February 2004

Hope and potential for PM in Europe East and West

As economies of scale bring down the price of iron and steel powders globally, Europe will continue to lead in material and process
development in PM. But while Western Europe will be forced to concentrate on more expensive high-tech products, Eastern Europe will provide the qualified personnel that will lead expansion, initially in the low-price, high volume end of the market. Those were the views expressed by Per Lindskog in his plenary address to the PM2003 conference in Valencia...

The ferrous PM industry has performed very well over the past half century with annual growth rates ranging between four and eight per cent. Compared to other metal working industries this performance is outstanding. What can we expect for the future? Are we approaching saturation or can we expect the market to grow further at this rate?

My view - but I am a born optimist - is that we can expect the industry to grow, even at an increased rate. I hold this view for several reasons. One is the great improvement in performance in PM that has taken place with regard to material properties, shape complexities achievable and dimensional precision. Further perfection is to be expected, as these developments will make it possible for PM technology to find new and demanding applications.

In addition to technical developments that further the use of PM technology, there are other equally strong reasons for optimism to be found in economic developments in the industry. Although PM has proved to be a very competitive method to mass-produce precision components the high price of the raw material - the iron powder - relative to the wrought steel used in alternative metal forming processes has impeded the growth of the industry.

Obviously the production costs were high in the first decades of the industry, when iron powder plants produced less than 10 000 tonnes per annum. Steel plants were making millions of tonnes in the same period.

Now there are a few iron powder plants around the world making more than 100 000 tonnes yearly, and the largest one, the Hoeganaes Corporation's Gallatin plant, has a capacity of 350 000 tonnes. The increase in scale of iron powder operations obviously has had an effect on production costs. As a result the ratio between the price of iron powder and that of steel has gradually been reduced. The competitive strength of ferrous PM has been increased, but the price of iron powder is still about double that of wrought steel.

However, I believe that as the price gap between iron powder and steel closes, the PM alternative becomes more and more attractive. And as technical developments provide means to cater to demanding new areas of application, the result must be continued, if not accelerated, growth of the PM industry.

During the second half of the 20th Century the iron powder market became dominated by the two giants - Höganäs AB in Sweden and Hoeganaes Corporation in America, who derived much of their strength from their intense co-operation in R&D and process development.

They were leading the development of new high-compressibility iron powders and new high-strength materials based on new alloying principles. In this way they made an invaluable contribution to PM technology, and thus to the whole PM industry. But their dominance made it difficult for other players to cut their slices of the steak.

Four years ago they cut their ties and they are now competing fiercely in all markets. This works to the advantage of producers of sintered components. Basic iron powders are becoming a commodity, which many iron powder producers offer at gradually lowering prices. The other iron powder producers have also come up with new developments catering for the high end of the market, with ever-more sophisticated alloyed powders, premixes and bonded powders.

The driving force for the enormous development of ferrous powder metallurgy that has taken place in the last 70 or so years has been the commercial advantage offered by the technology for the mass production of complex precision machine components though an automatic process that does not create waste. As long ago as the 1930s engineers at General Motors realised that PM was by far the most economic way to make lots of oil pump rotors and housings for their car engines. The profile of this part, I have been told, is almost impossible to make economically by conventional machining processes.

A prerequisite for the development of PM technology has been a functioning market economy with free and active competition. Whoever comes up with the cleverest to a problem first and brings it to market in the shortest time is the winner.

Political, economic, geographic and other boundary conditions have varied throughout the world. The most favourable conditions have been in the US, with its immense homogenous market without trade barriers. Here we find leaders in mass manufacturing, and here we find the world's largest PM components plants. Altogether they consumed more than 350 000 tonnes of iron powder in 2002, some 2.4 times European consumption of 147 000 tonnes.

Another reflection of the favourable conditions in the United States is the comparatively low price of PM components. On average they are half the price of their European equivalents.

Perhaps the least conducive system for rapid development was the centrally planned economies of communist countries. However, those times are past and now the countries of Eastern Europe constitute the most promising environment for industrial development in the world. While their economies are still shaky, infrastructure is rapidly improving, and above all there is an enormous pool of human resources - well-educated people who are raring to go.

My first advice to the West European PM community is: "Don't wait. Take off your blinkers and go there." This is where the growth in automobiles and other mass-produced consumer goods is going to be. The European automobile industry is leading the way with Volkswagen and Skoda in the Czech Republic, Renault in Romania and Toyota in Poland. Don't wait, or others will be there before you!

So where is Western Europe in this economic landscape, and what is typical of European powder metallurgy? Well Europe is not yet a country and the market is far from homogenous, though it is changing in this direction with the gradual introduction of the Euro. The integration of Eastern European countries into the EU will create American conditions as regards size of market. We will, hopefully, maintain the cultural diversity of Europe, but I see no reason why market forces should work differently in Europe from America in the future.

One of the greatest differences in economic boundary conditions between America and Europe - and the one that has the greatest influence on the automobile industry - is the price of petrol. Less directly, this has an effect on the PM component industry too. Petrol in Europe is about three times the price of America. Whether this situation will prevail is beyond my competence to predict. But it has persisted for the last 50 years.

The consequence for the PM industry has been that European cars have been consistently smaller with less PM parts in each. Today those levels are about eight kilograms in a European car against eighteen kilograms in a US vehicle. In the same vein, automatic transmissions are prevalent in the US, while there is a preference for high speeds in Europe.

The Americans, with their low-priced petrol and large cars cruising at low speeds tend to pay less attention to high performance and more to comfort and economy. In a few places in Europe cars can be legally driven at twice the maximum speed limit of some US states.

Automatic transmissions make use of a lot of PM parts compared with the manual transmissions and higher speeds commonly seen in lighter European models. Light, fast vehicles favour light, high-strength components, and these demands sometimes cannot be met by PM. There are greater demands for dimensional precision to avoid vibration, but the mechanical properties of sintered components are improving continuously and demanding applications are being met year-on-year, as witnessed by the steady change to PM from other metal-forming technologies.

It is likely that it is the Western European PM companies that will continue to spearhead the drive towards high-tech perfection in their products while the high-growth markets are developed by Eastern Europe.

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The Author: Per Lindskog is a long-time PM professional with some 40 years' experience in the business. In a 30-year career with Höganäs he rose to become the company's president. After a spell as an industry consultant he was appointed president of Ductil Iron Powders, a Romanian producer, a position he retained until Hoeganaes Corporation took the company over late last year. He was then engaged to head up the marketing activities of Hoeganaes Europe.