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COMPETITIVENESS

of the
BRAZILIAN
FOUNDRY INDUSTRY

By Cassio Machado, member of ABIFA and SIFUMG


cassio@intercast.com.br January 2005
COMPETITIVENESS of the
BRAZILIAN FOUNDRY INDUSTRY

Contents

KEY NUMBERS OF THE SECTOR


SWOT ANALYSIS
CRITICAL SUCCESS FACTORS
MARKETS
PRODUCTION
PRODUCTIVITY
EXPORTS / IMPORTS
PROJECTED DEMAND x CAPACITY
CONCLUSION
Brazilian Foundry
The Key Numbers

Foundries 1 200 +
Revenue US$ 3.0 billion +
Direct Labor 54 000 jobs
Annual Production 2.8 million t
Installed Capacity 3.10 million t/year
Companies size 95% Small/Medium
Brazilian Foundry
Strategic Analysis - Strengths

Labor force: abundant, low cost, receptive and trained


Management: flexible, open minded
Acquired and adapted know how
Low production cost
Good image (quality and delivery)
Solid economical profile of companies
Strong class entities (state and federal)
Brazilian Foundry
Strategic Analysis - Weaknesses

Capital shortage for investment


Environmental legislation compliance
Low reference in international market
Low knowledge about foreign competitors
Brazilian Foundry
Strategic Analysis - Opportunities
Good location
Near to foreign markets (Europe and USA)
Nearby raw material suppliers (pig iron, steel
scrap, ferro-alloys, resins, sand, tooling, etc.)
Near to technical colleges and schools
Local concentrations of competitors and their
chain of suppliers
Political and economical stability of the country
Demanding markets (domestic and foreign)
Chinese vulnerability
New markets to be opened
Brazilian Foundry
Strategic Analysis - Threats
Chinese production / price / subsidized cost
Shortage of certain raw material (resin, ferro-alloys)
Country’s logistics and infrastructure
Foreign trade barriers
High interest rates / cost of money
Volatile exchange rate
Volatile federal policies (electrical power, tax law, etc.)
Bureaucracy
Brazilian Foundry
Strategic Analysis - CFS
CRITICAL SUCCESS FACTORS

Increase production capacity


Acquire funds for investment at reasonable
rates
Reduce production costs
Implement marketing policies to penetrate new
markets and to sustain current ones
Brazilian Foundry
Market Distribution (% of sales)
3,2
16,1
Infrastructure
Exports
5,2
Others
Capital Goods
56,3
14,1 Steelmakers
Automotive

5,1
Brazilian Foundry
Domestic Market Analysis
67% of castings are for auto-parts
High ratio inhabitants x vehicle - (2001)

Developed countries - 1,2 - 2,0


Argentina - 5,2
Mexico - 6,1
Brazil - 8,6
9a Largest Vehicle Fleet in the World - 20,1M (2001)
Capital Goods Industry - recovering
Steel Industry - Brazil 9o largest world producer
Railway Segment – recovering
Brazilian Foundry
Annual Production (1000 t)
2004 - estimated

3000

2500

2000

1500

1000

500

0
80 82 84 86 88 90 92 94 96 98 OO O2 O4
Brazilian Foundry
Evolution of Monthly Production (1000 t)

250

200

150

100

50

0
jan/00 jan/01 jan/02 jan/03 jan/04
Brazilian Foundry
Metal Distribution
by production (t - %) by revenue (US$ - %)

8,5
30
7,0

57

13
84,5

iron steel non-ferrous iron steel non-ferrous


Brazilian Foundry
Production by Region (%)

Centre/MG
São Paulo 29,3 %
34 %

North/NE
2,3 %
Rio de Janeiro South 28,1 %
6,3 %
Brazilian Foundry
vs World Production - (t) - 2003

!
" #
$#
%

&'()*+ &,*(- ./01-23 *)


Brazilian Foundry
Productivity
(2004 estimated)
55
50
45
40
35
30
25
20
15
10
1990 1992 1994 1996 1998 2000 2002 2004
Brazilian Industry
Exportation Ratio (%)
70
60 62 60
56
50
40 37
30
20
16
10
0
Pig Iron Aluminum Ferroalloys Steel Foundry

export / production
Brazilian Foundry
Annual Exports (US$ 1000)
2004 = 830 million US$ (estimated)
900
800
700
600
500
400
300
200
100
0
1980 1983 1986 1989 1992 1995 1998 2001 2004
Brazilian Foundry
Exports

in 1980 - 77 Million US$


in 2003 - 565 Million US$
in 2004 (forecast) - 830 Million US$
Growth rate of 9 % per year
Enhanced “mix” value
Brazilian Foundry
Imports

Irrelevant
Basically components, not raw
castings
Brazilian Foundry
Projected Demand x Installed Capacity (ton)
4000

3000

2000

1000

0
2003 2004 2005 2006 2007 2008 2009
demand 2249 2800 3130 3400 3580 3770 3910
install cap 3000 3100 3400 3400 3400 3400 3400
Brazilian Foundry
Projected Demand x Investments

• Investment 2004/5 - US$ 387 M

• Required Investment up to 2009 - US$ 1,2 B


COMPETITIVENESS of the
BRAZILIAN FOUNDRY INDUSTRY

CONCLUSIONS
Foundry business is a Brazilian natural
VOCATION
We can compete in a global market
Our production is intimately linked to auto-parts
production
Production capacity needs to be increased
Brazil could position itself among the top 7 world
producers of castings by 2010
Special thanks to
Mr. Roberto Joao de Deus
ABIFA’s Executive Secretary