Sunday 31 May 2015

Tupy expects four years' significant growth

Brazilian foundry Tupy SA is forecasting four years of “significant growth” of its compacted graphite iron (CGI) business from the automotive sector.
Speaking at a shareholders’ AGM meeting of SinterCast earlier this month, Luiz Tarquínio S. Ferro, president of Tupy SA, was unable to publicly quantify the nature of the company’s growth as this would require Tupy to officially spell out the predicted performance on its company web site.

But he sees CGI growth in particular coming from the company’s three major customers, Ford, Audi and Daf, part of Paccar. Ford is probably Tupy's biggest single customer from the viewpoint of CGI components. Ford's 6.7-litre PowerStroke V8 diesel engine, machined and assembled at the automaker's Chihuahua Engine Plant, is a major component in Tupy's supply CGI chain with production running at around 20,000 units a month.

He noted that organic growth and strategic acquisitions have secured Tupy's position as the world's largest independent foundry and the world's largest and most diversified provider of CGI. 

Production of components, principally cylinder heads and blocks, rose from 389,000 tonnes in 2010 to 416,000 tonnes in 2011. The following year production rose 24 per cent to 516,000 tonnes. In 2013, total output had climbed to 586,000 tonnes before dipping the following year, 2014, to 542,000 tonnes

Ferro told SinterCast shareholders that CGI has become an increasingly important component of Tupy's current business and future growth strategy. He said: "Tupy is committed to leading the global trend of CGI for high performance, efficient, cleaner engines. I think more and more CGI will be replace aluminium in certain engine components."

With several CGI components already in series production, Ferro confirmed that Tupy has secured additional CGI production commitments and that CGI has the potential to grow from the current 13 per cent of automotive sales volume achieved in the first quarter of 2015. This compares with 10 per cent of sales in the first quarter of 2014. The company has the potential to supply 2.5 million engine equivalents.

Tupy’s net income doubled in the first quarter of this year to R$ 60.6 million compared with R$ 30.1 million in the same period of 2014.

Ford Motor Company is among Tupy’s largest customers for CGI engine components with the 2.7-litre EcoBoost turbocharged gasoline engine being the latest to come on stream at the Lima Engine Plant, Ohio. The engine’s availability in Ford’s F-150 pick-up truck is seen as the precursor of other applications.

From the world's first high volume CGI programme in 2003, to the world's first high volume CGI petrol engine in 2014, Ferro confirmed that Tupy is committed to leading the global trend toward CGI for “performant, efficient and green engine technologies”.

He sees increasingly that CGI will replace aluminium for certain engine components.

Some 90 per cent of Tupy’s CGI business is automotive related, with commercial vehicles accounting for 43 per cent of business and another 24 per cent from light vehicles. Off-road engine business accounts for a further 28 per cent.

Ferro claims that 52 per cent of the business is derived from the NAFTA region with 25 per coming from Europe. Latin America accounts for 29 per cent leaving four per cent for other regions.

Expressed another way, Tupy claims to be leader in market share in the Americas of engine cylinder blocks and heads in off-road, commercial vehicle and passenger car sectors. In Europe, Tupy is fourth, fifth and seventh respectively.

In the western world as a whole, Tupy claims market leadership in off-road and commercial vehicle markets, while occupying fourth place in passenger car use.
                                            Four production facilities

Tupy started making CGI components in 1997 though technically production of CGI parts began at Cifunsa in 1994 – however, Cifunsa later became part of Tupy.

Tupy has four facilities together employing some 12,000 people – Ramos Arizpe and Saltillo in Mexico (where they are ideally suited to serve North America) and Maua and Joinville in Brazil.

Ramos Arizpe, with 1,000 employees has an output of 92,000 tons; Saltillo with twice as many employees (2,000) has an output of 216,000 tons.

In Brazil, the Joinville operation is the major source of production with 440,000 tons output and 7,000 employees. Maua, with 1,000 employees, as a similar output to Ramos Arizpe with 100,000 tons.

Tupy has come a long way since it began producing iron pipes in 1938. Some 20 years later, in 1957, the foundry entered the automotive sector by sourcing components to Volkswagen AG. Tupy now claims to have a 25 per cent market share in the production of engine cylinder heads and blocks. And to bolster its relationship with the automotive industry, Tupy has added pre-machining capacity; the more so is this a benefit to the customer as CGI is "different from most materials" from the viewpoint of machinability.

Tupy has over 50 automotive customers of which the leaders, where it is best in class, are: Volkswagen AG – 57 years; Chrysler – 51 years; Mercedes-Benz – 51 years; Daimler AG – 33 years; Cummins Inc. – 28 years; Ford Motor Company – 19 years; John Deere – 18 years; Caterpillar Inc. – 15 years and Audi – 11 years.

Tupy uses CGI process control technology from SinterCast which claims that programmes currently in series production have the potential to provide over 2.5 million engine equivalents. 

As reported earlier, beyond the current production, various programmes under development at Tupy and at SinterCast's other foundry partners will enable the Stockholm-based company to surpass the three million engine equivalent milestone and provide further growth opportunities, it is claimed.  Tupy is SinterCast’s biggest and most important customer.

The Swedish company’s recent growth has been well diversified, with double-digit growth contributions coming from each of the passenger vehicle, commercial vehicle and industrial power sectors. 

From 2007 to 2015, the Stockholm-based company has been able to achieve, on average, a consistent and near continuous straight-line growth (despite two dips in 2008 and 2012) of 18 per cent, though now of course it is becoming more difficult to achieve a growth of 18 per cent of 2 million engine equivalents than it was with an accumulation of one million engine equivalents.

But with three installations already in 2015, the company has had the fastest start it has ever had. The company is hoping that Ford’s 2.7 litre V6 petrol engine, which has been a “particularly strong contributor recently” and provides an important reference for CGI in petrol applications, will act to “motivate and challenge” other OEMs to explore the potential of CGI.

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