Competitiveness of Italian Foundries: Investments, Challenges, and Future Prospects

Analyzing the static and dynamic competitive positioning of the Italian foundry industry compared to related or related manufacturing sectors allows us to better understand how foundries are addressing the major transformations underway in global economic and industrial supply chains.

Foundries are aligned with the Italian manufacturing average in terms of VA% (Value Added Percentage), with an EBITDA (Gross Operating Margin) only slightly lower. However, they are growing less in VA%, a sign of a more stable value structure, but are showing greater growth in operating margins, indicating good cost control capabilities and effective operational efficiency among foundries over the period studied (2008-2022).

Positioning with Related Sectors

The comparison with related "upstream" sectors (metallurgy and steel) is particularly favorable. Foundries are significantly superior in terms of VA% (24.3% versus 16.1% for metallurgy and 17.0% for steel). Despite having an intermediate EBITDA, EBITDA growth has been faster (+4.34% CAGR), indicating a faster improvement in the foundry sector's profitability, despite initially starting from lower levels. This suggests that foundries are distinguishing themselves from the core metallurgical sectors in terms of efficiency and economic positioning.

Compared to the main customer sectors (transportation, household appliances, mechanical engineering), foundries occupy an intermediate position. They are more efficient than household appliances and transportation in terms of both VA% and EBITDA, but perform less well than other transportation (aerospace, rail, marine) and mechanical engineering in terms of VA%. The growth in EBITDA of foundries is higher than that of mechanical engineering and close to that of household appliances.

Investments: Caution Prevails

Gross investment in tangible assets presents a cautious picture. Over the long term (2008-2022), total investment decreased by 32% (from €425 million to €289 million), with a negative CAGR (-2.7%). 2022 levels remain well below pre-crisis levels.

Ferrous metals experienced a more marked decline (-41%, CAGR -3.7%), losing strategic importance in investment, while non-ferrous metals proved more resilient (-24%, CAGR -2.0%), increasing their share of the total.

Even over the short term (2018-2022), total investment decreased by 6%, with a negative CAGR of -1.6%. Non-ferrous metals maintain a predominant role (approximately 60% of the total), albeit with more volatile trends. This resilience of non-ferrous metals is in line with current technological trends in the main contracting sectors, such as:

• Vehicle electrification;
• Use of lighter materials;
• Green transition.

The ratio of investments to revenue is declining across all sectors (from 5.2% to 3.7% overall), indicating a lower investment intensity relative to revenues. Here too, ferrous metals show the most marked decline, while non-ferrous metals maintain a more constant profile.

Nonetheless, in 2022, foundries will maintain a competitive investment level (3.8%) compared to the manufacturing average and upstream sectors. However, the negative CAGR (-2.3%) indicates a lack of transition to expanding sectors such as mechanical engineering, which is growing (+1.8% CAGR), highlighting an intermediate positioning: more resilient than the core sectors, but not aligned with the evolution of the most dynamic customers.

The issue of production input costs

An analysis of the cost structure confirms the foundry sector's strong exposure to raw material and energy prices, with significant differences between the ferrous and non-ferrous sectors.

Ferrous metal foundries:

• Raw materials: 41-43% of turnover, increased due to inflation;
• Energy and service costs: approximately 30%, confirming the highly energy-intensive nature of the sector, linked to melting and heat treatment;
• Labor costs: stable at 19-20%;
• The sum of energy and labor often exceeds half of turnover, highlighting the rigidity of the cost structure.

Non-ferrous metal foundries:

• Raw materials: 48% of average turnover, with peaks of 52% in recent years, making the sector extremely sensitive to the volatility of metal prices such as aluminum and copper;
• Energy costs: 24-25%, lower than ferrous metals but significant;
• Labor costs: downward trend from 17% to 14%.

Labor Cost Evolution

A closer look at labor cost evolution reveals contrasting trends. Between 2008 and 2022:

• Ferrous metals: overall expenditure decreased by 14%;
• Non-ferrous metals: 21.5% decline;
• Internal composition (70% wages, 30% contributions) remained virtually stable, with a slight increase in the contribution share for ferrous metals.

This trend reflects an implicit tax wedge that, during the period analyzed, showed no signs of abating. This structural constraint continues to weigh on the competitiveness of Italian foundries, especially in low-margin, labor-intensive sectors.

Overall, the data highlights two key elements that will impact the future of businesses, one endogenous and one exogenous:

• The urgent need to implement strategies for energy efficiency and secure raw material supplies;
• The need for structural intervention on labor costs, through measures to reduce the tax wedge.

Only in this way will it be possible to free up resources for new investments and improve the competitiveness of Italian foundries, which already operate with compressed margins and strong exposure to international competition.

Future Challenges for Foundry Competitiveness

The analyses conducted confirm that the Italian foundry sector is undergoing profound structural transformation. In recent years, we have witnessed a progressive reduction in the number of companies. Contrary to what one might expect, this decline has not led to a significant increase in the average size of remaining active companies.

The sector remains predominantly composed of small and medium-sized companies, characterized by:

• High specialization;
• Production targeted at market niches;
• Exposure to strong international competition from larger and more structured production facilities.

The industrial fabric remains highly fragmented, despite facing an increasingly complex competitive environment. The decline in investment reflects this complexity: pressures related to the rising cost of production factors, the need to compete at a high level with competitors operating in contexts very different from those in Europe, and an increasingly demanding and concentrated market could jeopardize a production model that, until now, has demonstrated good resilience to the many shocks of recent years.

Source: In Fonderia – Il magazine dell'industria fusoria italiana