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HOW AI SOFTWARE IS CHANGING HOLLYWOOD’S HARDWARE PAGE 8
FEATURE STORY: WHAT’S SO SCARY ABOUT INDUSTRIAL ARTIFICIAL INTELLIGENCE? PAGE 12
ASIA OUTLOOK
CYBERSECURITY IN MANUFACTURING
PAGE 34
PAGE 16
ENERGY OUTLOOK
GRAPHENE BATTERIES - A GAME CHANGER
SEPTEMBER ISM PMI: 49%
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Released October 2nd -The Full Executive Summary Report On Business - Page 24
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TABLE OF CONTENTS
5 PUBLISHER’S STATEMENT
Is that the sound of the other shoe dropping? By Lewis A. Weiss
6 GLOBAL MANUFACTURING OUTLOOK
Downturn slowing slightly in August, slight increase to 49.0 in global PMI. Rates of contraction easing for production and new orders. India still doing well. By Royce Lowe
8 COVER STORY: LIGHTS, CAMERA, MANUFACTURING: HOW AI SOFTWARE IS CHANGING HOLLYWOOD’S HARDWARE By Nicholas Tana
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FEATURE STORY: WHAT’S SO SCARY ABOUT INDUSTRIAL ARTIFICIAL INTELLIGENCE? By Brian DeBois
MANUFACTURING TIDBITS
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FORD SHOULD CANCEL DEAL WITH CHINA’S CATL
By Coalition for a Prosperous America (CPA)
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CYBERSECURITY IN MANUFACTURING By James Fair
GRAPHENE BATTERIES - A GAME CHANGER Excepts from Skeleton Technologies by Tim Grady
20 CASS INDEX OUTLOOK by Cass Transportation Systems
22 Open call for...
Contributing Writers for new and existing content. Let’s start a conversation – Contact us at info@jacketmediaco.com
ISM MANUFACTURING REPORT ON BUSINESS The Manufacturing PMI Is 49%
26 NORTH AMERICA OUTLOOK Navigating the Manufacturing Landscape By Tim Gradyl
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Manufacturing Outlook /October 2023
SOUTH AMERICA OUTLOOK Latin America’s Oil Comeback by Royce Lowe
18 © 2023 All Metals & Forge Group LLC. No part of this publication may be reproduced or used in any form without the prior written permission of the publisher. Manufacturing Outlook is a registered trademark of All Metals & Forge Group LLC.
28 30 AFRICA OUTLOOK South Africa’s Tale of Two Cities By Royce Low
32 EUROZONE OUTLOOK France - The Quiet Giant By Royce Lowe
34 ASIA OUTLOOK Manufacturing Trends And Tensions In The South China Sea By Christine Casati
36 AEROSPACE OUTLOOK Back To China By Royce Lowe
38 ENERGY OUTLOOK India And It’s Coal By Royce Lowe
40 MATERIALS OUTLOOK Fun in the Steel Business By Royce Lowe
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AUTOMOTIVE OUTLOOK BYD Spreads its Wings By Lawrence Makagon
44 CYBER SECURITY OUTLOOK The Devastating MGM Hack & the Cybersecurity Balancing Act By Ken Fanger
46 ISSUES OUTLOOK A Welcome To Arms By Royce Lowe
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PUBLISHER’S STATEMENT
Is That The Sound of the Other Shoe Dropping? Consumer confidence is on a slippery slope. The impact of rising interest rates and inflation of every purchase – especially food, which is cleverly not included in the government’s fuzzy math number of consumer inflation (neither is gas), is beginning to sink in and draw blood. It’s disappointing to see some of these government numbers built on gaslighting us – they must think we’re all stupid. Do they really think consumers don’t notice that prices, oddly, haven’t gone DOWN?!? Almost every manufactured item, whether durable or non-durable, is up in price. According to an article on Feb 24, 2023, in USA Today, “Overall, the average yearly salary in the U.S. increased 31.2% over the past decade, but after adjusting for inflation, average pay fell by 4.5%. Only about one-fifth of occupations have kept pace with consumer price increases during the 10-year period.” Do you think manufacturers like increasing prices? Not! Moving prices upwards means that manufacturers have to look for lesser-cost sources of supply. Many of those are offshore, and that has been unpopular or uncertain for some time. As prices increase, wage earners also look for pay increases, so labor costs rise, and not just for manufacturers. As wages increase, buying power increases (supposedly), which heats up inflation. But buying power hasn’t increased – it has eroded 4.5%, so consumers make up the gap with credit cards, which heats up the economy even further. It all sounds rosy until you take off those glasses when your household starts to feel queasy about spending. The ISM Manufacturing Report on Business® shows new orders still in contraction. This is a leading indicator of a possible downturn, and it has been below the 50 mark for 12 consecutive months. But as long as consumer confidence was holding up, manufacturing confidence was holding up. Now, that may have shifted with consumer confidence waning. And that isn’t just in the USA. Consumer confidence is weak around the world – Canada, Latin America, Asia, Europe, the Middle East, and Africa – all of which are in recession except a handful of countries with borderline growth. Manufacturers don’t like uncertainty. It makes it difficult to determine which way the wind will blow. Now the mild tailwinds may have turned into gusty headwinds, where manufacturers tend to shift from uncertainty into survival. Q4 in 2023 will likely be buoyed by the upcoming holiday season, but if those sales are tepid, even as discounting begins in October, manufacturers are going to begin pulling in their sails. The spinnaker is already stowed because manufacturing isn’t running downwind anymore. Looks like headwinds ahead, and tacking and jibing to move forward may include tight inventories of inputs, cost negotiations, possible reductions in force, and a pullback in discretionary spending, like marketing. Although some marketing spend is necessary, marketing your way out of a downturn is not a winning strategy. The odds are against you. It is wiser to keep your powder dry and live to fight another day. Which is why Manufacturing Outlook is such a valuable publication. It is forward-looking and forward-thinking, to keep ahead, not just abreast of sea changes. And to think we give it away for free! And don’t miss Manufacturing Talk Radio, the #1 manufacturing video podcast on YouTube with up to 25,000 views per episode, and over 800 shows covering facets of manufacturing, educating viewers and listeners with updates on news, trends, technology, tactics, and conditions in the various sectors not even discussed in the mainstream news. It’s lucky when manufacturing gets an honorable mainstream mention. We live it every day, and report on it every week, with relevant articles in-between podcast episodes at https://jacketmediaco.com/news/, and on our Facebook, LinkedIn, and X (formerly known as Twitter) social media channels. Check out the Manufacturing Talk Radio podcast at https://www. youtube.com/@Mfgtalkradio. n
Lewis A. Weiss, Publisher Contact laweiss@mfgtalkradio.com for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast or any of our podcasts.
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MANUFACTURING OUTLOOK
GLOBAL MANUFACTURING OUTLOOK DOWNTURN SLOWING SLIGHTLY IN AUGUST, SLIGHT INCREASE TO 49.0 IN GLOBAL PMI. RATES OF CONTRACTION EASING FOR PRODUCTION AND NEW ORDERS. INDIA STILL DOING WELL. By Royce Lowe There is still no great movement in the global manufacturing scene, but there is some improvement in Brazil and Mexico. Europe and the UK are still in the doldrums, but there is hope of a market revival. The U.S. and Canada are still in contraction, with Canada’s PMI level at its lowest for over three years. Japan has a positive twelve-month outlook, as does China, which recently saw its strongest increase in operating conditions for six months. India’s manufacturing
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growth is gaining momentum, with production and new orders increasing at their fastest pace in almost three years. There is an inner demand strength in the country. But overall, global business optimism is at its joint-lowest level for the past six months. ASIS (recently renamed The Watch) suggests optimism in the primary metals field for the short term, with defense and other fields optimistic.
But the primary metals sector is forecast to see a sharp drop-off in 2024. Fabricated metals look set for a healthy increase in 2023 and 2024, and are expected in the long term to remain well over the 20-year average. Automotive looks strong for the rest of 2023, depending on how long the strike lasts and its lingering impacts, but there will be a dip in 2024. At the time of writing, there is industrial action against “The Big 3” U.S. automakers. The aerospace sector looks continued
Manufacturing Outlook /October 2023
MANUFACTURING OUTLOOK
healthy, but still with some supply chain problems. Long-term the sector looks good, with order books filling up. The machinery sector shows contraction for 2023 and a healthy recovery in 2024. Computers and electronics are looking very healthy. New construction in the U.S. is on an impressive increase. There was a marginal increase in global steel use in August, but particularly in Asia. The U.S. saw a renewed decline, and Europe saw its worst performance since the start of the pandemic. Employment was down and input prices were up for the second consecutive month. Aluminum users saw growth in production amid stabilization in new orders. Employment was down, and input prices were up, particularly in the U.S. and Asia. There was a fresh contraction in copper use in the U.S., and a sharp decline in Europe, countering an improvement in Asia. Employment fell at the sharpest in seven months. There were increased input cost pressures. Non-ferrous metal prices on the LME, aluminum, copper, nickel, and zinc were basically unchanged during late August-early September timeframe.
If anything more than slightly significant has changed over the past month, and is likely to stay that way for the immediate future, it is the drop in employment in global manufacturing. Europe is still showing no real signs of coming out of the recession-like position it is in. There are signs in the U.S. that both primary metals and construction will see progress over the not-too-distant future. The U.S. automotive and aerospace sectors, together with computers and electronics, look good through the end of 2023. Employment continues to defy the odds against increases. The Outlook: The U.S. still shows signs of solid GDP growth for 2023. Europe and Asia will continue to struggle through 2023. Mexico will outstrip the rest of Latin America in 2023, and may remain strong as long as the U.S. keeps near-shoring. India, a sleeping giant, is awakening and if countries in Africa can tamp down tribal and rebel conflicts, it could become another giant, but that remains doubtful. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n Manufacturing Outlook /October 2023
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COVER STORY
Lights, Camera, Manufacturing: How AI Software Is Changing Hollywood’s Hardware By Nicholas Tana
The year 2023 signals a transformative shift in Hollywood’s traditional refrain of “Lights, Camera, Action!” Major studios and independent production companies are now updating it to “Lights, Camera, Manufacturing!” The rapid progression of AI and other advanced technologies is altering how movies are manufactured and the roles of those involved. What were once fantastical ideas conjured by entertainment professionals and brought to life on screen through decades have transitioned into high-tech realities. AI and other breakthroughs have overhauled the landscape of movie and TV production, streamlining operations and cutting costs. The collaborative shift involves an ensemble cast, from engineers and technologists to
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electricians and manufacturers, and though software takes the spotlight, the hardware required to manufacture movie magic remains essential. Here’s an exploration of the key domains where manufacturing technology is making a substantial and continuing impact: Digitalization and Equipment Automation: Traditional filmmaking was reliant on physical sets and practical effects, which were time-intensive and expensive. The advent of digital technology has ushered in an era where we can craft realistic scenes through CGI and green screen technology, expanding creative horizons while reducing the need for sprawling physical sets.
3D Printing for Set Design and Props: 3D printing has revolutionized prop and set piece creation, enabling rapid prototyping and precision manufacturing. This technology accelerates the production process and yields intricate, realistic props that heighten the visual immersion of the film. Virtual Reality (VR) and Augmented Reality (AR): VR and AR have revolutionized pre-visualization and post-production. VR immerses filmmakers in virtual movie sets, facilitating improved planning and decision-making. AR overlays digital elements onto real-world scenes, streamlining CGI integration. Enhanced Special Effects and CGI: Technological strides have elevated continued
Manufacturing Outlook /October 2023
COVER STORY
the quality of special effects and CGI, generating breathtaking photorealistic visuals. With potent rendering software and advanced GPUs, seemingly unattainable feats come to life on the silver screen. Remote Equipment Monitoring and Maintenance: The Internet of Things (IoT) enables remote monitoring of production equipment. Real-time data from sensors and connected devices aids in tracking equipment performance, thwarting breakdowns, and minimizing downtime, thereby optimizing efficiency and cost-effectiveness. Data Analytics for Production Enhancement: The filmmaking process now incorporates extensive data collection and analysis. Data analytics yield insights into production efficiency, cost analysis, and audience preferences, in turn, fostering better decision-making and yielding higher profitability.
Digital Editing and Post-Production: Non-linear digital editing supplants conventional film editing, making the post-production phase more flexible and swift. Editors can manipulate and embellish scenes with ease, expediting the entire moviemaking journey. Cloud technology facilitates real-time collaboration among global team members. Regardless of their geographical location, talent and crew collaborate seamlessly, refining workflows and slashing production timelines. The ongoing strikes in Hollywood by writers and actors have propelled Artificial Intelligence (AI) to the forefront. Both professions seek to safeguard future creative innovation and economic models. AI is reshaping Hollywood movie studios’ equipment and processes, revolutionizing efficiency, creativity, and decision-making capabilities. Here’s how AI is leaving a substantial mark:
AI-driven CGI and Visual Effects: AI-powered algorithms enhance CGI and visual effects in films. Machine learning generates authentic textures, and lighting effects, and predicts virtual character movements, yielding more immersive visuals. Automated Script Analysis: AI scrutinizes scripts, furnishing valuable insights like sentiment analysis, character development, and potential audience reception. This enables filmmakers to refine scripts, make data-driven decisions, and construct captivating narratives. Scene Optimization: AI algorithms optimize scenes by analyzing elements like camera angles, lighting, and character placement. This aids filmmakers in creating visually engaging compositions and captivating sequences. Facial Recognition for Casting and Character Design: AI-fueled continued
Manufacturing Outlook /October 2023
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COVER STORY
facial recognition assists in casting by identifying actors who align with specific roles based on physical traits and emotional range. AI further supports character design by generating lifelike digital characters. AI-assisted Editing: AI-empowered editing tools analyze footage, assisting editors in selecting optimal takes, detecting potential flaws, and suggesting creative editing choices aligned with cinematic conventions and audience preferences. Predictive Analytics for Audience Engagement: AI and data analytics predict audience preferences, box office performance, and potential marketing strategies. Studios utilize this information to tailor films to distinct target audiences, maximizing commercial success. AI in Sound Design and Music Composition: AI analyzes scenes,
10 Manufacturing Outlook /October 2023
generating fitting sound effects and even composing original music that complements the film’s emotional tone. Other AI benefits include: AI-powered chatbots providing instant customer support, addressing film-related inquiries, promotions, and ticket bookings. Enhanced animation and motion capture, enabling lifelike movements and expressions for animated characters, and optimized resource distribution throughout production for efficient allocation of equipment, personnel, and budget. While AI offers a myriad of benefits, it also presents ethical and creative considerations. Filmmakers must strike a balance between leveraging AI to enhance their craft while retaining the human touch and artistic vision that makes films distinct and emotionally resonant. In essence, AI
has become a pivotal tool in the film industry, enabling Hollywood studios to redefine creativity’s limits and offer unparalleled cinematic experiences. Consequently, the role of manufacturers in Hollywood has grown even more indispensable. The real Hollywood magic will be witnessing it all come together as one scene ends and another begins. Author profile: Nicholas Tana is an Amazon Award-Winning Filmmaker, CEO of Smart Media L.L.C., an innovative production company specializing in IT training and consulting, and author of the newly released sci-fi futuristic graphic novel, eJUNKY, distributed by Simon & Schuster. He can be reached at NicholasTana@SmartMediaLLC.com on Facebook or Instagram or through his website: nicholastana.com. n
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FEATURE STORY
What’s So Scary about Industrial Artificial Intelligence? By Bryan DeBois The world of Artificial Intelligence (AI) is changing rapidly. A year ago, nobody had heard of ChatGPT. Now, there are startups spinning up, and existing companies pivoting their strategies to take advantage of “Generative AI.” Deep Reinforcement Learning (DRL) is going from outperforming humans at games like chess to making optimal decisions about how best to schedule paint
12 Manufacturing Outlook /October 2023
production. There are breathless headlines once again predicting that AI may make humans obsolete. And there are predictable calls for the government to “do something” about the impending takeover by our AI overlords. Generative AI (GenAI) is the broad category that includes Large Language Models (LLMs) like ChatGPT,
as well as AI-based image generation, like DALL-E. This type of AI is trained on extremely large datasets and can generate novel content based on a text-based prompt. In the case of LLMs, it does this by cleverly predicting what the next most likely word would be based on the previous words it generated. Unlike humans (or even other AI approaches like DRL), GenAI does not do any plancontinued
FEATURE STORY ning about what the output will look like. It simply keeps choosing the next most likely word, based on the previous context. The good news is that—like many of the technology panics before it—this AI panic is similarly overblown. In fact, as an Industrial AI expert, I am more often concerned about AI’s limitations than its ability to enslave humanity. AI is very good at mimicking what it has seen humans do, and sometimes even improving on it, but working with it daily quickly shows you how limited it is to the scope of the problem it has been trained to solve. A neural network that has been trained to generate human-sounding text cannot operate a mechanical press or solve a complex mathematical equation. Each of those tasks requires a specialized AI algorithm and a dedicated neural network; yet humans can shift between those tasks effortlessly—even doing multiple complex tasks at once! That is not to say that Industrial AI is not capable of solving important challenges. It is, and the results can be remarkable. At RoviSys, we are building AI-trained neural networks that can perform at parity with human experts at tasks as varied as glass bottle formation, diesel refining, and production scheduling. In fact, a key capability we see AI performing is capturing the expertise of subject matter experts (SMEs), many of whom are near retirement. These SMEs have spent their careers learning the most efficient way of running machinery, the best way to handle scheduling conflicts, and how to squeeze extra performance out of aging equipment. We are working with these SMEs to capture their hard-won knowledge and embed it into AI neural networks.
Many well-meaning people will hear about these efforts and worry about AI putting people out of work. They feel threatened that AI will soon make those experts obsolete. However, many people are also unaware of the labor crisis that exists today in manufacturing. The U.S. Bureau of Labor Statistics estimates that over 575,000 manufacturing jobs are going unfilled, up from 479,000 in 2019. My clients cannot find enough people to operate their manufacturing facilities. And when they are able to find people, unskilled positions tend to have high turnover. The current workforce does not have any interest in staying with a company long enough to become an expert in operating a vinyl extrusion line, for example. This makes capturing expertise in AI all the more important. One plant manager put it to me this way: “I have two operators that can operate this line really well. And both of them are about five years from retirement. I’ve got no bench behind them. I’ve got 1-2 year operators that don’t want to stick around—the turnover is really high.” For this plant manager, it is an existential problem. His choices are to adopt AI or watch his expertise walk out the door and resign to operating his line sub-optimally for the foreseeable future.
Far from reducing their workforce, manufacturers would love to move their employees into higher-value positions. If AI can take care of operating a single line optimally, an operator can move to monitoring multiple lines, multiplying their value. Additionally, many of the tasks that AI is suited for performing are not the types of tasks that humans typically find meaningful. The adoption of AI frees up those employees to perform tasks that require creativity, critical thinking, or negotiation. These are all things that AI still struggles with. While AI is impressive at its ability to perform certain jobs, it is still worth reflecting on how jobs change over time. Many current jobs did not exist just 20 years ago. The types of jobs available in the job market is not a static thing, but instead grows and changes as technology makes us more productive. It is worth reflecting on the fact that, at one point in history, “Street Lamp Lighter” and “Elevator Operator” were actual full-time jobs that people had. But there does not seem to be many people lamenting the loss of Elevator Operators. Manufacturing is the most powerful lever that we have found to increase the prosperity of every human being on Earth. When the things we need and want are available faster, cheaper, and of higher quality, that is true wealth. And the leisure that we enjoy now versus what we had only a century ago is a direct result of the productivity that technology brings. Far from being threatening, Industrial AI is enabling dramatic improvements in productivity that will make everyone richer in the end. Author profile: Bryan DeBois is the Director of Industrial AI at RoviSys (https:// rovisys.com). He can be reached at bryan.debois@rovisys.com. n
Manufacturing Outlook /October 2023
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MANUFACTURING TIDBITS
Ford Should Cancel Deal with China’s CATL Congress Should Pass Legislation Prohibiting Chinese Companies from Receiving Inflation Reduction Act Tax Credits Press release by the Coalition for a Prosperous America (CPA) WASHINGTON — The Coalition for a Prosperous America (CPA) today released a statement after Ford announced it would pause its deal with Chinese Communist Party (CCP) battery maker CATL. Ford’s partnership with the CCP-aligned battery maker has come under intense
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scrutiny from Congress given the possibility that CATL could collect Inflation Reduction Act (IRA) tax credits funded by American taxpayers. In April, a CPA economic analysis determined that Chinese manufacturers could earn up to $125 billion in tax credits under the IRA. In March, U.S. Senator Marco Rubio (R-FL) introduced legislation to
significantly restrict the eligibility of IRA tax credits and prevent Chinese companies from benefiting. This followed a letter Rubio sent to the Departments of Treasury, Energy, and Transportation seeking assurances that no taxpayer subsidies would go to Chinese recipients — including, notably, to Ford’s deal with CATL. In July, Chairman Mike Gallagher continued
MANUFACTURING TIDBITS
(R-WI) of the Select Committee on the Chinese Communist Party and Chairman Jason Smith of the Committee on Ways and Means launched an investigation into Ford’s partnership with CATL. “Ford should not just pause its deal with CATL — the CCP’s EV battery company — it should cancel it for good,” said Zach Mottl, Chairman of CPA. “Chinese companies should have no business qualifying for Inflation Reduction Act tax credits, and it was a serious mistake to pass the Inflation Reduction Act without those guardrails in place. The CCP already heavily subsidizes its renewable energy industry, and companies like CATL have deep ties to China’s continued use of forced labor. It’s time for Congress and the Biden administration to take action and prevent Chinese companies from exploiting more than $100 billion from American taxpayers as a result of the Inflation Reduction Act.” Since the IRA was signed into law, a number of Chinese companies have announced U.S. investment plans to take advantage of IRA tax credits, including JA Solar in Arizona, LONGi in Ohio, Canadian Solar in Texas, and Gotion in Illinois. CPA strongly believes that Congress should pass additional legislation to prohibit Chinese companies from
being eligible for IRA tax credits. Earlier this year, CPA’s Economics Team released a report analyzing China’s actions after the passage of the American Recovery and Reinvestment Act (ARRA) that forced the closure of numerous U.S. solar manufacturing facilities between 2011–2014. Despite ARRA’s 30% tax credit for investment in clean energy manufacturing facilities, China’s plan to undermine it worked. CPA’s Economics Team released a separate report that further highlighted why Congress and the Biden administration must act to prevent China from undermining the stated goals of the IRA. The report, which analyzes market data, shows, concerningly, how a tidal wave of solar panel imports is threatening the IRA’s goal of rebuilding the U.S. solar supply chain. According to analysts Wood Mackenzie, this year’s deployments of solar equipment should rise around 50% from last year’s 20 gigawatts (GW) to around 31 GW this year. The problem is that manufacturing capacity and imports are rising much faster than that. U.S. Customs data shows that solar module imports in the first seven months this year were up 179% over the same period last year. The monthly figures are even worse. In January 2022 the U.S. imported $422 million worth
of solar modules. A year and a half later, in July 2023, imports came in at $1.7 billion, four times greater. Most of those imports are coming in from Vietnam, Cambodia, and Malaysia—countries that the U.S. Department of Commerce recently determined are being used by China to illegally circumvent AD/CVD duties. However, the raw materials and the solar cells used in those panels come from China. China is driving the growth of the global industry. According to industry analysts Clean Energy Associates, China’s production capacity is expected to double this year to reach 866 GW by the end of this year and increase further next year to over 1,000 GW or 1 terawatt (that’s one trillion watts of electric power). That’s more than double China’s capacity from just one year ago when the IRA was passed. Editor’s Note: This market flood of subsidized solar panels from overseas, in this case, subsidized by both the CCP and the Inflation Reduction Act, stunts the ability of U.S. manufacturers to gain ground in the marketplace, placing U.S. manufacturers and consumers at a dangerous, strategic disadvantage. About CPA - CPA is the only national organization representing exclusively domestic producers across many sectors. We are a bipartisan coalition of manufacturers, farmers, ranchers, and labor organizations that make and grow things in the United States. American jobs, strength, and well-being are built and sustained by growing America’s productive capacity. We value quality employment, national security, and domestic self-sufficiency over cheap consumption. n
Manufacturing Outlook /October 2023
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MANUFACTURING TIDBITS
Cybersecurity In Manufacturing By James Fair, Senior Vice President, IT Services, Executech Far too many manufacturers lack a critical building block when it comes to organizational security - cybersecurity. As manufacturing evolves to become more dependent on technology, hackers have moved in to take advantage of companies that are not protecting critical networks and points of entry. Manufacturing had the highest share of cyberattacks – 24.8% – among the leading industries worldwide in 2022, according to Statista, and those attacks can be financially and organizationally devastating. One organization we worked with last month lost $150,000 through a phishing scheme. Surprisingly, it wasn’t their system that was hacked, it was that of a vendor. The hackers
got inside the vendor’s email system and watched in the background as the vendor and manufacturer negotiated a $150,000 deal. Once the amount was sent, the hacker sent a reply to all email to everyone on the thread with a bogus link to pay. To make the link seem legitimate, the hacker bought a domain that looked very similar to that of the company. In place of the w in the company’s name, the domain used two v’s. Since you can see how closely “vv” resembles “w” when you glance at it, the manufacturer’s employee fell for the scheme, clicked the link, and transferred $150,000 that the company is now out. Plus, the company still owes the original $150,000 that they committed to the vendor. As bad as that may sound, this company
got off cheaply when you consider that the average cost of a data breach reached an all-time high in 2023 of $4.45 million, according to IBM’s Cost of a Data Breach report. Common Threats What are some of the most prevalent cybersecurity threats manufacturers face today? By far the most common remains phishing, which is when a cybercriminal pretends to be a trusted colleague or business associate and attempts to get an individual to divulge confidential information, such as passwords, bank accounts, or credit card information. While we have all become savvier about avoiding these attacks, criminals are getting better at disguising them. One way they do so is via Business
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MANUFACTURING TIDBITS Email Compromise. This happens when an employee’s email account is hacked and then used to request payments from vendors or other sensitive information. Ransomware attacks – in which a hacker accesses and locks data until a victim pays a ransom to unlock it – are also evolving. One of the trends we are seeing is a moving away from file encryption and toward stealing and threatening to sell or release sensitive HR data or intellectual property. One of the most frightening aspects of a ransomware attack is the downtime it can cause. In cases where the company does everything right – has backups and a cyber response plan in place – the average downtime is a staggering 21 days. Some manufacturers cannot survive three weeks of operational standstill. Add to these threats the rise of a remote workforce. As more employees in your organization or your supply chain work from home, there are fewer guarantees that their security is as strong as it would be onsite. Shared networks, home networks used by children and other family members, BYOD (Bring Your Own Device) workplaces, and more create multiple points of entry for attackers to capitalize on. Combative Measures How can manufacturers combat these attacks? The answer is to put security in place before an incident occurs. Every company should have at least the basics in place; a solid firewall and an anti-virus system are your first layers of defense. Secure your endpoints – which are the physical devices that connect to your networks. Multifactor authentication (MFA) is another layer of
protection that sends a code to a user’s secondary device (typically a cellphone) before it allows the user to access a program. Although not foolproof, this is particularly effective since a hacker rarely will have access to both an email account and a device. On your network side, backup your data as frequently as necessary to ensure continued operation if an incident – ranging from a power outage, flood, or fire, to a cyberattack – were to occur. When it comes to remote work, consider leveraging Microsoft Intune which allows your team to control devices that are outside your office. Look at where you can implement geofencing. This means if a user is not logging in from an approved location, they can’t access your network. And if you really want peace of mind, I will point you to a Managed Detection and Response (MDR) solution where an external team of people are monitoring your network 24/7. The team not only alerts you in the event of a suspected attack, but also acts on your behalf to react to threats immediately. While these tactics can be effective on their own, they work best as part of a comprehensive network security plan that includes backups, redundant systems, and effective incident response plans. If you lack the internal IT resources to accomplish this, don’t hesitate to reach out to a company that has the expertise to manage your systems and respond 24/7. Finding a Balance Many manufacturers struggle to balance productivity and cybersecurity. While operational efficiency and security can seem to be at opposite
ends of the spectrum, your IT and Security teams can find a workable balance that still maintains a high level of security. I encourage collaboration between business leaders and IT and Security to find ways to improve security while minimizing the impact on the business units. No matter how many security measures you put in place, the weakest link will always be the human element. Employee cybersecurity awareness and training are critical to building a security-aware culture within an organization. Have regular training sessions that use real-world examples from your industry to show employees what they should be wary of. Then, ensure that you create a culture of transparency. If an employee suspects an email or text is phishing, he or she should feel empowered to ask for verification – in person or via a phone call – from anyone in the company. By being aware of potential threats and taking proactive measures that include employee training, backups, and an overarching response plan, your manufacturing company can stay a step ahead of cyber threats. Author profile - James Fair is the Senior VP of Technical Operations at Executech, a leading IT outsourcing company committed to cutting costs for businesses in various industries. With expertise spanning over 35 years in IT, 30 years in Leadership, and a dozen years in the interpersonal workspace, James is a seasoned professional with a deep understanding of business strategy, cybersecurity, information technology (IT), and management. n
Manufacturing Outlook /October 2023
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MANUFACTURING TIDBITS
Graphene Batteries A Game Changer Excerpts from Skeleton Technologies by Tim Grady Skeleton Technologies has officially launched its SuperBattery and unveiled Shell as its partner. Skeleton is joining a Shell-led consortium to offer electrification solutions for mining sites.
gy that offers high power density, almost instant charging and discharging, high reliability, extreme temperature tolerance, and lifetimes of more than 1,000,000 charge-discharge cycles.
SuperBattery is an innovative ultra-capacitor technology combining the characteristics of supercapacitors and batteries. SuperBattery has been developed to serve the needs of several sectors and is currently being used and/or tested in hybrid and fuel cell EVs, buses, trucks, and charging infrastructure.
Ultracapacitors have been in development for decades, but the biggest development steps have happened only in the past 15 years, driven by advances in nanomaterials with Skeleton’s Curved Graphene being a prime example of a breakthrough technology.
Ultracapacitors or supercapacitors are an energy storage technolo-
18 Manufacturing Outlook /October 2023
Ultracapacitors are now delivering significant economic benefits in the form of energy and fuel savings
across a wide range of markets including automotive, grid and renewable energy, transportation, and industrial applications. Skeleton’s patented Curved Graphene material allows for 100 faster charging times compared to standard Lithium-ion batteries. Used in off-road vehicles, SuperBattery can be charged in less than a minute and presently provides 30 minutes of run-time, therefore requiring much less charging time spent per day: less than an hour, whereas 6.5 hours are needed with a lithium-ion battery in continual use. More time can therefore be spent on mining, and less on charging. SuperBattery has continued
MANUFACTURING TIDBITS 50,000 life cycles and is free from cobalt, copper, nickel, and graphite. It is also much safer than a lithium-ion battery, even when crushed, overheated, or pierced. Taavi Madiberk, CEO and co-founder of Skeleton Technologies says: “Skeleton goes after the high-power part of the energy storage market.” Decarbonization in mining largely relies upon electrification and renewables, which are the best way to reduce operational emissions. Electrification of heavy-duty applications is both a necessity and a major challenge for the mining industry. Grischa Sauerberg, Vice President, Sectoral Decarbonization and Innovation at Shell explains: “The challenge of decarbonization is immense, but not impossible – providing collaboration and innovation go hand in hand at all times. We
system that reduces emissions without compromising on efficiency or safety while aiming to be cost-competitive versus diesel-powered operations. The pilot offering combines ultra-fast charging with Skeleton’s new SuperBattery, in-vehicle energy storage, power provisioning, and microgrids..
are proud to work alongside Skeleton - and our consortium members - to develop a new pilot offering of electrification solutions for off-road vehicles and to demonstrate how partnership and close collaboration can help mining businesses meet their environmental goals. Skeleton’s technology, providing ultrafast charging at ~< 90 seconds, means the solution can help mining companies reduce emissions without compromising on efficiency.” The nine-member consortium, including Skeleton and Shell, has come together to introduce Shell’s Mining Electrification Solutions for OffRoad Vehicles – announced in May 2022 as one of the 8 winners of the mining industry’s ‘Charge On Innovation Challenge’, from over 350 entries. The solution is an end-toend and interoperable electrification
About Skeleton Technologies Skeleton Materials is Skeleton’s material development arm, situated at the Bitterfeld-Wolfen Chemical Park in Saxony, Germany. Led by world-class material scientists and researchers, Skeleton Materials is already the global leader in synthesizing capacity and scaling up Curved Graphene material production to industrial levels to meet the demand for Skeleton’s GEN 2 supercapacitors, SuperBatteries, and solid-state batteries. n
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Manufacturing Outlook /October 2023
19
CASS INDEX OUTLOOK
Cass Transportation Index Report by CASS INFORMATION SYSTEMS, INC.
Cass Freight Index - Shipments The shipments component of the Cass Freight Index® rose 1.7% m/m in September, following a 1.9% m/m increase in August. On a y/y basis, the index was 6.3% lower in September, after a 10.6% decline in August. U.S. freight volumes, as measured by the Cass Freight Index, have fallen y/y in 14 of the past 21 months, similar to prior downcycles in both length and magnitude, except for the pandemic downturn.
20 Manufacturing Outlook /October 2023
The 2023 peak season is off to a muted start with a slightly improving trend, as expected. We continue to expect modest y/y growth in consumer spending this holiday season, driven by the acceleration in real disposable incomes, and the ongoing strong labor market. U.S. real disposable personal income growth slowed from 5.4% y/y in June to 3.7% in August, per the BLS, as fuel prices surged. The recent violence in the Middle East threatens
to send oil prices higher, though they remain down from recent highs. While geopolitical risks are elevated, U.S. consumers will have more in their pockets this holiday season, with good income growth rates supported by disinflation. With normal seasonality, this index would be down slightly m/m in October and decline about 7% y/y. Freight Expenditures The expenditures component of the Cass Freight Index, which measures the total amount spent on freight, fell 0.2% m/m and 25% y/y in September. continued
CASS INDEX OUTLOOK market is likely to deliver more savings to shippers this holiday season.
With shipments up 1.7% m/m in September, we infer rates were down 1.8% m/m On an SA (seasonally adjusted) basis, the index fell 1.6% m/m, with shipments up 1.7% and rates down 3.3%. This index includes changes in fuel, modal mix, intramodal mix, and accessorial charges, so is a bit more volatile than the cleaner Cass Truckload Linehaul Index®. The expenditures component of the Cass Freight Index rose 23% in 2022, after a record 38% increase in 2021, but is set to decline about 18% in 2023 and 11% in 1H’24, assuming normal seasonal patterns from here. Both freight volume and rates remain under pressure at this point in the cycle, but fuel price increases could somewhat limit the savings for shippers. Inferred Freight Rates The rates embedded in the two components of the Cass Freight Index declined 20% y/y in September, after falling 16% in August. •
Cass Inferred Freight Rates fell 3.3% m/m SA, after a 1.0% increase in August. Marketdriven rate declines have averaged 1.2% per month for the past 18 months.
•
Based on the normal seasonal pattern, this index would rise m/m in October, and the y/y decline would narrow to 16%.
•
With spot rates stabilizing, sequential declines are likely to slow from here, but the freight
Cass Inferred Freight Rates are a simple calculation of the Cass Freight Index data—expenditures divided by shipments—producing a data set that explains the overall movement in cost per shipment. The data set is diversified among all modes, with truckload (TL) representing more than half of the dollars, followed by less-than-truckload (LTL), rail, parcel, and so on. Truckload Linehaul Index The Cass Truckload Linehaul Index rose 0.5% m/m in September to 142.0, after a 0.5% m/m decline in August. •
The small increase is more likely a pause than a trend change, but reinforces some anecdotes (also noted in this report last month) of fleets addressing accepted but unacceptable rates. While not likely widespread, this suggests rates are nearing their lows. Are TL rates nearing a bottom?
•
On a y/y basis, the Cass Truckload Linehaul Index fell 9.1% y/y in September, after an 11.5% y/y decline in August.
•
From here, even modest sequential declines would be accompanied by slowing y/y declines.
•
As a broad truckload market indicator, this index includes both spot and contract freight. With spot rates stabilizing in recent
Freight Expectations Wise people say failures are signposts on the road to success. As we look
at the record this year of forecasting the economics, finance, and freight markets, we see many of those signposts. With the U.S. recession consensus of the first half of 2023 giving way to robust growth, and expectations for an improved freight cycle scuttled by private fleet growth, we’re still left in a fairly strong economy. With both the shipments component of the Cass Freight Index and the Cass Truckload Linehaul Index rising sequentially this month, the freight cycle is at least starting to flatten out, with smaller y/y declines. We continue to expect the freight cycle to turn once capacity tightens, but early signs of 2024 equipment production suggest that may be a while. If you need to understand the future direction of freight markets, the ACT Research Freight Forecast provides in-depth analysis and forecasts for a broad range of U.S. freight measures, including the Cass Freight Index, Cass Truckload Linehaul Index, and DAT spot and contract rates by trailer type, LTL and intermodal price indexes. This service provides monthly, quarterly, and annual predictions for the TL, LTL, and intermodal markets over a two- to three-year time horizon, including capacity, volumes, and rates. The Freight Forecast is released monthly in conjunction with this report. How have their forecasts performed? For 2022, ACT’s forecasts for the shipments component of the Cass Freight Index were 97.5% accurate on average for the 24-month forecast period. Our January 2021 forecast, two full years out, was 99.8% accurate. n
Manufacturing Outlook /October 2023
21
ISM REPORT OUTLOOK
THE INSTITUTE FOR SUPPLY MANAGEMENT’S MANUFACTURING REPORT ON ® BUSINESS BREAKING NEWS
ISM PMI at 49% for September 2023 Released October 2nd ISM PMI for the past 5 years
SEPTEMBER 2023 49%
Expanding Contracting
continued
22 Manufacturing Outlook /October 2023
ISM REPORT OUTLOOK INSTITUTE FOR SUPPLY MANAGEMENT®
Analysis by
reportonbusiness Economic activity in the manufacturing sector contracted in September for the 11th consecutive month following a 28-month period of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®. The overall economy expanded weakly after nine months of contraction following a 30-month period of expansion. (A Manufacturing PMI® above 48.7 percent, over a period of time, generally indicates an expansion of the overall economy.) The Manufacturing PMI® registered 49 percent. The New Orders Index remained in contraction territory at 49.2 percent, 2.4 percentage points higher than the figure of 46.8 percent recorded in August. The Production Index reading of 52.5 percent is a 2.5-percentage point increase compared to August’s figure of 50 percent. The Prices Index registered 43.8 percent, down 4.6 percentage points compared to the reading of 48.4 percent in August. The Backlog of Orders Index registered 42.4 percent, 1.7 percentage points lower than the August reading of 44.1 percent. The Employment Index registered 51.2 percent, up 2.7 percentage points from the 48.5 percent reported in August. The Inventories Index increased by 1.8 percentage points to 45.8 percent; the August reading was 44 percent. The New Export Orders Index reading of 47.4 percent is 0.9 percentage point higher than August’s figure of 46.5 percent. The five manufacturing industries that reported growth in September are: Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Textile Mills; Primary Metals; and Petroleum & Coal Products. ISM ‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).
Timothy R. Fiore, CPSM, C.P.M.
Chair of the Institute for Supply Management® Manufacturing Business Survey Committee
MANUFACTURING
PMI at 49% ®
PMI
The U.S. manufacturing sector contracted 2021 2022 2023 in September, as the Manufacturing PMI® registered 49 percent, 1.4 percentage points higher than the reading of 47.6 percent 50% = Manufacturing recorded in August and its highest figure Economy Breakeven Line since November 2022 (49 percent). This 48.7% = Overall is the 11th month of contraction, but the Economy 49% Breakeven Line third month of positive change. Of the five subindexes that directly factor into the Manufacturing PMI®, two (the Production and Employment indexes) are in expansion territory, up from none in August, breaking a three-month streak of no such growth.
Manufacturing at a Glance INDEX
Sep Index
Aug Index
% Point Change
Direction
Rate of Change
Trend* (months)
Manufacturing PMI®
49.0
47.6
+1.4
Contracting
Slower
11
New Orders
49.2
46.8
+2.4
Contracting
Slower
13
Production
52.5
50.0
+2.5
Growing
From Unchanged
1
Employment
51.2
48.5
+2.7
Growing
From Contracting
1
Supplier Deliveries
46.4
48.6
-2.2
Faster
Faster
12
Inventories
45.8
44.0
+1.8
Contracting
Slower
7
Customers’ Inventories
47.1
48.7
-1.6
Too Low
Faster
4
Prices
43.8
48.4
-4.6
Decreasing
Faster
5
Backlog of Orders
42.4
44.1
-1.7
Contracting
Faster
12
New Export Orders
47.4
46.5
+0.9
Contracting
Slower
4
Imports
48.2
48.0
+0.2
Contracting
Slower
11
Overall Economy
Growing
From Contracting
1
Manufacturing Sector
Contracting
Slower
11
*Number of months moving in current direction. Manufacturing ISM® Report On Business® data has been seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.
Commodities Reported Commodities Up in Price: Crude Oil (2); Diesel Fuel (2); Electronic Components; Labor — Temporary; Natural Gas (3); Petroleum Based Products; Plastic Resins*; Road Freight; Steel* (3); Steel Alloying Minerals; and Zinc. Commodities Down in Price: Aluminum (4); Caustic Soda (3); Corrugate Boxes (2); Ocean Freight Rates; Plastic Resins* (16); Polypropylene (5); Steel* (6); Steel — Hot Rolled (5); and Steel Products (4). Commodities in Short Supply: Electrical Components (36); Electrical Transmission Products (2); Electronic Components (34); Hydraulic Components (4); Labor — Construction; Semiconductors (34); and Steel Products.
Note: To view the full report, visit the ISM ® Report On Business ® website at ismrob.org
12
ISMWORLD.ORG
The number of consecutive months the commodity has been listed is indicated after each item. *Indicates both up and down in price.
Manufacturing Outlook /October 2023
continued
23
ISM REPORT OUTLOOK
ISM Report On Business ®
®
Manufacturing PMI® New Orders (Manufacturing) 2021
September 2023 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee
20
2022
New Orders
2023
ISM’s New Orders Index registered 49.2 percent. The five manufacturing industries that reported growth in new orders in September are: Miscellaneous Manufacturing‡; Food, Beverage & Tobacco Products; Primary Metals; Fabricated Metal Products; and Nonmetallic Mineral Products.
49.2%
52.7% = Census Bureau Mfg. Breakeven Line
Production (Manufacturing) 2021
2022
Production
2023 70
52.5% 52.2% = Federal Reserve Board Industrial Production Breakeven Line
The Production Index registered 52.5 percent. The 10 industries reporting growth in production during the month of September — in the following order — are: Primary Metals; Textile Mills; Miscellaneous Manufacturing‡; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Machinery; Transportation Equipment; Fabricated Metal Products; and Computer & Electronic Products.
Employment (Manufacturing) 2021
2022
Employment
2023
ISM’s Employment Index registered 51.2 percent. Of 18 manufacturing industries, seven reported employment growth in September in the following order: Petroleum & Coal Products; Food, Beverage & Tobacco Products; Primary Metals; Transportation Equipment; Chemical Products; Machinery; and Nonmetallic Mineral Products.
51.2% 50.4% = B.L.S. Mfg. Employment Breakeven Line
20
Supplier Deliveries (Manufacturing) 2021
2022
53.1% 2023
Supplier Deliveries The Supplier Deliveries Index registered 46.4 percent. The five manufacturing industries reporting slower supplier deliveries in September are: Wood Products; Textile Mills; Paper Products; Nonmetallic Mineral Products; and Transportation Equipment.
46.4 % 30
Inventories (Manufacturing) 2021
2022
2023
Inventories The Inventories Index registered 45.8 percent. Of 18 manufacturing industries, the two reporting higher inventories in September are: Nonmetallic Mineral Products; and Electrical Equipment, Appliances & Components.
44.4% = B.E.A. Overall Mfg. Inventories Breakeven Line
45.8%
‡Miscellaneous Manufacturing (products such as medical equipment and
supplies, jewelry, sporting goods, toys and office supplies).
24 Manufacturing Outlook /October 2023
ISM REPORT OUTLOOK
ISM Report On Business ®
®
Manufacturing PMI®
September 2023 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee
Customer Inventories (Manufacturing) 2021
2022
2023
47.1%
Customers’ Inventories ISM’s Customers’ Inventories Index registered 47.1 percent. The four industries reporting customers’ inventories as too high in September are: Plastics & Rubber Products; Computer & Electronic Products; Miscellaneous Manufacturing‡; and Fabricated Metal Products.
Prices (Manufacturing) 2021
2022
2023
Prices The ISM Prices Index registered 43.8 percent. In September, the only industry that reported paying increased prices for raw materials is Petroleum & Coal Products.
43.8% 52.9% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line
Backlog of Orders (Manufacturing) 2021
2022
2023
Backlog of Orders ISM’s Backlog of Orders Index registered 42.4 percent. The three industries reporting growth in order backlogs in September are: Textile Mills; Petroleum & Coal Products; and Primary Metals.
42.4%
New Export Orders (Manufacturing) 2021
2022
2023
New Export Orders ISM’s New Export Orders Index registered 47.4 percent. The three industries reporting growth in new export orders in September are: Wood Products; Primary Metals; and Food, Beverage & Tobacco Products.
47.4%
Imports (Manufacturing) 2021
2022
2023
48.2%
Imports ISM’s Imports Index registered 48.2 percent. The six industries reporting an increase in import volumes in September, in order, are: Textile Mills; Primary Metals; Transportation Equipment; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Miscellaneous Manufacturing‡. n
‡Miscellaneous Manufacturing (products such as medical equipment and
supplies, jewelry, sporting goods, toys and office supplies).
Manufacturing Outlook /October 2023
25
NORTH AMERICA OUTLOOK
OCTOBER 2023
NORTH AMERICA OUTLOOK By Tim Grady
Navigating the Manufacturing Landscape As we step into the last quarter of 2023, the manufacturing sector in North America stands at a pivotal crossroads. Canada, the United States, and Mexico, the economic powerhouses of the continent, face challenges, opportunities, and trends that are likely to define their industries for the remainder of this decade. Canada: Innovation and Sustainability Canada’s manufacturing sector has been marked by innovation and sustainability initiatives. With a focus on clean energy, advanced manufacturing technologies, and environmentally friendly practices, Canadian manufacturers are set to continue making significant strides for the balance of the year, although their Purchasing Manager’s Index (PMI) and overall business conditions
26 Manufacturing Outlook /October 2023
remain slow. The government’s investments in research and development, coupled with a skilled workforce, position Canada as a leader in high-tech industries such as aerospace, automotive, and renewable energy. Moreover, Canada’s commitment to green technologies aligns with the global push for sustainability. Companies in Canada are likely to expand their efforts in reducing carbon emissions, adopting circular economy principles, and investing in renewable energy sources, thereby contributing to a greener future. However, Canada’s manufacturing fell to 47.5, its lowest reading since the Pandemic, according to Standard & Poor’s, as weak market demand weighed on production and new orders. The New Orders subindex fell to 46.9 in September, and
employment continued to show staff reductions by attrition, hiring freezes, or reductions in force. Canada’s biggest trading partner is the U.S., and several signs of recession and economic slowdown are becoming more common. The “R”-word, Recession, is beginning to creep back into business discussions after being used heavily in 2022 and early 2023 without the downturn occurring. If the U.S. slips into recession, Canada could be hit hard, as their economic conditions are already negative without much demand to soften the impact of a U.S. downturn. United States: Resilience and Technological Advancements The manufacturing sector in the United States remains resilient, adapting to challenges and embracing technological advancements. continued
NORTH AMERICA OUTLOOK Employment continues to defy Fed activity to cool the economy across all sectors, including manufacturing. As long as New Orders hover in the 48+ PMI range, manufacturers will remain reluctant to reduce headcount, especially in the face of more than 500,000 open jobs for which they cannot find skilled workers to fill. Manufacturing will continue to be the source of research, development, and technological innovation. Simply look at everything around us, realize where it was 50 years ago, and imagine where it will be 50 years from now. Overall, regardless of industry sector or product, U.S. manufacturers produce the cleanest and greenest products in the world and continue to innovate at a pace few other countries can match. The reshoring trend, where companies bring back manufacturing operations to the U.S. from overseas, continues to gain momentum. This trend is bolstered by supply chain concerns, geopolitical factors, and a renewed focus on domestic production capacities. The reshoring efforts are expected to create jobs, enhance domestic supply chains, and bolster the U.S. economy. In fact, the strongest manufacturing sector in September was manufacturing construction driven by plant expansions and new builds for semiconductor chips. Capital expenditures remain strong despite the recession undercurrent because the expansion of existing plants or building of new plants takes 3-5 years or more from the planning stage to reach the operational stage, so recessions are a concern, but often not a deal breaker for breaking ground. Moreover, certain critical components for U.S. manufacturing, such as semiconductor chips, as well as pharmaceuticals, need to be available in the U.S. during these uncertain geopolitical times.
Overall, the outlook for the balance of 2023 remains in the two (2.0) percent range for GDP. The entire year will likely be above two percent GDP, with Real GDP, an inflation-adjusted measure that reflects the value of all goods and services produced by the U.S. economy, will finish the year above four (4+) percent. Mexico: Harnessing Supply Chain Dynamics Mexico, with its strategic geographical location next to the U.S., and its skilled labor force, plays a vital role in near-shoring. The country’s manufacturing sector has become a hub for the automotive, electronics, and aerospace industries. In the latter half of 2023, Mexico’s manufacturing outlook has been and will be shaped by its performance in regional trade agreements, such as the United States-Mexico-Canada Agreement (USMCA), providing stability and favorable conditions for businesses. Mexico’s manufacturing industry is likely to experience steady growth due to increased exports, especially in the automotive sector, with most of those cars going back to the U.S.. The country’s competitive advantages, including low labor costs and proximity to the North American market, continue to attract foreign investment. Mexico is, at present, a low-cost labor market comparable to where China is today. Challenges such as security concerns and the need for infrastructure development persist, requiring attention to sustain the momentum. The cities where U.S. companies have placed manufacturing plants or contracted with them are not places where there are severe cartel influences so manufacturing runs without the fear of violence that has
been experienced in resort areas. In addition, the flow of immigrants through Mexico has not been Mexicans leaving their home country, where good jobs have become plentiful. This means the availability of skilled labor will remain stable as workers remain close to home. The exodus of people flowing into the U.S. is coming from countries in Central and South America where economic and security conditions remain troubled. The Outlook While each country faces unique challenges, collaboration between Canada, the U.S., and Mexico can foster innovative solutions. Addressing workforce development, investing in sustainable practices, and enhancing digitalization efforts are common goals that can strengthen the entire North American manufacturing ecosystem. The manufacturing outlook for Canada, the United States, and Mexico in the balance of 2023 is characterized by resilience, innovation, and collaboration. By leveraging their respective strengths, these countries can navigate challenges and capitalize on opportunities, ensuring a prosperous future for the North American manufacturing sector. As they continue to adapt to changing global dynamics, their ability to collaborate and innovate will remain key drivers for sustainable growth and competitiveness on the world stage. Author profile - Tim Grady is Editor-inChief of Manufacturing Outlook and a host on Manufacturing Talk Radio. He can be reached at timgrady@mfgtalkradio. com. n
Manufacturing Outlook /October 2023
27
SOUTH AMERICA OUTLOOK
OCTOBER 2023
SOUTH AMERICA OUTLOOK By Royce Lowe Latin America’s Oil Comeback OILPRICE.COM and The Economist have recently been looking into Latin America’s oil sector and its future prospects. Led by Brazil and Guyana, the sector is projected to expand significantly over the next decade. Brazil, and its state oil company Petrobras, has 14.9 billion barrels of proven reserves and aims to boost output to 5.4 million barrels per day by 2029, on its way to potentially becoming the world’s fourth-largest oil producer. Guyana, following a series of discoveries by Exxon since 2015, is becoming an increasingly important player in the global oil sector,
28 Manufacturing Outlook /October 2023
currently producing around 400,000 barrels per day. Guyana is one of South America’s smallest and poorest countries. In 2015, ExxonMobil found the first of what are now some 11bn barrels of proven crude oil reserves, or around 0.6% of the world total. Production began some three years ago and is now picking up the pace. By 2028, it could reach 1.2 million barrels per day, a rate that would make it one of the top 20 oil producers. A sure prize for a country with a mere 800,000 inhabitants. U.S. Secretary of State Antony Blinken visited the country in early July. This Guyana windfall will revive Latin American oil production,
and according to a recent report by the International Energy Agency, global production will increase by 5.8m barrels per day between now and 2028, of which one-quarter of the increase will come from Latin America. This will turn around a decade of declining output in the region, where Argentina, Brazil, and Guyana will grow and elsewhere will decline. Venezuela’s oil industry, once colossal, suffered near collapse under the weight of endemic corruption and strict U.S. sanctions. Mexico went along a similar path, and the decline of Latin America’s hydrocarbon sector was in the cards. By 2020, continued
SOUTH AMERICA OUTLOOK Venezuela’s oil output had crashed to an all-time annual low of 569,000 barrels per day, while Mexico’s aging oil fields pumped less than 1.7 million barrels daily. A series of important offshore discoveries in Brazil’s territorial waters captured the attention of the major oil companies and put Latin America back on the world hydrocarbon map. That was followed by Exxon’s world-class offshore discoveries in Guyana, which put the tiny South American country on track to become a leading global petroleum producer and exporter. These events see Latin America poised once again to become a global hydrocarbon powerhouse. Oil demand is set to peak in the coming decades, as cleaner alternatives come into play. Oil will still be required during the transition, but it must be produced cheaply and
1998, Venezuela’s oil production was 3.4m barrels a day; today it is just 700,000.
with low carbon emissions to remain competitive. Brazil and Guyana are likely to benefit more than most exporters. Latin America has the second-largest proven oil reserves in the world after the Middle East, yet its state firms have repeatedly squandered opportunities. Unlike most Gulf countries the region’s governments have failed to set up funds to channel revenues into long-term investments, instead using oil as a source of foreign exchange and fiscal revenues. Corruption is rife at PDVSA, Venezuela’s state oil firm. At its peak in 1998, the year Hugo Chavez was elected president, it provided 5% of global supply. This man and his successor Nicolas Maduro, somehow proceeded to take the company down by confusing what was good for them with what was good for Venezuela. In
Available on
The Outlook: The strength in Latin America’s oil industry comes from Brazil, Argentina, and Guyana. Together they will see the area produce the oil required to see Latin America through the next crucial period when the world will reduce its dependence on fossil fuels. If Maduro leaves office and is replaced by someone who does what is right for Venezuela, the country could regain petroleum prominence.
Author profile - Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n
mfgtalkradio.com or your favorite platform.
Manufacturing Outlook /October 2023
29
AFRICA OUTLOOK
OCTOBER 2023
AFRICA OUTLOOK By Royce Lowe South Africa’s Tale of Two Cities ‘The Economist’ recently took a trip through South Africa’s two major cities in an effort to understand why people in the country are switching their preferences of where to live. Johannesburg, they say, can feel dystopian, with its numerous for-sale signs, empty offices, and sewage pouring over uncollected rubbish. Potholes circled in paint are labeled ANC, a reference to the ruling African National Congress party that many residents blame for the city’s infrastructure mess.
30 Manufacturing Outlook /October 2023
It was the discovery of gold in the mid-1880s that set Johannesburg at the heart of South Africa’s economy. Today the city is in crisis, and many affluent South Africans are leaving to go live in Cape Town, the country’s second city, and the Western Cape province of which it is the hub, thus reshaping the country. South Africa is the country with the world’s third-highest murder rate and its highest unemployment rate. Under apartheid, the movement of black people was controlled through
racist laws, but since 1994 when the ANC came to power, poor South Africans have continued to move to the Western Cape and Gauteng, the province containing Johannesburg. From 2002 to 2022, internal migration was the main reason why these two provinces’ share of South Africa’s population rose from 31.4% to 38.5%. In that same period, house prices in Cape Town increased twice as fast as in Johannesburg. Why the big move, apart from Cape Town being more naturally beautiful? Well, there’s continued
AFRICA OUTLOOK nothing new there. What is new is the ongoing deterioration of Johannesburg’s infrastructure. Rolling blackouts that we’ve mentioned before - occur nationwide due to the failure of Eskom, the state-owned utility. However, many citizens, including Johannesburg residents, spend extra time in the dark because of regular substation failures. The city’s electricity distributor says 60 transformers need immediate replacement, 73 in the next decade. Water outages are becoming more common, and potholes are so bad that in 2021 an insurance company launched a joint initiative to fill them. Cape Town too has its problems, but gets more of the basics right. A hydropower dam means fewer blackouts. The city is developing a battery-storage plant and paying for surplus electricity generated with solar panels. The next three years will see Cape Town spend more on infrastructure than Johannesburg and Durban, the third largest city, combined.
Available on
South Africa’s official opposition to the ANC, the Democratic Alliance (DA), suffers from weak leadership at a national level. The DA is a liberal party with Western leanings and is popular among South Africa’s minorities but has not done well with black voters (the country is 81% black; 8.8% “colored”, or mixed race; 7.7% white: and 2.6% Asian, mostly Indian descent. But the DA does quite a good job of running towns and cities such as Cape Town. This good governance is helping Cape Town rival Johannesburg as the commercial capital. Amazon is building its African headquarters there, its office vacancy rate is almost half Johannesburg’s. The Western Cape has long had a distinct identity, where Black Africans are a minority and the largest group is mixed-race “coloreds,” who often complain they were marginalized under both white rule and the ANC. The Western Cape is looking for more powers from the national government it sees as holding it back. In fact,
in 2021, a poll suggested that 58% of those in the Western Cape would gladly participate in a referendum for provincial independence and that 42% would vote for secession. This is not likely, but if things carry on as they have been, autonomy may continue to look more attractive. The Outlook: South Africa has many problems, not the least of which is the terrible condition of its infrastructure, particularly its electricity and water supplies, and the condition of its roads. These would need to be fixed, along with its demography issues, if South Africa is to rise in the ranks of leading global countries. Like other African countries, politics and corruption, which may be the same thing, hold progress back. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n
mfgtalkradio.com or your favorite platform.
Manufacturing Outlook /October 2023
31
EUROZONE OUTLOOK
GLOBAL OUTLOOK
EUROZONE OUTLOOK France - The Quiet Giant By Royce Lowe Prices of goods in the euro area fell further recently as orders continued to fall at one of the fastest rates on record. The PMI was at 43.5 for the month of August. Total orders and export orders have been weakening on a monthly basis for well over a year. There is an ongoing decrease in quantities of purchases. There is an increase in optimism, at its strongest in Ireland, Italy, and Greece, offsetting pessimism in Germany, France, and Austria. The UK is showing a deeper downturn, with production and new orders falling at faster rates. Its PMI was recently at a 39-month low. Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said: “These numbers aren’t as
32 Manufacturing Outlook /October 2023
terrible as they might look at first glance. Obviously, the overall PMI manufacturing index, sitting at 43.5, suggests pretty noticeable weakness in this sector. However, all of the twelve subindices have moved upwards or remained practically unchanged, showing that the downward trend from the past few months is starting to lose steam across the board.” France has been in the news quite a lot this year, mostly for the wrong reasons. Such as rebellions over a rise in the retirement age, and then over the fatal police shooting of a 17-yearold. And the government’s a minority one. The French are not the world’s most optimistic race, and even when things are going really well they’ll try to convince each other they’re not.
Yet behind all this, in this nation that doesn’t like change but likes revolting, the country still manages to get so much right. France has recently even stood at the top of the league of its European peers. Cumulative GDP growth over the past five or six years has been twice that of Germany, and ahead of that in Britain, Italy, and Spain. The Economist recently took its hat off to the country that has been called “Britain’s Sweet Enemy.” France’s high-speed rail network (the TGV) which dates from the 1980s, dwarfs America’s railroad system, and the average of its big European peers. The country generates some of Europe’s lowest-carbon electricity, via its nuclear industry, which is still providing 66% of France’s electricity despite recent maintenance problems at its 56 reactors. There are plans for six new reactors. continued
France shines in luxury goods, and all three of the world’s top luxury firms are French. In 2022 they were more profitable than American tech firms. The French are making strides in the tech business too. France is home to BNP Paribas, the euro zone’s most valuable bank. Its arms exports are growing, it’s registering more patents than the average of its European neighbors, and almost twice as many as Britain. It’s building what it calls an innovation cluster near Paris that is designed to become a “French MIT.” Britain and Germany still lead in the unicorn race, but France is catching up here too. In northern France, four gigafactories are being built in an area known as “battery valley,” around the port of Dunkirk. Battery production will start this year. President Macron is often accused of being the President of the rich since he has allowed France’s billionaires to get richer. France under Macron has combined a more favorable attitude toward wealth creation with a welfare state that performs well when it comes to correcting inequality. Poverty in France is well below the average of its European neighbors and America’s. There is now compulsory nursery education from the age of three. But France hasn’t done it all right. There are concerns about standards in state schools and regional access to health services. Average real wages have been flat and not increasing as in America. In fact, the public finances may be said to be in a mess. A balanced budget is difficult to translate into French. But Macron does a great job of attracting investment to his country, using Versailles to wine and dine those who would partake and invest suitable sums.
A recent analysis by Sam Bowman, a British commentator, wondered about France’s relative wealth, in spite of high taxes and tight labor laws. Better infrastructure, simpler planning, and housing supply, cheaper child care, and abundant energy seemed to explain it. “France does so much wrong,” was his conclusion, “and yet it still does pretty well on the metrics that actually matter.” France is good in the transport business, the prime example being Alstom, a multinational rolling stock manufacturer that operates worldwide in rail transport markets. It is active in the fields of passenger transportation, signaling, and locomotives, producing high-speed, suburban, regional, and urban trains along with trams. It has an Americas headquarters in St-Brunode-Montarville, Quebec, in the Montreal region, and is developing a new innovation center for green rail mobility solutions there. France is also gaining ground in the international arms trade. It recently sold six Scorpène submarines and 26 Rafale jets to India - the world’s largest arms importer - for its Navy. It recently signed a 14 billion euro contract with the UAE for 80 Rafale warplanes, plus billions more in other agreements. France is on its way to becoming the world’s second-largest arms exporter behind the U.S., since Russia’s fallback since the start of the Ukraine war. The Outlook: France will always be France, through victory and defeat. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n Manufacturing Outlook /October 2023
33
ASIA OUTLOOK
OCTOBER 2023
ASIA OUTLOOK
By Christine Casati Manufacturing Trends And Tensions In The South China Sea INDONESIA: 1. First ever joint military exercises to defend strategic trade routes in the South China Sea Indonesia hosted the 43rd ASEAN Summit in Jakarta in September. New manufacturing corridors among the ten members to capitalize on each member’s strengths are already underway. In the meantime, The Philippines, Taiwan, Vietnam and Malaysia, among others, have filed diplomatic protests against China for releasing its “10-dash line” map,
34 Manufacturing Outlook /October 2023
which expands China’s claims to cover about 90% of the South China Sea. Traditionally, the U.S. has guaranteed freedom of the seas through its naval presence in this area. Over $3 trillion in food and manufactured goods each year passes through the South China Sea, a 1.42 million square-mile waterway stretching from China to Indonesia. The Philippines and Vietnam are also protesting over China’s incursions and attempts to disrupt fishing in their waters, not to mention the
increasing frequency and numbers of Chinese ships and aircraft swarming the waters and skies around Taiwan. All ten members of the Association of Southeast Asian Nations (ASEAN) agreed to participate in the 5-day non-combat operation in Indonesia’s South Natuna Sea in September. The purpose: to develop military skills and practice cross-nation social engagement in conducting joint maritime security and patrols should they continued
ASIA OUTLOOK
be needed, including distribution of humanitarian assistance and disaster relief amid rising geopolitical tensions in the region. This would be essential for smooth cooperation when addressing emergencies in a region with such a wide range of languages, cultures, religions and economic practices. Unfortunately, 20 years of negotiations to reach an agreement on a South China Sea “Code of Conduct” have not yet reached fruition. 2. Aggressive Infrastructure Push/ Launch of Jakarta-Bandung HighSpeed Railway Pledging a “Golden Indonesia”, President Joko Widodo, known as Jokowi, has developed 16 new airports, 18 new ports, 36 dams and over 2,000 kilometers of toll road during his decade in office. He has also begun construction of the future capital city of Nusantara, a planned city, which is progressing slowly. Another achievement is the recently launched Jakarta-Bandung High-Speed Railway, which is part of China’s Belt and Road Initiative (BRI). Indonesia and China established a consortium called KCIC (PT Kerta Cepat Indonesia China) to develop this railway launched on September 15 which reaches speeds of 350 km (216 miles) per hour. It connects
the current capital Jakarta (pop. 10 million) to Bandung (2.5 million), a popular tourist destination and cultural, tech and educational center. It was financed by a loan from China Development Bank covering 75% of the $7.3 billion cost. It is unclear how much influence China has bought through these types of lending projects. Indonesia remains neutral and very engaged with the U.S. as well. 3. Onshore Processing of Mining Materials/EV Supply Chain Indonesia is also pushing forward to downstream its minerals and other natural resources. It has announced it will stop exporting some commodities in their raw form, including copper bauxite, tin, crude palm oil and seaweed. It is currently in talks with TESLA Inc. on potential investments in the EV supply chain, as well as exploring investments from other EV makers, including China’s BYD Co. and Vietnamese company Vinfast Auto Ltd. President Jokowi’s stated goal after his retirement next year is for his successor to build on the progress he has made to take Indonesia’s annual GDP to 6-7% by 2028. SEMICONDUCTOR MANUFACTURING U.S. sanctions have disrupted the sales of advanced semiconductors and
related designs, production equipment and know-how to China from Taiwan, Japan and South Korea. These three economic power houses have shifted some capacity back home and expanded production facilities at home and abroad. They are now facing headwinds from slowing global demand and subsidized semiconductor industry development in the U.S., as well as China’s huge capital infusion into the industry to expand mass production of less advanced chips commonly used in autos, electronics and appliances. But the big story is Huawei’s chip surprise in Shenzhen, China, where semiconductor supplier SMIC has made a breakthrough in producing the 7-nanometer chip used in the recently launched Huawei Mate 60 Pro, enabling 5G. This puts China a generation ahead of the EU which has yet to produce wafers smaller than 10 nanometer. What this means: China is serious about maximizing its potential for semiconductor development. There will be more competition with Apple as they progress. But SMIC has only succeeded in replicating a manufacturing process and is still far from mass producing chips for the most advanced smartphones. It still uses older DUV lithography machines rather than advanced EUV lithography tools, which are still under sanctions. Taiwan Semiconductor Manufacturing Co (TSMC) was already producing high volumes of U.S.-designed 7 nanometer chips years ago, starting in 2018, with Intel following shortly thereafter. And U.S. semiconductor designs are still several generations ahead of China. Author profile: Christine is co-founder and President of China Human Resources Group, Inc, a management consulting firm based in Princeton NJ. She has provided U.S. companies with strategic development and project implementation services for projects in China since 1986. n
Manufacturing Outlook /October 2023
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AEROSPACE OUTLOOK
OCTOBER 2023
AEROSPACE OUTLOOK
By Royce Lowe Back To China It’s been some four years since Boeing sold a 737 MAX to China. Bloomberg reports that Air China Ltd. intends to take delivery of the model for the first time since the MAX’s two fatal crashes back in 2018 and 2019. Is there a breakthrough coming that might put an end to the trade stalemate between the U.S. and China?
crises in its history. China grounded the plane and was one of the last to put it back into service. No new deliveries into China have been approved since March 2019. The words indicate and plan suggests that Air China will take 12 MAX jets in 2023 and double that in 2024, these numbers being subject to change.
China is Boeing’s biggest overseas market, and the grounding of the MAX together with the lack of deliveries represented one of the worst
China’s national airline indicated it would take 12 Max jets this year and double that number in 2024. While the fleet plans are indicative and subject
36 Manufacturing Outlook /October 2023
to change, the announcement gives an overall outlook of the carrier’s thinking around expansion. Should the deliveries materialize, it will be another signal Boeing is finally coming back from the crisis. China was the first to ban the 737 Max after crashes in Indonesia in 2018 and Ethiopia in 2019 and was one of the last to unground the single-aisle aircraft. The country has not approved new deliveries since March 2019. Chinese airlines need approval from the country’s economic planning body, the National continued
AEROSPACE OUTLOOK Development and Reform Commission, to take new deliveries. Before Air China revealed its plans for the MAX, China Eastern Airlines Corp. had stated plans to take two this year, and six in 2024. China’s biggest carrier, China Southern Airlines Corp., said it plans for deliveries of 37 MAX jets this year, 35 in 2024 and 31 in 2025. China declared the MAX airworthy again in December 2021, but it took over a year for its airlines to get the model airborne. This January, China Southern operated the first passenger flight using the MAX in about four years. Boeing says that some 95% of China’s MAX fleet is back in the air. Why such a long halt in MAX deliveries to China? There was the pandemic, plus deteriorating U.S.-China relations. But of course, since then travel has picked up, and there was a demand for planes. This was good for Airbus, who stepped up to take a whole bunch of orders. Let’s hope for no more hiccups once MAX deliveries restart. Uncertified certificates Bloomberg was recently party to, and brought to light, a situation concerning the supply of parts for the repair and maintenance of jet engines, particularly the CFM56 engine, that power many of the older-generation Airbus A 320s and Boeing 737s. Manufacturing partners General Electric Co. and Safran SA have been assisting in the investigation into allegedly faked certification documents and unapproved parts for CFM56 engines that were distributed by London-based AOG Technics Ltd., according to documentation viewed by Bloomberg. When questioned by Bloomberg, the European Union Aviation Safety Agency (EASA) answered that “Numerous Authorized Release Certificates for parts supplied via AOG Technics have been forged.” EASA further stated that in each case the organization identified as the manufacturer “confirmed that they did not produce the certificate and that they were not the originator of the
part.” This is not the first time we have heard tell of this kind of happening, but it is rare, particularly in the case of engines. Knowledge of the provenance of every part of an engine is important, and it is impossible to know how parts that are not certified will react under stress. The CFM56 is the world’s best-selling jet engine and is installed on numerous narrow-body planes, hence it is not known how many aircraft may be affected by an unknown number of fake parts. EASA told operators to quarantine parts with false documentation, adding that so far AOG Technics had failed to provide detail on the actual origin of the questionable parts. Needless to say, the industry is taking this issue very, very seriously. It should be noted that we are talking here about so-called middlemen like AOG Technics who supply parts to third-party engine-repair shops working on in-service commercial aircraft. New engines from CFM International, the GE-Safran manufacturing partnership, wouldn’t be affected by this issue, likewise the CFM56’s successor, the CFM LEAP, which is used on the latest A320neo and 737 Max narrowbodies. The UK’s Civil Aviation Authority said that it too was investigating “a large number of Suspect Unapproved Parts” supplied through AOG Technics. In fact, they found some components with false airworthiness release certificates on engines fitted to aircraft registered in the UK. And CFM reports that it found 72 falsified airworthiness certification documents spanning 50 part numbers supplied by AOG Technics for the CFM56, along with two falsified documents for components of GE’s CF6, an earlier wide-body engine. AOG Technics is not an approved vendor for CFM or GE. CFM and the engine shop searched through other records provided by AOG and found “significant discrepancies” with EASA certificates and shipment documents. Somehow don’t think we’ve heard the end of this story.
Supersonic? Again? Story is that NASA and Boeing are thinking of developing a supersonic passenger plane that would make Concorde look like a horse and buggy. Or, as the Luxurylaunches correspondent tells us, will get from New York to London in the time it would take to see half the Oppenheimer movie. Imagine, New York to London in an hour and a half, hardly enough time to think about the upcoming culture shock. But seriously. The big thing about the Concorde coming to an end was the sonic boom thing. It’s illegal in many countries, including the U.S., but researchers have been working for decades to develop technology that can successfully do away with sonic booms. NASA’s Quest Mission is one such project, and this includes the development of an experimental boomless supersonic aircraft known as the X59. NASA’s plans stem from a study of fifty established transoceanic routes that connect important cities, especially over the North Atlantic and Pacific. The sound barrier-sonic boom issue is not relevant while flying over oceans. “Since the U.S. and other nations prohibit supersonic flight over land, the studies’ findings covered transoceanic travel, including high-volume North Atlantic routes and those crossing the Pacific,” NASA stated. Development of the supersonic jet will move along with the aid of two year-long contracts given out to two teams of companies in the aerospace industry. This will be part of the Advanced Air Vehicles Program. Both teams will explore things such as airframe, power, propulsion, thermal management, and materials designs required for flying at Mach 4. The Outlook: The aerospace industry and its suppliers are doing well in 2023, and with booked orders, look to do well through 2030. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n
Manufacturing Outlook /October 2023
37
ENERGY OUTLOOK
OCTOBER 2023
ENERGY OUTLOOK India And It’s Coal By Royce Lowe A lot of India’s coal has high ash content, is very polluting, and is inefficient to burn. Thus twice as much is needed to produce the same amount of electrical power as imported coal. Solar power is cheap and getting cheaper. But three days before the Cop 27 last November, India’s finance minister made an announcement to the effect that
“India needs greater investment in coal production.” Over the last several months, this subject has been the target of the world media, notably NPR, Reuters, The Guardian, The Economist, The Washington Post, and Al Jazeera. At a time when the world is looking for a huge global reduction of
carbon dioxide emissions, the Indian government is continuing on its biggest-ever push for domestic coal production, even looking to produce so much it could become a future coal exporter. India privatized its coal industry in 2020, and since that time has auctioned “coal blocks” or sites continued
38 Manufacturing Outlook /October 2023
ENERGY OUTLOOK analysis by Global Energy Monitor (GEM) states that, on average, India’s coal mines use only around two-thirds of their capacity, with some large ones using only 1%. This naturally calls into question the need to open up more mines. But Modi plans to increase India’s coal production by 1 billion tons per year. allocated for mines. At an auction in 2022, two-thirds of the 968 blocks allocated were on untouched land in India’s most ecologically rich and fragile forests, and rural areas populated by tribal communities that will be at the mercy of the grab for coal. A lawyer who fights against new coal blocks puts it quite succinctly, saying, “The worst part is that in order to open up more coal, the government is allowing mining in densely forested areas. Forests are sinks of carbon dioxide so if you are getting new coal to burn by chopping down forests, it’s a double whammy of environmental disaster.” India just passed through the driest August in more than a century, so it stepped up the use of coal to increase energy output, thus preventing power outages that resulted from a reduction in hydropower. Coal’s share in power output rose to 66.7 percent in August, the highest for the month in six years, according to a Reuters analysis of government data. Lower rainfall led to the share of hydropower in overall output plunging to 14.8 percent, compared with 18.1 percent in the same period in 2022. In round figures, India gets 70% of its electrical power from coal, 12% from renewables, and the balance from hydropower. India’s prime minister Narendra Modi, supported by China’s Xi Jinping, stated that the phrase “phasing out” of coal should be replaced by “phasing down.” An
expansion plans were “difficult to reconcile with India’s evolving energy needs and environmental priorities.”
Ashish Fernandes, the chief executive officer of Climate Risk Horizons, which analyzes the impact of the climate crisis in India, said: “It’s quite clear, because of the West’s failure to live up to its commitments on emissions reductions and climate finance, India is using coal as a bargaining chip. It’s hard to criticize India’s plans for new coal when Europe is looking to build up so much more new gas.” He further stated that such a huge new investment in coal at the time meant there was “a real chance that it will undermine the renewable energy industry” by tying India’s electricity sector into a contractual commitment to coal for decades to come, even as renewables become cheaper. The use of coal as a provider of electricity is one thing; its importance in steelmaking is quite another. The blast furnace (bf) - basic oxygen furnace (bof) route, by far the globe’s biggest steelmaking method, requires high-quality “coking” coal to make the coke for the blast furnace process. As of the last count, India makes some 132 million tons per annum of steel, compared with the one billion-plus tons made in China. Of these 1 billion tons, 88% is made by the bf-bof route, and in 2022 it used 646 million tons of coal produced in China plus 64 million tons imported. It takes about 770 kgs of good coal to make a ton of steel. Earlier this year, the International Energy Agency said Modi’s coal
In spite of discrepancies in values between the various sources consulted, there is no doubt that the situation regarding coal in India presents a huge problem. There are those (including the Prime Minister) who imply that increased coal production is required. There are those who want to produce so much coal that they’ll be able to export it. They say this knowing that India itself is the world’s second-largest coal importer. To India’s dilemma, we must consider that of China, which generates much more electricity than does India and produces over half the world’s steel. If we look at this as a global problem - which we must then the power and steelmaking coal requirements of India and China look overwhelming. The Outlook: India has a “carbon zero” date of 2070, and together with China wants to “phase down” the use of coal. It is seemingly up to the West, from here on in, to lead the way to decarbonization. On a slightly encouraging note, the U.S. Energy Information Administration announced earlier this year that electricity generated from renewables surpassed coal in the United States for the first time in 2022. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n
Manufacturing Outlook /October 2023
39
MATERIALS OUTLOOK
OCTOBER 2023
MATERIALS OUTLOOK Fun in the Steel Business By Royce Lowe There’s always some kind of fun in the steel business, as those of us who have worked in it or are still working in it, will know. And there’s no shortage of people around to write about it, when it concerns U.S. Steel, particularly when some upstart company called Cleveland-Cliffs wants to buy it. So everybody looked into it, and at the time of this writing, U.S. Steel is still up for sale, having rejected a bid by Cleveland-Cliffs. Not to say that things might have changed when you get to read this. U.S. Steel goes back to 1901 when J. P. Morgan financed the merging of steel companies owned by Andrew Carnegie, Elbery Gary, and William Henry Moore. Charles M.
Schwab was the first president of the company, which was once the largest steel producer in the world and was the first billion-dollar corporation. U.S. Steel remained the largest steel producer in the United States for much of the 20th century and by 1986 had acquired Marathon Oil Company and Texas Oil & Gas Corp., branching into the mining, construction, and transportation industries. A holding company called the USX Corporation, now the Marathon Oil Corporation was established and split into four operating units to manage the company’s diversified interests before U.S. Steel spun off in 2001. Today, U.S. Steel operates in 10 states and Slovakia and is in the top 25 steel-
producing companies in the world. In a press release in early August, the publicly traded United States Steel Corporation said it has launched a strategic review to consider selling all or part of the company after receiving offers that range from a full purchase to sales of individual production assets. U.S. Steel has plans to halt steel production at two blast furnaces in Illinois and sell them to SunCoke, creating a production facility for pig iron. But more than a year after U.S. Steel announced its intention to do this, the deal still hasn’t gone through, largely due to union resistance. The company, like many steelmakers worldwide, is turning continued
40 Manufacturing Outlook /October 2023
MATERIALS OUTLOOK to the electric arc furnace (EAF), where scrap and/or pre-reduced iron ore is converted directly into molten steel. The blast furnace on the other hand produces pig iron which is subsequently converted to steel in a basic oxygen furnace. In fact, some 75% of steel in the U.S. is produced by the EAF route, compared to around 10% in China and some 40% in Europe. This means that steelmaking in the U.S. is effectively the world’s cleanest. Nucor, which was a pioneer in the production of EAF steel that was subsequently continuously cast, was the U.S.’s largest steelmaker until Cleveland-Cliffs gobbled up a couple of companies in the past few years. Steel Dynamics, which is produced by EAF and continuous casting, joined Nucor some time ago to become another “mini-mill.” The U.S. steel industry is doing none too badly at the moment, due in large part to a pretty healthy automotive industry, together with infrastructure projects that are either underway or on the drawing board. This is very different from the present situation in Europe however, where demand is still down, hence prices on both long products and hotrolled and cold-rolled sheet products are down with it. Mills attempted a price increase, and in some cases gave discounts in an effort to fill order books. The outlook for steel consumption for the rest of this year is weak. Conditions in the construction, white goods, packaging, and mechanical engineering industries are being adversely affected by rising interest rates, high inflation, and weak investor sentiment. The automotive industry, however, as in the U.S. is holding its head up.
The EU and UK quotas for hot rolled coil from “other countries” were fully subscribed early in the current period. Market participants expect that the same category will be heavily oversubscribed on October 1, resulting in congestion at European ports. Buyers are therefore averse to placing new import orders, for arrival later in the fourth quarter, as these would automatically attract the full 25 percent tariff. European mills consider that this reluctance will increase domestic demand and provide the opportunity to raise prices. The arrival of more than one million tons of imported hot rolled coil, however, could saturate a weak market and have the opposite effect. The political situation also affects market sentiment. In Spain, the recent snap general election proved inconclusive. Constitutional talks are starting but no party has a clear majority. Consequently, investment decisions are on hold.
Time was when the steel market was so easy to read and forecast. Every seven years there’d be a lull, and then it would awake and get active again. But this was before the Arab oil embargo back in the seventies, in the eighties when China was making about 30 million tons of steel a year, and when the U.S. and Russia were the world’s two biggest steel producers. Today, China makes more steel than the rest of the world combined, with India, at number two, making about an eighth of what China makes. Today there are no rules as to when the steel market will rise or fall. There are companies out there attempting to produce emission-free steel. Trials have succeeded with products being used making Volvos. But of course on a relatively small scale. And the way China and India are still making steel, it will be up to the rest of the world to carry the banner for clean steel.
In Germany, meanwhile, confidence in the state’s ability to act is at a new low. A recent survey shows that 69 percent of the population considers that the state is unable to fulfill its tasks. Infrastructure, investments in climate protection, and the expansion of renewable energies are cited as key areas where leadership is lacking. Medium-sized German steel-using companies also bemoan the lack of government support. A recent recovery in Chinese steel demand appeared to offer positive signals for the international market, but this was short-lived, amid weak construction indicators. With Chinese real estate companies in financial difficulties, there is reduced demand for structural-grade products.
The Outlook: [Editor’s Comments]: While many decried the Trump tariffs on steel imported into the U.S., recent studies have shown that the tariffs actually revived U.S. steel producers. Additional studies are indicating that a 10% tariff on all imported goods into the U.S. would strengthen other sectors and produce many new jobs. It seems that the balance to currency manipulations to subsidize industries is tariffs to restore other flagging U.S. industries against the new high-volume producers like China and up-andcoming India.
Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n
Manufacturing Outlook /October 2023
41
AUTOMOTIVE OUTLOOK
OCTOBER 2023
AUTOMOTIVE OUTLOOK By Lawrence Makagon BYD Spreads its Wings BYD, Build Your Dreams, is by far China’s biggest automobile producer. As reported by Bloomberg, the company will invest 3 billion reals ($624 million) in Brazil to build its first electric-car plant outside Asia as it seeks to extend its geographical reach amid a global surge in sales. Ironically, it is taking over the plant that Ford Motor Company left in 2021, in the northeastern state of Bahia. BYD makes both fully electric and plug-in hybrids, and rivals Tesla as the world’s largest producer of EVs. The facility in Bahia will build hybrids and electric cars, and there will be a unit that will concentrate on chassis for
42 Manufacturing Outlook /October 2023
electric buses and trucks, and one to process lithium and iron phosphate for the international market. Production is expected to begin in 2024. This is BYD’s first production venture outside China and further investments in Thailand and Vietnam are planned. The BYD factory will have an initial annual capacity of 150,000 units, with the potential to reach 300,000 units. It will be the second facility dedicated exclusively to electric and hybrid cars in Brazil. Two years ago, Great Wall Motors agreed to buy a Daimler AG factory in Sao Paulo, pledging investments of 10 billion reals by 2032. BYD has in fact been in Brazil since 2015, when it opened an electric
bus chassis factory, and later started producing photovoltaic modules, in Sao Paulo, and lithium iron phosphate batteries in Amazonas state. Brazil’s president Lula recently visited Xi Jinping and signed 15 agreements worth about 50 billion reals in Chinese investment pledges. The leftist president needs investment to go along with his “prosperity pledge” and has been trying to persuade Chinese companies to build new plants in Brazil to create jobs and deliver on his pledge. BYD is looking for a site to attract local suppliers who might specialize in the production of parts for electric and hybrid vehicles. The site could create continued
AUTOMOTIVE OUTLOOK at least it seems that way. They spend most of their time in San Francisco, and although a lot of people are for them, so are a lot of people against them. Robotaxi is their name, those vehicles that show up when you dial for them, and take you where you want to go, allowing you to admire the scenery, read a book, do a crossword, or watch the latest episode of something streamed.
5,000 jobs. Brazil’s market has the potential to develop in the same way as China’s, with hybrid vehicles gradually giving way to pure electric technologies as charging infrastructure improves, according to a BYD spokesperson. But the technology will have to compete with cars fueled by ethanol made out of sugar cane, a more-than-popular alternative found everywhere on the streets of Brazil. Hybrid or electric vehicle sales in Brazil accounted for a mere 2.5% of the total last year, according to the sector’s lobby group Anfavea. The technology is expected to reach 7% of light vehicle sales by 2030, much lower than the world’s estimated average of 37%, according to Bright Consulting. Maybe BYD is taking a chance on Brazil; there again it will have most of Latin America to go at.
But it doesn’t always go according to plan. There are “incidents.” Like a fleet of driverless vehicles freezing and blocking traffic during a Friday night concert at North Beach. Days later, an autonomous car got stuck in wet cement at a construction site, and then a robotaxi crashed into a fire truck responding to an emergency call. Weeks earlier, pet lovers were mortified when a vehicle struck and killed a small dog. Where are the robocops when you need them?
Robotaxi Woes They haven’t been around that long, or
Cities are asking for permits to allow so many taxis to operate for so many hours. Lawyers are getting involved, some pro, and some con. Both Cruise and Waymo say they have waiting lists for use of their cars. Waymo has about 250 vehicles on San Francisco roads, and Cruise has about 400. After recent incidents circulating around social media, the California Department of Motor Vehicles ordered Cruise to cut its active fleet by half — a move supported by the Teamsters Union Local 250, representing public-sector drivers in the Bay Area. Cruise can now only operate 50 driverless cars during the day and 150 at night. So far there have been no serious accidents. So far, so good we might say. It’s probable that robotaxis and autonomous cars are here to stay. Let’s hope Lawrence Makagon, the serious incidents stay Staff Writer away. n
THE FLAGSHIP REPORTS The Flagship Reports with Dr. Chris Kuehl is both an “Officer of the Watch” briefing of economic conditions and an Executive Briefing on specific situations impacting those conditions. Written and presented by the officers of Armada Corporate Intelligence, Dr. Kuehl lightens up the mood of sometimes distressful geoeconomic news with a bit of humor. This monthly podcast includes information from the Flagship Reports issued 3 times and week, and AISI, the Armada Strategic Intelligence System, a tool for durable goods manufacturers that dives deep into the sector each month to provide more than 95% accurate near-term forecasts.
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Manufacturing Outlook /October 2023
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CYBER SECURITY OUTLOOK
OCTOBER 2023
CYBER SECURITY OUTLOOK The Devastating MGM Hack & the Cybersecurity Balancing Act By Ken Fanger, MBA, CMMC-RP, President, On Technology Partners
In early September, MGM Resorts International suffered a tragic cyber-attack that was devastating and very public. The attack shut down their systems for several days and has cost millions in revenue. Unfortunately, all it took for this to happen was one mistake by a single employee. While the focus for their recovery has presumably been recouping their lost
44 Manufacturing Outlook /October 2023
funds and shoring up their defenses, there is one aspect that I fear might have been overlooked: the emotional wellbeing of the employee who made the error that instigated the attack and all the other employees affected by this attack. Did you know that there is a third aspect of corporate recovery that is often overlooked after a cyber-attack?
In addition to financial and operational recovery, it’s necessary to address emotional recovery, even for a company as large as MGM. This is the third leg that is often missed and needed to make a stable company. Imagine a three-legged stool that’s missing one of its legs – without it, the whole thing topples over. The same is true for any company in the aftermath of a cyber-attack. continued
CYBER SECURITY OUTLOOK Let’s return to the MGM employees affected by the attack – they’re the ones suffering the brunt of the immediate consequences of the attack as well as the recovery. Imagine what the team member that allowed the attack to get in must have felt: Fear, Shame, Hopelessness? Now imagine what the other members of the team are experiencing. How could this affect their ability to do their jobs in the future, what type of long-term cultural impact will this have, and how will that affect the bottom line? Emotional recovery is a part of cyber security that companies and organizations of all sizes should consider because it is just as vital as the financial and operational aspects. The fact of the matter is that cyber attacks are intended to cause fear and confusion, which can result in long-term impacts. An employee who has been burned before
may question their own decision-making and fall into the hands of hackers once again or hinder their performance at work. The training and new security protocols that inevitably follow an attack can exacerbate team frustration and derail emotional recovery if not approached correctly. Valuing the weight of picking up the pieces after an attack should be accomplished by not placing blame and not overcomplicating things. Thorough but not shameful training is a great place to start. Ultimately, we need to find balance again after a cyber-attack, so remembering the third leg of emotional recovery is vital. Empower your teams, remember that they are facing the struggles of the company as well, and work towards recovery as a united front.
Author profile: Ken Fanger, MBA has 30 years of industry experience in the fields of technology and cyber security, and is a sought-after CMMC Registered Professional, helping manufacturers and contractors to meet DoD requirements for CMMC compliance. He is passionate about technology deployment, and his MBA in Operations & Logistics has helped him to be an asset in the designing and deployment of networks to enhance the manufacturing experience. Over the past 5 years, he has focused on compliance and security, including working on the SCADA control system for the Cleveland Power Grid. Mr. Fanger works with each client to identify their unique needs, and develops a customized approach to meeting those needs in the most efficient and cost-effective ways, ensuring client success. n
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ISSUES OUTLOOK
OCTOBER 2023
ISSUES OUTLOOK By Royce Lowe A Welcome To Arms Despite all the bad manufacturing news coming out of Europe of late, there is one sector, the one that makes arms, that is booming. This is thanks to the BOOM, BOOM, BOOMING coming from the battlefields in the Russia - Ukraine war. Companies that spent years suffering reduced business between crises are seeing business galore and accompanying profits from the war. Thus it has always been. War
is bullish for certain sectors of the economy. The Economist took a look at the situation. Germany’s biggest arms maker is Rheinmetall, a Dusseldorf-based maker of tanks, ammunition, and other military accouterments whose sales are up 12% year-over-year, and are expected to hit 20-30% for 2023 as a whole. The company has an order for drones from the Ukrainian army, and
will very shortly open a large new factory in Hungary. In 2022, military budgets worldwide increased by 3.7% to $2.2 trillion; in Europe by 13%, faster than in any other region. Growth was particularly pronounced in countries nearest to Russia, with Finland, Lithuania, Sweden, and Poland really opening their purses. Germany, Europe’s largest economy, is finally increasing its continued
46 Manufacturing Outlook /October 2023
ISSUES OUTLOOK defense spending from 1.4% of GDP to 2%. All this is leading to big business for European defense contractors, who have won a bonanza of new contracts in recent months. Britain is supplying air-defense systems to Poland, and is replenishing the British Army’s stock of artillery shells; France is selling tactical drones to Greece. And Rheinmetall won a hand-rubbing contract from the German government worth up to 4 billion euros and a 1.9 billion euro contract to supply the Germans and Dutch with over 3,000 airborne vehicles, to cap what will be the company’s best year ever. Lucie Béraud-Sudreau, a spokesperson for the Stockholm International Peace Research Institute (SIPRI), a thinktank, predicts that “the upward trend of defense expenditure will last.” But there are problems, one being that many countries offer little guidance on their spending plans, making it difficult for producers to invest. Then there’s the red tape that says that a defense contract in Germany worth over 25 million euros must be approved by the Bundestag’s budget
committee, causing long delays. In February last year, Olaf Scholz, Germany’s Chancellor, announced the country’s new military fund, and it took until December for approval of a 13 billion euro package for fighter jets and other military equipment. In terms of the overall shipment of arms to Ukraine, the U.S. is by far the biggest contributor, followed by the EU, Germany, and the UK. Commitments made by donors between January 24, 2022, and May 31, 2023, showed the U.S. contribution at over $46bn; the EU at $30bn; Germany at just over $8bn; the UK at just over $7bn, followed by smaller, but significant donations from Poland, Netherlands, Denmark, Canada, Sweden and Finland. The BBC recently reported that the U.S. has announced it will send controversial weapons to Ukraine as part of more than $1bn (£800m) in military and humanitarian aid. Russia condemned the move to equip U.S. Abrams tanks with shells strong enough to pierce conventional tank armor. They are made of depleted uranium - a by-product of uranium
enrichment stripped of most radioactive material. There’s a lack of coordination among European allies, and while there is much talk of “European defense” the reality is much more fragmented. After years of under-investment, European defense contractors will need to work together, to establish economies of scale, to meet increased demand. But these difficulties will ease with time, with improved coordination. Last November, France, Spain, and Germany struck a deal to build a European fighter jet, and consolidation of the industry will certainly help with that. The Outlook: The war in Ukraine interrupted decades of peace in Europe. For those making arms, it points to a more profitable future.
Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n
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