Market Scenario The International Impact of Brexit on Foundries
Brexit is already making headlines on the global stage but what does this mean for the die casting sector across the world? We talked to experts from the industry in order to get a better perspective on the situation.
The world has been closely watching the United Kingdom’s every move as it struggles to pull out of the European Union (EU). Despite many extensions and parliamentary discussions, Great Britain has failed to lay down a concrete Brexit deal which is expected to show the future road map for the country. With the deadline fast approaching, the UK needs to put forward its best plan.
Amidst this tension, there is a growing level of business uncertainty amongst industry players in the region. Numerous sectors including die casting from the manufacturing industry will be affected by this move and its ripples will influence the global die casting industry. Jose Javier Gonzalez, Executive Secretariat, World Foundry Organization says, “Business needs political and market stability, and these uncertain prospects are not going to help die casting companies establish long-term strategies.”
Current Situation in the UK
The global die casting industry caters to the automobiles sector, which occupies a major share. In a report by the UK-based trade association, Society of Motor Manufacturers and Traders it is mentioned that a ‘no deal’ Brexit would have a devastating impact on the UK’s automobile sector and the hundreds of thousands of jobs it supports. It would end frictionless trade, add billions to the cost of importing and exporting and put jobs at risk.
“Half of UK’s exports are transported to Europe, hence foreign and domestic investors are worried about limited access to the EU’s single market. Companies like Honda have already relocated their activities abroad, to ensure their access to this market,” mentions Gonzalez.
Potential Effects on Relevant Economic Markets
Europe is the second largest market in the world for the die casting industry in terms of size owing to the large and well-established automotive sector in the region, mentions a recent report by Market Research Future. The UK is the most important sales market in the EU for main automotive suppliers like Germany. The Executive Secretariat of WFO adds, “Some studies suggest that in case of a ‘no-deal’, Europe will experience a reduction in sales of nearly 800,000 cars, which accounts to around 4 % of the EU’s current automotive production. Also, if the UK economy undergoes a recession because of the exit of the EU then the direct and indirect dependency between die casting suppliers in European countries and the UK can create a direct reduction in sales for the automotive industry.”
With the rise of the automobile manufacturing sector in Asia, countries such as China and India are expected to remain the largest market for die casting, states the report. Gonzalez shares that currently; the biggest concerns for the Chinese die casting companies are the possible negative impacts of policy changes from the US, UK, and the EU, such as raising tariffs, as well as currency depreciation. This could lead to a more complex international market and increase the price of die casting raw materials as well as imported equipment. These factors will affect the export of Chinese die casting products.
North America holds the third spot in the global die casting industry; however, the impact of Brexit will be relatively low in this region. Stephen P. Udvardy, President, North America Die Casting Association explains, “Die casting exports from the US to the UK has ranged from 4.5 million dollars to 8.9 million dollars per year over the last five years. When compared to our total production of about 8 billion dollars, it means that only about 1 % of our die casting products gets exported to the UK.”
The Brexit development will have an impact on the die casting industry but the level of impact may vary depending on a country’s business relationship with the UK.