Chinese imports hurting iron trade

Low-cost suppliers help fuel Hoosier plants' woes

By Ted Evanoff

ted.evanoff@indystar.com

January 17, 2003

Confident the economy would remain strong, Mickey Garrity borrowed more than $4 million and rebuilt his Richmond foundry in 2000.

Today, Richmond Casting Co. Inc. is the state's newest iron foundry, filled with modern machines that have an edge on older U.S. rivals also making auto and bomb parts.

Despite the new machinery, nearly a third of Richmond Casting's 70 employees are laid off. And $800,000 in iron orders have been lost in the past year, he said, largely for one reason: China.

Even as foundries struggle with the soft national economy and less iron use in auto parts, Chinese imports into the United States have soared.

The inflow of steel and iron products has helped riddle an Indiana metal casting industry that grew up with the 19th-century railroads.

Iron and steel products coming from Chinese plants, some opened recently by Taiwanese citizens educated in U.S. colleges, have doubled in value since 1997.

No agency keeps a careful count, but an estimated 30 percent of Indiana's 150 metal casting plants have been closed or acquired in the past five years, said Blake Jeffery, executive director of the Indiana Cast Metals Association, a trade group in Indianapolis.

"We think we're going to survive, but this is a tough environment," Garrity said.

"We now have all this overseas competition."

Trade disputes have long been a staple of Indiana manufacturing, but rarely has any industry seen the climate change as fast as the 105 or so metal casting plants remaining in Indiana.

What's left is an industry stricken by a production decline of 20 percent over the past two years, Jeffery estimates.

In response, foundries have slashed costs. Some have hung on by partnering with low-cost producers in Brazil, China and India.

While this eliminates jobs and output in the United States, it enables them to stay in business with lower prices on products their customers were tempted to buy directly from Chinese foundries.

Until the economy perks up, others are looking for niche products and complicated castings the importers have so far avoided. And most survivors are calling on customers of the bankrupt foundries.

"I hate to say it, but sometimes you have to be a little bit of a vulture," said Jim Gartland, vice president for sales at Atlas Foundry Co. Inc. of Marion.

Foundry owners also are seeking political help. Indiana's cast metal trade group has proposed state regulatory relief. The national American Foundry Society is ready to ask for an official probe of iron dumping.

But it could take two to three years to examine allegations that Chinese foundries are grabbing U.S. market share by pricing iron goods below the production cost, concedes Michael Lessiter, publisher and editor of the foundry society's Modern Casting magazine in Des Plaines, Ill.

While investigators gather proof needed to demand China charge higher prices, many more foundries will have closed or sold out -- rocking their hometowns, but in the view of foundry officials, causing few political ripples.

"As a society, we seem to have devalued manufacturing in this country," Lessiter said.

Over the years, what American leaders have valued highly has been global trade.

Convinced a worldwide decline in exports ushered in the 1930s' Great Depression and World War II, the United States for half a century has urged other countries to welcome foreign products that are cheaper and better than domestic goods.

Because of this open-trade stance, Indiana foundries have faced imports for years, but the sudden surge from China, on top of the 2001 recession, is said to be like nothing else the industry has experienced.

"In the last two years, we've lost $4 million worth of sales to Chinese foundries," Atlas' Gartland said. "There's nothing we can do to spend more money to be competitive with the Chinese. We spent $3 million a few years ago to make the plant state-of-the-art. What we're trying to do right now is focus on more different types of castings."

Japanese, South Korean and Mexican foundries appeared to be major threats once.

However, iron wages rose in Japan and South Korea and clean air and water rules took root. Standards are rising now in Mexico as well.

As a result, U.S. foundries that modernized in the 1990s were able to produce more with fewer workers and managed to fend off the imports.

What seems to give Chinese foundries staying power is a loose regulatory framework, which reduces operating costs, and low wages.

"The China threat is almost overwhelming because our industry is so labor-intensive," said Atlas' Gartland.

Even modern plants require loads of skilled and semi-skilled workers. Indiana's 16,000 foundry employees earn an average hourly wage of $13, compared with about 40 cents in China.

Meanwhile, China operates as the United States did early in the 20th century. Environmental, workplace safety, health care, pension and taxation issues are relaxed in China, but add about 33 percent to the price of iron products made in the United States.

On one item, Atlas charges about 58 cents a pound, not including delivery costs. A rival Chinese product costs 19 cents a pound plus 7 cents a pound for shipping, which covers ocean transport and delivery to the customer's U.S. plant.

"India and especially China have really bitten the foundry business hard in the last couple of years," said Greg Bierck, vice president for sales at Interstate Castings in Indianapolis. "We wouldn't be around today if we hadn't invested in our plant."

With so many foundries closed, Bierck worries orders will swamp the survivors as the economy rebounds. U.S. foundries might farm out iron work abroad simply to keep up with demand, strengthening the foreign producers, he said.

"When a company moves a casting overseas, or American jobs overseas, there's a domino effect," Bierck said. "It's happening now in Indiana big time. What happens to the uniform providers, the lunch truck gal, the fast-food workers at lunchtime that used to service the workers?"

Just how many metal workers are unemployed is unclear. The cast metal association represents 42 Indiana firms employing 10,500 workers, of whom 2,100 are laid off, Jeffery estimates.

The fallout made Indianapolis headlines last year when Electric Steel Castings Co. closed after about 90 years of business in Speedway.

But the shutdowns have swept many factory cities. Gone are Decatur Casting, Peru Foundry, Terre Haute Malleable, West Point of Marion.

The loss of foundries appears worse in Indiana than in most other states, reflecting the dense concentration of casting plants. The foundries grew up making steel and iron components for railroad, farm implement and automotive companies.

Throughout the nation, about 2,600 metal plants operate today, 13 percent fewer than in the mid-1990s, estimates the American Foundry Society.

Indianapolis iron product importer Dennis Kelley, president of Pacific World Trade Inc., said he doubts the demand for low-cost Chinese iron will fade.

Companies that use iron for a myriad of stout products such as engine blocks and suspensions are all looking for a way to reduce their prices.

China represents less than 10 percent of the iron products now used in the United States, but that's a sharp increase in only the past few years.

Kelley went to China decades ago as a representative for Columbus engine maker Cummins Inc., which was setting up a diesel plant. Then Chinese factories rarely were able to match U.S. quality standards, Kelley said.

With the economic reforms of the 1990s, and the recent infusion of U.S.-educated Taiwanese engineers and financiers, Chinese factories have improved rapidly.

"They still have a long way to go," Kelley said. "But when I look at where they've been and where they are today, I know they are just in the initial phase of global supply, not only to the United States, but also Europe."

But foundry executives are wary.

"It's an unlevel playing field," said Jeffery of the Indiana Cast Metals Association. "The Chinese don't deal with the same regulations we do. Their government wants to expand business at any cost."

The Indianapolis trade group intends to propose the General Assembly ease strict enforcement of some costly environmental standards.

For instance, a plant must revise its pollution paperwork before taking on significant new customers.

"It's a lengthy process, and it can make it difficult to retool," Jeffery said, adding the industry would be served better by only tweaking the paperwork.

Jeffery concedes such a change will be difficult to muster through the legislature.

While such a change won't save the industry, he said, "we ought to go after the things that are doable while recognizing it's not the answer but it's part of the answer for some companies.

"Richmond Casting," Jeffery said, "is the last new foundry built in Indiana. We need to do what we can to make sure it's not the last foundry ever built in Indiana."

Call Star reporter Ted Evanoff at 1-313-417-9215.