Programme (APDP) provide us with incentives that allow us to remain competitive on pricing.”

“Further benefits derive from trade agreements such as the African Growth and Opportunity Act, which provides import tax benefits for customers located in the US. These help us to remain competitive and provide an incentive for the customer to purchase their goods from South Africa due to the positive tax benefits.”

Energy, steel scrap costs a concern
“The South African environment, however, also presents its own particular set of challenges. We are concerned about the availability of crucial resources such as electricity and water.
Atlantis Foundries uses 650 MWh of electricity, on average, a day,” said Redshaw.

“The company has taken numerous steps to reduce its electricity consumption. Atlantis Foundries, like many other large industrial users, benefits from lower electricity tariffs. These electricity tariffs are, however, catching up with the tariffs charged to large industrial users in Europe and our competitive advantage is continuously being eroded,” noted Redshaw.

“The same goes for water. Water is an important safety resource for us and we have invested in a number of water saving initiatives.”

“Another challenge facing Atlantis Foundries is the availability of good-quality steel scrap at competitive prices. This is a problem for foundries worldwide. All Atlantis Foundries’ products have to comply with stringent standards set by the company’s German and American customers. The quality of steel scrap plays an important role in the quality of the final product,” said Redshaw.

“Obtaining steel scrap for our needs is a continuous challenge for our purchasing department, especially with customers that are only willing to pay European prices for steel scrap, which are typically 10% to 15% lower than South African prices.”

Policy support
“The APDP is government’s support programme for the automotive industry. A new masterplan is being developed for the industry post 2020, when the APDP comes to an end.
The APDP incentives that are currently in place have the effect of neutralising Atlantis Foundries’ logistics costs to Europe and the US,” explained Redshaw.

“At a minimum, the post-2020 masterplan should address the distance to market. Ideally, it should also aim to improve efficiencies of local manufacturing to enhance competitiveness. The masterplan should also provide an incentive for local components suppliers to grow their capacity, thereby creating much-needed jobs.”

“Atlantis Foundries primarily supplies the European and US markets. Customers in these countries do not evaluate Atlantis Foundries in a vacuum when they make decisions to place contracts with the business,” said Redshaw.

“This means that trade agreements and the stability of the domestic economy and labour environment all play a key role in the decision-making process.”

“In our environment, engine programmes run for 10 to 20 years. Car and truck manufacturers (OEMs, or original-equipment manufacturers) have to make long-term decisions that will impact [on] their own supply chains.”

“OEMs, therefore, require substantial peace of mind that their supplier functions in a stable environment.”

“Atlantis Foundries currently employs 890 people. The company also has 20 to 30 apprentices and student engineers on site. Atlantis Foundries is committed to providing education and actively supports the development of employees, their children and students in the surrounding community,” said Redshaw.

“The mid-term plan for Atlantis Foundries is to grow by selling higher-value-add products.
Atlantis Foundries’ management believes the business has the capability and expertise to supply machined components into the automotive market.”

“Our focus is to obtain customers that require cast and machined components. At the moment, Atlantis Foundries has surplus coremaking and melting capacity due to efficiency improvements made in the last 18 months. To convert this surplus capacity into sales requires Atlantis Foundries to invest in additional moulding capacity.”

For more information visit www.atlantisfoundries.com