Metals & Manufacturing Outlook

PUBLISHER’S STATEMENT them, soon to be followed by a great rush of business froth and foam? It is the waiting that is so difficult because the anticipated wave which may be just over the horizon but seemingly rushing to burst upon the shifting sands of our economy is taking its own sweet time in its arrival.

It’s an odd time for manufacturing. The industry is shifting to its future digital self, shaking off the dust and grime of years gone into something new and beautiful, as a butterfly emerging from a cocoon where it has spent nearly 100 years. Yet, manufacturing has not yet taken wing in the 21st Century. In this strange recovery, all boats are not simultaneously rising and the tide seems mercurial and wholly unpredictable, mounting rapidly in harbors, gently ebbing and flowing in other ports, while barely moving at all in some bays. There is no tidal wave, no tsunami of growth overall. One can almost feel the swell but few can see it. Is it that the digital wave is far less fierce than previous tumults of economic tides and times? Or is this a true tsunami in the making, as waters rush from shores instead of towards

| February 2017

This is where we find investment capital, out upon the sea but not yet coming to beach heads in great sprays. New orders appear as whitecaps, some splashing upon the parched land, while others just within reach shift direction or disappear entirely. And the tide pool of backorders seems uncomfortably low and in need of replenishment; albeit, some pools appear to be filling as others seem to be going dry. As America faces a new administration, it also faces new revelations of products and processes, and the transformation of an entire industry where automation and robotics provokes a vision of futuristic manufacturing absent humans while history teaches us that technology creates many new jobs as older forms of work are blown away like dust in the wind. And caught in the middle is academia, desperately trying to balance the development of bright young minds with the demands on education by government policy wonks

and the needs of both the student and the employer for digital intelligence and thinking dexterity. As we look back over history through the hour glass of time we always see shifting sands but perhaps not quite at the pace of this moment where it is quickened with each new processor chip, miniaturization and application. We are reminded about a book by Bill Gates, “Business at The Speed of Thought” and get goose bumps in the harkening wind from the sea of change that, indeed, that time has come. And thus this sea change of an entire industry undergoing metamorphosis feels more dramatic, maybe because we are living it instead of reading about it. Today is history in the making, my friends, as modern manufacturing looks out over the landscape of possibilities in products, processes and people to serve and tries to determine where to fly first. An instant later, it is not one but tens of thousands of butterflies that have taken wing in an explosion of color and movement and fascination with the future of modern manufacturing that we hold in our hands today. Get a firm grip on your direction and decisions as modern manufacturing changes everything you see before you into that which you can only imagine. Best Regards, Lewis A. Weiss Publisher

Metals & Manufacturing Outlook

CONTENT S MANUFACTURING OUTLOOK - p.4 • CREDIT MANAGER’S INDEX - p. 9 METALS OUTLOOK - p.11 AUTOMOTIVE OUTLOOK - p.12 AEROSPACE OUTLOOK - p-15 ISSUES OUTLOOK - p.16 ENERGY OUTLOOK - p.17 GLOBAL OUTLOOK • EUROZONE OUTLOOK - p.18 • ASIA OUTLOOK - p.19 • SOUTH AMERICA OUTLOOK - 20 THE FINAL WORD - p.21 © 2017 All Metals & Forge Group

| February 2017

Metals & Manufacturing Outlook

MANUFACTURING OUTLOOK

BY ROYCE LOWE

AS WE SAID LAST MONTH, WE’RE IN FOR A BUMPY RIDE As you read this, there is no doubt that the new occupant of the Oval Office will have sent a few more salvos careering around the country and the world. There is no intention to politicize this newsletter except when major policy decisions may have significant effects on manufacturing. The ban on citizens of seven countries – Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen – may be a case in point. The president has promised to create 25 million new jobs for which there will doubtless be too few people with the requisite skills. The training schemes we’ve been waiting for will not come to fruition in time to fill the gaps. There are surely many people who are banned from entering the U.S. who could take over at least some of the jobs. The U.S. was awarded six Nobel Prizes in 2016, all to immigrants. There is a pushback from U.S. industry leaders against the ban, | February 2017

Metals & Manufacturing Outlook

Europe and most of Asia was very healthy in January, and companies in most areas are optimistic about the near-term future.

as they anticipate an accompanying shortage of skilled employees. This issue may end up in The Supreme Court.

increases, but in South America, Argentina lost 2.1 percent, Brazil 3.4 percent and Venezuela 13.7 percent. Russia lost 0.5 percent.

Threats from Donald Trump of the consequences of building automobiles in Mexico brought ripostes from the world’s major manufacturers regarding just how much they’d invested in the U.S. over the past few years. Trump is also having his say in the aerospace business. See AUTOMOTIVE/AEROSPACE OUTLOOK.

U.S. Industrial Production was up 0.8 percent in December 2016 over November, the largest increase in over two years and above analysts’ expectations of 0.6 percent. December manufacturing was up 0.2 percent compared to November and oil and gas drilling up 9.3 percent but still 10.5 percent below a year ago.

In the light of Trump’s ban, Canada’s CEOs asked Prime Minister Trudeau to offer immediate entry visas to those skilled people hit by Trump’s order.

APPLE has announced it will begin production of iPhones in India – the world’s fastest-growing smartphone market – by the end of April this year.

Meanwhile Mexico won’t pay for the wall, and the TTP is out the U.S. window.

And lest we forget, although it has lost its place in many headlines of late, Brexit is still alive and well. A bill allowing the government to trigger article 50 has passed the House of Commons and will no doubt be passed by the Lords. Until negotiations start between the EU and Britain, this whole thing may become boring.

The U.S. GDP for the year 2016 increased at a rate of 1.6 percent, as did that of the Eurozone. China’s was up 6.7 percent, India’s 7.0 percent, Britain’s 2.0 percent and Japan’s 0.9 percent. All other major economies showed GDP

Manufacturing in the U.S.,

Prices are going up, particularly for metals. Meanwhile small business in the U.S. showed more optimism in December 2016 than at any time since 1980. The National Federation of Independent Business index jumped 7.4 points in December to 105.8, the highest since the end of 2004. According to the U.S. Small Business Administration, small companies are defined as those with 500 maximum employees, and represent 99 percent of all U.S. employers. Hiring and optimism are on the up. New light vehicle sales in the U.S. were down almost 2 percent y-o-y in January 2017. Steel is still on a roll and prices are holding at levels rarely if ever seen. The Economist’s metalprice index, which monitors the prices of iron ore, aluminum, lead and zinc, has risen by 37 percent in the last twelve months. China, which accounts for over half of global metal consumption, increased its infrastructure spending in 2016, pushing up industrial metal prices. Chinese production cuts also sent up the prices of iron ore and aluminum. In the past twelve months the prices of iron ore and zinc have effectively doubled, with aluminum up around 30 percent. See further in Metals Outlook. The U.S. job figures for January from the U.S. Bureau of Labor Statistics show that 227,000 non-farm jobs were created, up | February 2017

Metals & Manufacturing Outlook

from 156,000 in December. This largely surpassed the forecast figure of 175,000 jobs, although manufacturing accounts for less than 10% of those jobs in any given month. Read more in Issues Outlook.

The Bureau of Economic Analysis, in its ‘advance’ estimate for the annual rate of Real GDP growth in the fourth quarter of 2016, put it at 1.9 percent. The figure for the third quarter was 3.5 percent.

The ISM PMI figure for U.S. manufacturing continued its healthy growth mode in the month of January, with the PMI reading moving to 56.0, up from December’s 54.5 percent. The overall economy grew for the 92nd consecutive month, tying the third longest expansion since 1945. Significant increases were noted in both production and employment. Again, there were significant increases in the price of some raw materials.

GALLUP’s U.S. Economic Confidence Index was running at an average of +14 in late January this year, with the coincident job creation index still matching the highest level in Gallup’s nineyear trend at +33.

The IHS Markit PMI for the U.S. manufacturing sector increased from 54.3 in December, to 55.0 percent in January, on the back of the strongest manufacturing production growth for almost two years, new order growth attaining a 28-month high, and a sustained rise in employment. The U.S. manufacturing sector saw its fastest rise in input costs since September 2014. There was an increase in input buying in January with attendant intensifying cost pressures, that saw higher prices for a range of raw materials, particularly oil and metals. NOTE: The five ISM components are equally weighted at 20 percent each. The IHS Markit components are weighted: 30 percent New Orders, 25 percent Production, 20 percent Employment, 15 percent Supplier Deliveries and 10 percent Raw Materials Inventories. | February 2017

World crude steel production for the 66 reporting countries for the month of December 2016 was 134.06Mt, up 5. 5 percent y-o-y. The figure for the whole of 2016 was 1628.5Mt, up 0.8 percent.

U.S. crude steel production for December 2016 was 6.619Mt, up 11.0 percent y-o-y. Primary Global Aluminum Production in December 2016 was reported at 5.154 million tonnes, of which 2.891 million tonnes, 56 percent, was produced in China. The Gulf Corporation Council (GCC) produced 449,000 tonnes, North America 338,000 tonnes, Western Europe 321,000 tonnes and Eastern and Central Europe 339,000 tonnes. It should be noted that the price of primary aluminum has increased from around $1550/tonne to around $1800/tonne since October 2016. This will allay earlier fears that the price might drop to a level where U.S. smelters would no longer see an economical proposition.

Here are the latest figures for US new car and light truck sales for ‘the big eight’ for January 2017.

Metals & Manufacturing Outlook

THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Industrial Production, Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The industrial production figures represent year-onyear changes, as do the consumer prices increases. The unemployment figures, %, are for the month as noted.

NORTH AMERICAN PERSPECTIVE

Manufacturing; Apparel, Leather & Allied Products; Paper Products; Chemical Products; Transportation Equipment; Food, Beverage & Tobacco Products; Machinery; Petroleum & Coal Products; Primary Metals; Fabricated Metal Products; and Computer & Electronic Products. The five industries reporting contraction in January are: Nonmetallic Mineral Products; Wood Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; and Printing & Related Support Activities.

The Institute of Supply Management PMI figure registered 56.0 percent in January, up 1.5 percentage points from December’s 54.5 reading, representing the fifth consecutive month of growth in manufacturing. There was growth

Comments from the manufacturing sector were positive, and all industries surveyed are looking for continuing strong demand and bookings in 2017. Food, Beverage & Tobacco products commented “no current effects

in the overall economy for the 92nd consecutive month. Of the 18 manufacturing industries, 12 reported growth in January in the following order: Plastics & Rubber Products; Miscellaneous

| February 2017

Metals & Manufacturing Outlook

of geopolitical changes appear to be penetrating market conditions.” Machinery commented on supply shortages in hotrolled steel due to curtailment of imports. Following is a summary of the five major indexes, each weighted at 20 percent in calculation of the PMI number for January. December’s readings are in parentheses: New orders

60.4 (60.2)

Production

61.4 (60.3)

Employment

56.1 (53.1)

Supplier Deliveries

53.6 (52.9)

Inventories

48.5 (47.0)

Commodities up in Price in January were: Aluminum (3); Benzene; #1 Bundle Scrap (2); #1 Busheling Scrap (2); Butadiene; Copper (3); Corn; Corrugate (4); Corrugated Boxes (3); Methanol (4); Natural Gas (2); Nickel (2); Paper; Petroleum Fuels (2); 304 Stainless Steel; Stainless Steel (10); Steel (13); Steel – Carbon (2); Steel – Cold Rolled (3); Steel – Hot Rolled (2); Styrene; and Titanium Dioxide (2). Commodities Down in Price: None Commodities in Short Supply None Note: The number of consecutive months the commodity is listed is indicated after each item.

The following five components are not instrumental in the PMI calculation, but are an important part of the manufacturing industry: Customer Inventories

48.5 (49.0)

Prices

69.0 (65.5)

Backlog of orders

49.5 (49.0)

New export orders

54.5 (56.0)

Imports

50.0 (50.5)

CANADA’S IHS Markit Manufacturing PMI increased to 53.5 in January from December’s 51.8 reading, with manufacturing showing the fastest growth since December 2014. New order and production grew at the fastest rate for over two years, and input price inflation went to its highest since June 2014. This was all accompanied by a rise in employment. Some 41 percent of companies surveyed expect an increase in

| February 2017

production volumes in 2017, with just 6 percent anticipating a reduction. Input buying increased solidly at the beginning of 2017, with inventories falling for a further month. Manufacturing growth was the strongest for three years in Alberta and BC. Ontario had a good month, but lower export sales led to a deterioration in Quebec. Canada produced 1.03 Mt of crude steel in December, down 3.7 percent y-o-y, and 12.7 Mt for 2016, up 1.6 percent y-o-y. Canada’s light vehicle sales were up 2.2 percent y-o-y in January to 110,945 units, with light truck sales at 78,731, up 5.4 percent y-o-y and cars at 32,212, down 4.8 percent y-o-y. MEXICO saw a slightly stronger rise in new orders, production and employment in January, with a slight increase in the PMI from 50.2 in December to 50.8 in January. Input price inflation is at its highest level in over five years, and confidence is falling significantly due to political and economic uncertainty. Mexico produced 1.705Mt of crude steel in December, up 24.1 percent up y-o-y, and 19.0 Mt for 2016, up 4.3 percent y-o-y.

Metals & Manufacturing Outlook

CREDIT MANAGER’S INDEX

BY CHRIS KUEHL, PH.D Ph.D. “The momentum that was building through 2016 started to pick up steam with the election of Donald Trump and the promise of more businessfriendly policies. It is not yet clear whether these will come to fruition, but there remains some feeling of optimism.”

The following material is from the Credit Managers’ Index report issued by the National Association of Credit Managers on January 31, 2016 as written by Chris Kuehl, Ph.D.

So far, so good. Last month, the CMI data showed a nice bounce and numbers that were as good as they have been in several months. This improved data came after a few months of less-than-stellar performance, so the question on most minds was

what would happen this month. Would there be further progress or would the numbers shrink back to the levels noted in previous months? The good news is that there was no shrinkage—or at least very little. It turned out to be a steady month with overall numbers very close to what they had been in December. “This has been the pattern thus far this year, as far as the economy is concerned,” said NACM Economist Chris Kuehl,

The combined score for the Credit Managers’ Index was 54. It was 54.1 last month. One would have to go back to March and April of 2016 to get numbers in this range. The combined scores for the favorable factors at 60.8 was an improvement over the 59.1 registered last month. The news was not quite as good for the combined unfavorable numbers, however, as they sipped from 50.8 to 49.5, back into the contraction zone. “It is safe to assert that about half the companies out there are starting to see some real improvement in their prospects while others | February 2017

Metals & Manufacturing Outlook

are in real trouble and can’t find a way to dig out of all this,” Kuehl said.

capacity utilization numbers of late and this credit data is consistent with these gains.

The breakdown of the favorable factors shows improvement in a variety of categories. The sales data improved from 58.6 to 60.1, nearly as good as the numbers were in November. The new credit applications reading also jumped up into the 60s as it moved from 57 to 60.8, the highest level seen in well over a year. The dollar collections numbers slipped a little from 59.5 to 58.2. This is consistent with the overall decline in the unfavorable categories. The amount of credit extended shifted up as well and hit levels not seen in two years by moving from 61.4 to 64.1. This kind of movement suggests that bigger customers and clients are asking for more substantial credit allocations. That means more machinery orders and inventory orders. There has been improvement in the nation’s

The bad news is found in the unfavorable factors. “The contrast between the two suggests there is a shakeout of sorts taking place in the economy,” Kuehl said. “There was a slight decline in the reading for rejections of credit applications which takes a little of the wind out of the sails of the positive new application numbers, as there is a suggestion that some of these new applicants are not all that creditworthy and are hoping that somebody isn’t paying enough attention.”

| February 2017

There was a similar set of readings in the manufacturing category, but the unfavorable factors stayed above 50, a positive development in general. The combined score for the index as a whole was 54.3, an improvement over the 53.8 that was

recorded last month. The sense is that manufacturers are starting to get more excited about the coming year and are leaning toward more investment in capital goods and even additional hiring. The latest capacity utilization numbers at the national level have been tightening, although the percentage is still below the level considered normal (80% to 85% usage). The combined score for the favorable factors was 60.5, after a reading of 58.5 the month before. This marks the highest level seen in the past two years. The combined score for the unfavorable factors dipped just slightly, but stayed above the 50 mark by moving from 50.7 to 50.1. The specific categories tell an interesting story as well. The sales category jumped from 58.7 to 61.7, the best performance seen in over two years. Likewise, there was a big jump in the category of new credit applications (56.1 to 61.8), again the best numbers in over two years. There is clearly a lot more activity than has been seen in a while. Dollar collections showed some weakness, with a reading that went to 55.3 after a previous mark of 59.3. It has been noted that there was not much change in the category of rejections of credit applications—a shift from 51.5 to 51.6. This is very good news, as it suggests that all those new applications are coming from legitimate sources and ones that are creditworthy. The amount of credit extended jumped into the 60s as well—the third month in a row as it moved from 60.2 to 63. The companies asking for credit are asking for more and that is a good sign.

METALS OUTLOOK

Metals & Manufacturing Outlook

BY ROYCE LOWE

The demand for automotive aluminum sheet was over one million tons in 2015 and is expected to hit some 1.7 million tons by 2020. Prominent international aluminum giants such as Novelis, Kobe Steel, Constellium, Aleris, and Alcoa have increased their investment in newly built and expanded aluminum alloy automotive sheet projects in North America, Europe and China . At the end of 2015 Novelis claimed it had worldwide capacity of 900,000 tons, including 400,000 tons in North America, 350,000 in Europe and 120,000 tons in China. American Specialty Alloys plans a $12 billion investment to build the world’s largest automotive aluminum sheet factory with a planned capacity of 600,000 tons per annum, with a goal for start of production of 2020.

In 2016 China produced 808 Mt (megatonnes) of crude steel. That’s 808 million tonnes or 890 million tons. Effectively half the world’s steel. World crude steel production in 2016 was 1628.5 Mt, up 0.8 percent on the output in 2015.China has committed to cutting down on its steel production and in fact two of its biggest steel companies have merged into one that could almost challenge ArcelorMittal for capacity. But the cutbacks will take place over a number of years and there should be no expectations of too much immediate ‘relief.’ The imposition of heavy duties on Chinese steel products by North America and Europe have allowed for steady, in fact quite dramatic, increases in steel prices over the past twelve months or so. With manufacturing looking as healthy as it presently does this may continue for a while, notwithstanding steel’s tendency to change its price with very little notice. The price of

iron ore has doubled in the past twelve months. Along with the increase in steel prices, the price of zinc has doubled in the past year, that of lead has increased 50 percent and of aluminum 30 percent. Zinc and lead prices have risen in part because of mine closures in Australia, Canada and Ireland, together with an anticipated construction boom in the U.S. Prices may not have peaked; the World Bank is forecasting a further 11 percent increase this year. Voestalpine AG is to add a new high-speed forging line, a $42 million project, at its Bohler Edelstahl operation in Kapfenberg, Austria. The 4,400 tonne line will be capable of 120 strokes per minute and will produce high-load bearing aircraft components and workpieces for products used in oil and gas exploration, processing and handling. Completion and start-up are scheduled for 2018. Atlantic Precision (AP), Port St. Lucie, Fla., was purchased late last year by Precision Castparts Corp. (PCC) of Portland, Ore. AP specializes in the 3D printing of metal parts with experience in the aerospace market. It offers direct metal laser sintering (DMLS) printing services in Inconel 625, Inconel 718, cobalt chrome, aluminum and titanium for prototyping or production. Private equity fund Generation Growth Capital bought AP in 2014, but has since decided to divest itself of the asset at an undisclosed price. PCC is a global supplier of cast and forged components for aircraft and industrial gas turbines. | February 2017

Metals & Manufacturing Outlook

AUTOMOTIVE OUTLOOK

NO SHORTAGE OF AUTOMOTIVE INDUSTRY NEWS THIS MONTH started,” Hinrichs said after a speech at Automotive News World Congress in Detroit. “We don’t take it lightly. It was a big decision to build the plant in the first place and it was a big decision to cancel it.” FCA will invest $1 billion to produce three new Jeep models plus a Ram heavyduty pickup that is now built in Mexico. Production is planned by 2020, retooling will take place in Michigan and Ohio, and 2,000 jobs will be created. FCA presently employs over 11,800 workers in Mexico at seven plants, which shipped 477,000 vehicles in 2015. Ford Motor Co. is working on a plan to compensate parts makers that were preparing to supply the plant the company canceled last week, and will return the land to the Government of Mexico, according to an executive. The foundation was poured and some steel beams were going up at the site of the small-car factory | February 2017

that President-elect Donald Trump criticized on the campaign trail, Joe Hinrichs, Ford’s president of the Americas, told reporters recently. The company will eventually disclose the construction cost of the aborted project, he said. “It’s not an easy decision to cancel a plant that you’ve already

GM “made its production decisions for all its new models several years ago and has no plans to change them.” Thus Mary Barra, GM Chair and CEO. The company will move its revamped GMC Terrain to Mexico from Canada and will expand production of the Ontario plant’s Chevrolet Equinox. In 2016

Metals & Manufacturing Outlook

GM delivered 242,000 Equinox models and 88,000 Terrains, all from its plant in Canada.

would throw into the automaker’s strategy to maximize efficiency at its regional assembly plants.

The company is expected to invest $1 billion over several years and to add or retain 1,000 jobs. This information is from a person who asked not to be identified.

The German auto industry, BMW, Daimler and VW, have quadrupled their collective production since 2009 and produced 850,000 vehicles in the U.S. in 2016, and about half that total in Mexico. Some 110,000 U.S. workers are employed by German automakers and parts suppliers. BMW did not hesitate to remind Trump that there are other countries in the world that may buy cars made in Mexixo, nor that their largest manufacturing site is in South Carolina.

Meanwhile Toyota pointed out that over time it has directly invested $21.9 billion in the U.S., has ten manufacturing plants, 1,500 dealerships and 136,000 employees. In answer to Trump, the company is adding 400 jobs in Indiana,and in a $600 million investment will boost production of the Highlander, its second-best-selling SUV in the U.S. by 40,000 units per year. In 2016, Toyota built 2.12 million vehicles from eight N.A. Assembly plants and imported more than one in four sold in the U.S. from outside N.A., mostly from Japan. Toyota says it is having no second thoughts about plans to build a new assembly plant in Mexico for Corolla small car production, despite the threatened border tax. A shift in strategy is impossible in the near term due to complexity involved in rejigging the supply chain and the wrench it

The PSA Group (Peugeot and Citroen) have signed a joint venture agreement with India’s CK Birla Group to increase the

French automaker’s vehicle production capabilities in India. Some 100 million euros will initially be invested in two plants building vehicles and powertrains in the state of Tamil Nadu – for market in 2020. Two JVs; the PSA Group will have a major stake in a company being set up with Hindustan Motors Finance for assembly and distribution of PSA passenger cars in India, and in the second agreement there will be a partnership betweenPSA and AVTEC, a transmission and powertrain manufacturer. Initial production

will be 100,000 cars per year with further investment to increase capacity. Powertrain manufacturing capacity will serve both the domestic market and global OEMs. The Indian auto market is expected to reach 8 to 10 million cars by 2025 from 3 million in 2016. Hyundai Motor Co. and its affiliate Kia Motors Corp. say they will spend $3.1 billion in the U.S. in the next five years. They spent $2.1 billion in the past five years, and are considering a new factory. Kia opened a new $3 billion, 200,000 units per year factory in Mexico two months before the U.S. Presidential election, with plans to increase its capacity to 400,000 units per year by 2018. Magna – Canada’s – and one of the world’s – biggest autoparts makers, has done an analysis to show the importance of free trade in the competitiveness of manufacturers across North America. The industry is integrated, and neither Canada or the U.S. - or Mexico – want to make the value chain less efficient. Canada and Mexico are holding their breath for Trump’s changes to NAFTA, with Trump speaking of starting re-negotiation soon and his representatives having already had initial meetings with both countries. Don Walker, Magna’s CEO, says a border tax between the U.S. and Canada makes no sense, a view shared by leaders in Michigan, Ohio and

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Metals & Manufacturing Outlook

Musk to expand in France. So far Tesla’s European operations are in The Netherlands and Germany. France’s sales of EVs in France for the first 11 months of 2016 were at 24,036 units, up over 25 percent on 2015’s figure. There are 34,700 charging stations in France, double Germany’s figure and four times the UK’s. France is targeting 7 million stations by 2030. Is James Dyson, the vacuum cleaner King, going into the electric vehicle business? He Indiana – key areas of Trump support. Isolating Mexico makes no sense either, since the country provides a key labor pool in the manufacture of autoparts for the U.S. and Canada. Without Mexico the alternative in the supply chain is China. A study by the Motor and Equipment Manufacturer’s Association (MEMA) says auto component manufacturing jobs in the U.S. have increased by some 19 percent since 2012. MEMA says that over 871,000 Americans are directly employed by the autoparts manufacturing industry, up from 734,000 in 2012, and that this represents 2.9 percent of U.S. jobs and 2.4 percent of U.S. GDP. Together with employment-induced jobs the total impact of the motor vehicle parts manufacturing industry is 4.26 million jobs, up 18 percent from 3.26 million in 2012. All this investment in new equipment and the creation of thousands of new jobs raises a | February 2017

question as to whether or not the timing is quite right and if the new plants will pay. Will the auto executives who have ‘promised’ to build extra capacity be able to rationalize their decisions in the light of an unknown future for vehicle sales, be they sedans or SUVs or CUVs or pickups? Sales have gained for seven straight years; will they continue to do so? Meanwhile Mexican light-vehicle dealers ended a very good year in 2016, on target at 1,601,826 units, 18.6% ahead of the prior benchmark of 1,350,099 set a year earlier.

recently hired Ricardo Reyes, Elon Musk’s top spokesman as his communications chief. Dyson spent $70 million to develop a highly-engineered hair dryer called The Supersonic, which retails for $400, and he bought a battery startup in 2015 for $90 million. He will spend $1 billion over five years on battery development.

BYD, a Chinese automaker backed by Warren Buffett’s Berkshire Hathaway Inc., is already selling buses and taxis in the U.S. and plans to sell passenger cars in the U.S. in 2-3 years. BYD specializes in electric and plug-in fuel-electric devices.

Despite its scandal-ridden recent past, VW is back at the top of the world auto sales league, having seen its sales move up 3.8 percent in 2016 to 10.3 million units, just ahead of Toyota, whose sales moved a mere 0.2 percent to 10.2 million units.

France’s Economy Minister, Michel Sapin, visited Tesla recently to try to tempt Elon

Metals & Manufacturing Outlook

AEROSPACE OUTLOOK

savings of $728 million will be realized compared to the previous contract according to the Pentagon, more than the $600 million Trump promised. In fact the contract had been under negotiation for more than a year and Defense Department officials were already working towards a cost reduction before Trump’s tweeted dissatisfaction. Safran SA, a French manufacturer of aircraft engines, agreed

Boeing’s 2016 deliveries, at 748 aircraft in 737, 747, 767, 777 and 787, come in just over its 745 target. It has new orders for 668 aircraft worth $94.1 billion at going rates. The year-end backlog is 5,715 aircraft contracted but as yet unbuilt. The company has a $22 billion order from an Indian Budget Carrier, Spice Jet Ltd. With 155 aircraft planned. Airbus booked 320 jetliner orders in December 2016 to end the year with 731 sales, extending

its backlog and beating rival Boeing. The 320 orders include 98 to Iran Air and 72 to India’s Go Airlines India. Airbus has an order from Flynas, a low-cost Saudi Arabian carrier for 80 A320 neo jets for delivery between 2018 and 2026. The A320 model is the new engine option, and the world’s best-selling single-aisle aircraft, with 5,000 ordered from 90 customers since 2010.

to buy plane-seat supplier Zodia Aerospace SA for $10.5 billion. Safran is partnered with GE in the CFM International alliance that makes engines for shorthaul jets. The deal will create the world’s third-biggest aerospace supplier behind GE and United Technologies’ Pratt and Whitney.

Lockheed has won an F-35 contract worth $8.2 billion ‘after Trump intervenes.’ Based on a per-plane cost, for 90 jets,

| February 2017

Metals & Manufacturing Outlook

ISSUES OUTLOOK

BY ROYCE LOWE Of the 227,000 non-farm jobs created in the U.S. in the month of January, 44,000 were in Trade, Transportation and Utilities; 39,000 in Professional and Business services; 36,000 in Construction and 5,000 in Manufacturing. This does not sound like a reflection on the number of manufacturing jobs available, rather on the availability of skilled workers. Trump gathered around him a bevy of industry heavyweights, including GE’s Immelt and Ford’s Fields, representing the U.S.’s major industries to help him get America back to work. The group agreed to meet ‘from time to time.’

| February 2017

The Wall Street Journal says companies across the U.S. are looking to find job candidates with the right mix of soft skills and are thus investing more time and resources to locate and hire them. The WSJ did a survey last year of some 900 executives, and 92 percent of them said soft skills were just as important, in some cases more so, than technical skills. Some 89 percent said they were having a somewhat

difficult time finding candidates with the required attributes. The top eight in – demand soft skills are good communication skills; a strong work ethic; good organizational skills; social savvy; time management abilities; critical thinking; team orientation; and flexibility and adaptability.

ENERGY OUTLOOK

Metals & Manufacturing Outlook

BY ROYCE LOWE The Keystone XL and Dakota Access pipelines have been revived by Donald Trump, who in his normal articulate manner said, quote, “From now on we’re going to start making pipeline in the United States. If we build it in the United States, build the pipelines, we want to build the pipe. It’s going to put a lot of workers, a lot of steelworkers back to work. OK. We will build our own pipeline, we will build our own pipes. That’s what it has to do with. Like we used to in the old days.” Canada’s PM Trudeau is in accord with continuation of the projects since it will bring jobs back to Alberta. But Canada’s commitment to the climate will not be affected says Trudeau. Toyota will be joined by Royal Dutch Shell, Total, BMW AG, Daimler AG, Honda and Hyundai, Air Liquide SA, Linde AG, miner Anglo-American plc, electric utility Engie SA, rail company Alstom SA and motorcycle nad heavy equipment manufacturer Kawasaki Heavy Industries Ltd. in investing $10.7 billion in hydrogen-related products over five years. Fuel-cell vehicles are the cornerstone of Toyota’s plan

to reduce its carbon dioxide emissions by 90 percent by 2050. Construction is to start on the largest offshore windfarm in the U.S. in 2019, for completion by 2022. Initially 15 turbines with 90 megawatt capacity will power 50,000 households. Deepwater Wind, the project operator, has not yet decided on a turbine manufacturer. This is only the second wind farm in the U.S.: the first, off Rhode Island’s Block Island, has been operating since December 2016, with five turbines manufactured in France by GE Renewable Energy, and is powering 17,000 homes. In the South Fork area of New

York state there is a potential for 1,000 mW, and New York’s Governor Cuomo has committed to generating 24 gigawatts, to power 25 million households, by 2030. Three Southern California battery storage plants built with Tesla powerpacks, were due to go online in early February. Three massive battery storage plants – built by Tesla, AES Corp and Altagas Ltd – are all officially going live in Southern California at about the same time.The combined projects represent 15 percent of the battery storage installed planet-wide in 2016. | February 2017

Metals & Manufacturing Outlook

EUROZONE OUTLOOK

BY ROYCE LOWE

HS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) took a further slight upturn in January to 55.2 from December’s 54.9 reading, to reach a 69-month high. The new year brought a marked improvement in business conditions at eurozone manufacturers. Austria, the Netherlands and Germany are atop the growth rankings, with an increasing contraction rate in Greece. Production growth remains at December’s 32-month record, and new orders and employment show their best performance since the first half of 2011. Price pressures are intensifying with

increases in inflation rates in input costs and output charges. January saw increases in manufacturing production for the 43rd consecutive month, and a rate of growth in new export business to a three-year high, attributed to both a weak euro and improving global demand. Employment is up for the 29th consecutive month, and business optimism at its highest level since mid-2012. New car registrations in Germany were up 11 percent, y-o-y in January to 241,399 units; in Spain up 11 percent to 84,515; in Italy up 10 percent to 171,556 – the best performance since 2010, and in France up 11 percent to 153,055. In all cases there was a heavy percentage of business and rental sales. It should be noted that there were two more selling days this year than in 2016. Crude steel production in Germany in December was at 3.230Mt, up 8.2 percent y-o-y; in Italy 1.776Mt, up 19.8 percent

| February 2017

y-o-y; in France 1.365Mt, up 39.6 percent y-o-y and in Spain 0.927Mt, down 1.5 percent y-o-y. Russia’s crude steel production for December was at 6.213Mt, up 8.0 percent y-o-y; Ukraine’s was 2.015Mt, up 4.5 percent y-o-y. IHS Markit reports a strong start to the UK’s manufacturing sector in 2017 despite a survey record increase in input costs. The PMI figure for January, at 55.9 was very slightly down on December’s 56.1. There were solid increases in new orders and production, that were mostly domestic driven, with only a modest increase in export orders. Employment was up for the sixth consecutive month, but at a lower rate than in December 2016. Average purchase prices were up at the highest rate in the 25-year history of the survey, due to weak Sterling and higher prices for such commodities as oil, plastic and steel. The UK produced 0.550Mt of crude steel in December, down 8.8 percent y-o-y.

Metals & Manufacturing Outlook

ASIA OUTLOOK

BY ROYCE LOWE to export inflation around the world through its supply chains as manufacturers are squeezed by higher input costs and raise selling prices. Producer prices: mining is up 21.1 percent in December y-o-y and raw materials up 9.8 percent.

There was further improvement in the health of China’s manufacturing sector at the start of 2017, but at a slower rate than in December, as production and new orders increased at weaker rates accompanied by a further moderate reduction in employment. New export orders, however, rose at the fastest rate since September 2014. The Caixin PMI figure for January was 51.0, down on December’s 51.9 47-month record reading. There were inflationary pressures on both input costs and output charges. Companies remain optimistic. The country’s Producer Price Index rose at the fastest pace in over five years in December, 5.5 percent y-o-y, versus 3.3 percent in November. China looks poised

CHINA produced 67.22Mt of crude steel in December, up 3.2 percent y-o-y; Japan 8.71Mt, up 1.5 percent y-o-y; India 8.40Mt, up 15.0 percent y-o-y and South Korea 5.86Mt, down 0.2 percent y-o-y. Taiwan produced 1.83Mt in December, up 12.7 percent y-o-y. There were 2,672,300 new car registrations in China in December, an all-time high. EV registrations in China in 2016 were at 351,861 units, representing 46 percent of all plug-ins sold worldwide. Of the 44,874 EVs registered in December, 108 were supplied by Tesla.

strongest in more than two-anda-half years, and greater demand is expected from preparations for the 2020 Olympics. INDIAN manufacturing is coming out of the rupee-demonitization downturn, with new orders and production increasing in January but with only slight expansion rates. There was more input buying with input cost inflation at a 29-month high. There was no increase in employment. The PMI figure in January was up on December’s 49.6 reading to 50.4. Intermediate goods was January’s bright spot, with investment goods moving into contraction.

JAPAN’s manufacturing sector saw its PMI move slightly higher than December’s 12-month high of 52.4 to 52.7 in January. Production, new orders, employment and buying activity were all up in January, with input prices rising at the fastest rate in almost two years, and selling prices following suite. Business sentiment is at its | February 2017

Metals & Manufacturing Outlook

SOUTH AMERICA OUTLOOK 20

BY ROYCE LOWE Brazil’s crude steel production for the month of December was 2.15Mt, a decrease y-o-y of 12.7 percent. The JP MORGAN GLOBAL MANUFACTURING PMI – a composite index produced by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – stayed the same as December’s 34-month high of 52.7 in January.

Brazil’s manufacturing downturn continues even further in January with new orders, pro(Because of late reporting, no duction, buying and employment data for China, Taiwan, Vietnam all falling sharply. of Malaysia are included in the Global results) The PMI for January, at 44.0, down from December’s 45.2 The global improvement in busifigure, is a 7-month low. Input/ ness conditions is led by the output cost inflation is on the investment goods sector, where rise. the PMI rose to its highest level in over five-and-a-half years. Again, nothing looks good in the Brazilian manufacturing sector. Among the larger industrial nations, the U.S., the euro area and the UK showed faster rates | February 2017

of expansion, while growth slowed in Japan. South Korea, Brazil, Turkey and Greece were the only nations to show contraction. There was a further increase in new orders and backlogs of work increased for the eighth consecutive month with growth in all three sectors -consumer, intermediate and investment goods. Input cost inflation was up at its fastest rate since May 2011.

Metals & Manufacturing Outlook

GLOBAL BUSINESS SURVEY INSIGHTS 21

BY NORBERT ORE

The following material is provided by Mr. Norbert Ore with permission from Strategas Research Partners. Mr. Ore is also a contributor on Manufacturing Talk Radio.

GROWTH INTENSIFIES JANUARY 2017 BUSINESS SURVEY INSIGHTS Following a soft patch in mid2016, good things have been happening in global manufacturing. During the August-January time frame, the JP Morgan Global PMI has averaged 51.9 in contrast to the prior six months in which it averaged 50.4. The JPM Index consolidates the monthly results from over 40 countries so it is safe to say there is a significant improvement in global business conditions with leadership from the U.S. and Europe.

The Eurozone PMI (55.2, +0.4) rose to its highest level in 69 months. The accelerating expansion was led by Austria (57.3, +1.0), Germany (56.4, +0.9), and Spain (55.6, +0.3) while the Netherlands (56.5, -0.8) remained in expansionary territory.

The UK PMI (55.9, -0.2) leveled out, but remains at a robust expansion level – and its sixth consecutive month of growth following the BREXIT vote.

In January, China’s Official Report, the CFLP PMI (51.3, -0.1) posted a four-month trend above 51 for the first time since October 2014. The Caixin China General Manufacturing PMI (51.0, -0.9) also slowed, but posted growth for the seventh consecutive month. Overall, China’s performance is less than robust. In North America, Canada (53.5 +1.7) reported growth for the 11th month following a seven-month contraction. Mexico (50.8, +0.6) recorded its 43rd consecutive month of growth, however, a weaker trend is apparent as the PMI has averaged only 51 percent for the past seven months.

| February 2017

Metals & Manufacturing Outlook

The ISM PMI™ The U.S. manufacturing PMI (56.0, +1.5) posted its highest reading since November 2014 continuing the intensification of activity in the sector. The faster rate of growth was generated by strength in New Orders (60.4, +0.1) combined with an equally impressive Production Index (61.4, +2.0). Further support was provided by Employment (56.1, +3.3) and Supplier Deliveries (53.6, +0.6) to a lesser | February 2017

degree. The remaining PMI component is Inventories (48.5, +1.5) which contracted at a slower rate. (Note: A reading below the 50 mark is deductive to the PMI, but positive at this point in the business cycle). A key manufacturing measure is New Orders Minus Inventories. In January, New Orders grew 11.9 pp (-1.4) faster than Inventories marking a second consecutive month of significant inventory liquidation. When compared to the 6.5 pp average (2014-present) gap between New Orders and Inventories this indicates the likelihood of increasing demand.

The Customers’ Inventories Index (48.5, -0.5) showed a continuing balance of outputs at the finished goods level. The three manufacturing industries reporting customers’ inventories as being too high during the month of January were: Furniture; Fabricated Metals; and Transportation Equipment, while the four industries reporting customers’ inventories as too low — listed in order — were: Plastics & Rubber; Machinery; Computer & Electronic; and Chemical.

Metals & Manufacturing Outlook

Manufacturers’ input costs as evidenced by the January Prices Index (69.0, +3.5) continued to firm, giving their suppliers an opportunity for price-cost recovery. This strength in the Index was driven by the following commodities that were Up in Price: Aluminum (3); Benzene (1); #1 Bundle Scrap (2); #1 Busheling Scrap (2); Butadiene (1); Copper (3); Corn; Corrugate (4); Corrugated Boxes (3); Methanol (4); Natural Gas (2); Nickel (2); Paper; Petroleum Fuels (2); Stainless Steel (10); Steel (13); Steel – Carbon (2); Steel – Cold Rolled (3); Steel – Hot Rolled (2); Styrene (1); and Titanium Dioxide (2). There were no reports of commodities Down in Price. (Note: The number of consecutive months the commodity is listed is indicated after each item.) Overall, of the 18 manufacturing industries, 12 reported growth in January and they were: Plastics & Rubber; Miscellaneous; Apparel; Paper; Chemical; Transportation Equipment; Food, Beverage; Machinery; Petroleum & Coal; Primary Metals; Fabricated Metal; and Computer & Electronic Products. The five industries reporting contraction in January were: Nonmetallic Mineral; Wood; Furniture; Electrical Equipment, Appliances; and Printing.

| February 2017