Sa foundry industry and nftn sa foundry industry as employer

• SA Foundry industry and NFTN

• SA Foundry industry as employer

• Engagement of Industry with Government

• Energy cost for the Foundry Industry

• Proposals for competitive energy prices

Some of our stakeholders

• Some of our stakeholders

Metal Melting and pouring of castings

• Metal Melting and pouring of castings

• 180 production plants in SA

• 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

• Tariffs must be globally competitive and stable