INDUSTRY OVERVIEW IN 2012

The foundry market has historically grown broadly in line with GDP.

In 2012, following a relatively strong first quarter, a general slowdown in the foundry market started to become evident towards the end of the second quarter and there were indications of a further general slowdown through the third quarter. More specifically, after a strong first half the NAFTA railroad foundry industry began to slow down. The Brazilian foundry industry had a weak first-half — the truck industry upgraded from Euro III to Euro V environmental specification engines. However, it took time for excess inventory of Euro III engines to be sold and, at the same time, the higher specification diesel fuel for Euro V engines was not widely available, with the result that sales of Euro V trucks fell significantly. However, by the second half inventory was being reduced and fuel availability improved, resulting in a gradual recovery of the truck foundry sector.

In Europe, after a firm first quarter, truck and wind power activity reduced with an adverse impact on the foundries reliant on those end-markets. The situation did not improve throughout the remainder of the year, but some improvements are expected in the second half of 2013.

The Indian foundry industry, largely reliant on domestic demand and automotive component exports to Europe, stagnated as power availability in the southern states reduced industrial activity and the government dramatically scaled back infrastructure projects, historically a strong driver of construction activity.

The Japanese automotive market, having suffered badly in 2011 from the effects of the tsunami in March of that year, followed by supply chain disruption in the fourth quarter from severe flooding in Thailand, which is the principal source of wiring harnesses for Japanese automotive OEMs, recovered with a total production of 8.5 million cars up from 7.2 million in 2011. However, the construction equipment segment suffered a severe downturn during the second half of 2012, as political tension between Japan and China, as well as a reduction in China infrastructure spend, reduced machinery and component exports to China.

The Chinese foundry industry suffered a contraction starting mid-2011 across all segments, as government attempts to restrain an overheated economy took effect. Increases in both fuel and interest rates further reduced car and truck sales. Some recovery was evident during 2012 as automotive production picked - up and, following the change in political leadership at the end of 2012, the indications are for a recovery in industrial activity during 2013.