Big plants (1000 people +) to very small (20 People)
International companies to family business
Some in-house foundries
Iron, Aluminium, Zinc, Bronze, Special alloys
High level of flexibility and engineering versatility
Added Value: machining, coating, assembly
Spread all over country: Gauteng, KZN, WC, EC
Industry structure by type
Industry structure by type
Customers are global companies
Customers are global companies
Market is extremely well developed and pricing must be globally competitive
Programs are global and can be produced anywhere in the world
Automotive contracts imply price reductions over life time, i.e. price must reduce by 3% every year
Need to be competitive in Dollar or Euro terms
Foundry products are commoditised
Local contents will be preferred by local OEM’s, but local market is relatively small (<1% of global automotive market)
Scale of local projects often too small to fill up foundries in SA
Customers are not willing to compensate us for rising local costs, they just move away from us and/or not awarding new orders.
Direct Employment estimated between 12,000 and 15,000
Direct Employment estimated between 12,000 and 15,000
20,000 people employed in processing of components
Machine shops finishing and assembly
Key industries such as engine plants
Employment is estimated to have reduced by 10%-15% since 2008 (from 42 companies surveyed)
Recent Plant closures:.
2010- Eclipse West Plant- 500 jobs lost
2010- Eclipse East Plant partial closure
2011- Eclipse Dimbaza in EC- 350 jobs lost
2011 Krynie Brothers in Gauteng – 22 jobs lost
2011 Belmec in EC– 70 jobs lost
2011 Alfa Foundries Springs – 60 jobs lost
2012 Last week Crown Cast closed its doors – 130 jobs lost
2012 Another foundry looming to close down 280 jobs
Capital intensive industry
Material cost is substantial: no real local advantage and large scale export of foundries’ raw materials such as high value steel scrap
Labour rates: have increased significantly in SA
Continued Rand strength
Government incentives are reducing (MIDP/APDP)
Added pressure on environment creates additional costs
Escalating Energy cost : From very competitive in 2008 to uncompetitive in 2011
Automotive Foundries: market is small but diverse in its requirement
Automotive Foundries: market is small but diverse in its requirement
Competitive foundries are high volume and/or focussed on specific products
E.g. German or Brazilian iron foundries: 150,000 Tonnes per annum or more covering few products
SA iron Foundries: 15,000 to 25,000 tonnes covering a wide array of products
High volume foundry in SA must rely on export: exchange rate risk
Supplier base more limited and less developed, sometimes monopolistic
Examples are waste disposals, scrap materials and some raw materials
Intensified engagement started in 2011 at various levels
Engagement with local governments by various individual companies
Engagement with provincial governments
Engagement with Nersa as NFTN energy working group in January 2012
Engaged with Salga as NFTN working group in April 2012
DTI engaged with DOE
Foundries are energy intensive: melting, heat treatment, coating processes etc.
Foundries are energy intensive: melting, heat treatment, coating processes etc.
Energy is one of the most important cost inputs
A survey of 42 foundries showed electricity alone as 14% of total operational cost for FY 2012 or 25% of added value
Operating plants with metal conversion only have electricity costs versus total operational costs as high as 18% or almost 35% of added value
Margins are completely eroded as a result of electricity increases.
The 2011 increases have landed us in a situation where most local foundries are paying higher energy costs than our competitors in France, Germany, Poland, Thailand, Mexico,…
Cost for electricity is a major threat to the survival of the foundries is SA
Almost all Foundries procure electricity through the Municipalities
Almost all Foundries procure electricity through the Municipalities
Problem 1 = Current Municipal Mark-ups
Problem 2= Eskom increases for years to come
Electricity tariffs for foundries vary by over 50%, depending on location
-Extreme municipal mark-ups in some municipalities, particularly KVA
-Tariffs for large consumers similar to tariffs for small consumers
- Chronic under spending in many municipalities on infrastructure despite the above, increasing costs to consumers as quality of supply is poor
- NERSA bases tariffs on needs of individual municipalities
- Industry depends on needs of local government for strategic matters
- Industry is a milk cow for municipalities through electricity accounts
Electricity income used for other purposes
- Industry pays for bad debt of other customers
NMBM extracts more than R10 Mio out of one foundry with a R200 Mio turnover
NMBM extracts more than R10 Mio out of one foundry with a R200 Mio turnover
Some remarkable mark-ups :
KVA charge Eskom Megaflex: R 29.24
KVA charge NMBM on TOU : R 108.45
Need an urgent strategy for the foundries regarding energy pricing to prevent catastrophe
2011/2012 pricing in some municipalities already threatens the survival of many foundries
2012/2013 increases are a further step to mark the end of many foundries
Our proposal is that all foundries have access to electricity at Eskom Megaflex rates for 2012/2013
Municipalities are currently burdening the energy intensive users and seriously jeopardising their survival, causing plant closures and plant reductions
Municipalities are currently burdening the energy intensive users and seriously jeopardising their survival, causing plant closures and plant reductions
Projected Eskom increases are an additional threat
A combination of both will be lethal for the industry
The Foundries in South Africa need urgent intervention regarding energy tariffs to avoid catastrophe
