As per my earlier research post published on this link, about 50% cost of any foundry is raw material costs and any savings in the raw material costs may have very good overall savings potential.
After the above post, when I further studied the prices of raw materials from 23nd Jun 2017 to 22nd June 2018 (1 year period), I realized that the prices of major raw 3 raw materials used in the ferrous foundries as well as steel making companies namely Pig Iron, Melting Steel Scrap and CRCA Scrap do not increase in any fixed proportion. Please see the table below: Also you may refer to the pictorial view of this chart at top of this article.
In the foundry business we have generally a fixed percentage of each raw material for a given output alloy or in other words we have a fixed recipe for a given output chemistry. This fixed chemistry has been developed by experts in each of the foundry considering various factors prevailing at the time of recipe development such as (only partial list):
Since our recipe is fixed, the overall charge cost of this fixed recipe changes with the change in the raw material prices whereas the clients do not increase the per kg output price of the finished goods or castings. From the above chart we can see that there is:
If we see the percent spread of prices (spread is equal to {maximum price – minimum price} / average price), then again CRCA scrap price spread is minimal whereas for Melting Scrap it is highest. From this, we can conclude that there is no correlation between price (or price increase) of the material and quality of the material. It is purely a function of demand and supply and may be speculation as well.
I am sure that average foundry-persons would not be looking at these price increase from such mathematical perspective and also may not be finding a solution to this core price issue to the foundry business as they would always be busy in taking out production, reducing the defects, improving the production capacity, increasing production as well as productivity.
So is there a solution for this issue? Yes, there is. The solution is to start making dynamic recipes which can incorporate the price fluctuations in various raw materials, their yields, etc and give a charge mix which can reduce the overall charge cost. I am sure that the fellow foundrymen would look at this solution positively and try to incorporate into their foundries and try to reduce their charge costs and become more competitive.
If you need any assistance / guidance in such a dynamic solution, you may contact the author. All the best to you.
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