Metals & Manufacturing Outlook

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those countries. U.S. imports will rise to feed the manufacturing raw material supply chain, and U.S. exports seem to be doing rather well even in the face of a strong dollar against most other currencies around the globe. This is an BY LEWIS A. WEISS opportune time for U.S. manufacturers to begin investigating how products or parts for oil and gas to export their products which are exploration as well as mining in high demand due to the reliabilmachines. ity of their quality. As other economies recover, U.S. manufacturThe oil glut continues mostly ers will have the groundwork comunabated even by cuts in OPEC pleted and can begin to export ever production. Brent crude still larger quantities of everything from hovers slightly above or below pickles to petroleum products. You $50 per barrel depending on the can find groundwork information at day, although rig counts have www.mfgtalkradio.com which has moved up both domestically and covered this topic in some depth globally. The countries bleedover the last two years. ing cash reserves are those who March is another month of posidepend on per barrel prices well Overall, it’s time to prepare for a tive signs in many industry verabove $60 with Venezuela in par- run of fairly goods years, likely right ticals of the manufacturing ticular needing per barrel prices through 2020, which would be the sector, with 17 of the 18 indusabove $200 a barrel to recover longest economic expansion in U.S. tries within the sector reportfrom their economic mess. With history. We encourage you to ‘not ing steady improvement in new more than a dozen different polit- miss this one’ – you don’t have to orders and signs of strength ical parties, no one can agree go hog wild ramping up for it, but looking forward. Only furniture rather make some sound strategic and related products seem to be on anything except that the country is in a depression that moves to position your manufacturlagging. The doldrums of 2016 with its 1.6% GDP growth for the is expected to get worse. The ing for some pent up demand and year is now, gratefully, behind us. absence of government cash economic expansion. reserves and less productivity to By way of reference, 1.6% tax leaves Venezuela vulnerable You’ll find more information growth in GDP is too soft for to collapse and chaos, although within this issue of Metals & manufacturing to invest capital in it is not expected to spread Manufacturing Outlook as well as new equipment or plant expanto other countries because on Manufacturing Talk Radio each sion. Below 2%, manufacturVenezuela based their economy Tuesday at 1:00 p.m. EDT and at ing generally operates in a main- on a single commodity – oil www.mfgtalkradio.com. We hope tenance mode on fixed assets, exports above $100 a barrel. you enjoy the read. including machinery and tooling. The U.S. dollar continues to Best Regards, In particular, new and replacement machine tooling, especially remain strong, making exports to Canada ($0.75 CN / $1.00 USD) Lewis A. Weiss cutting tools, has been soft for several years due to low demand and Mexico ($0.51 MX / $1.00 USD) expensive for importers in Publisher for new heavy industry machine

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CONTENTS IN THIS ISSUE Publisher – Lewis A. Weiss Editor-In-Chief – Tim Grady Design – Rovere Media Contributing Writers: Royce Lowe - Contributing Writer

MANUFACTURING OUTLOOK - p.4 • CREDIT MANAGER’S INDEX - p. 6 NORTH AMERICAN OUTLOOK - p. 8 METALS OUTLOOK - p.10

Tim Grady - Contributing Writer

METALS TIDBITS - p.11

Chris Kuehl, PH.D - Chief Economist, FMA

AUTOMOTIVE OUTLOOK - p.13

Norbert Ore - Contributing Writer

AEROSPACE OUTLOOK - p-15

Mike Womack - Contributing Writer

ISSUES OUTLOOK - p.16

Felix Nater - Guest Contributing Writer Advertising Tim Grady – timgrady@steelforge.com Current Circulation - 43,400 Editorial Office Manufacturing Broadcasting Corp. 75 Lane Road Fairfield, NJ 07004 (973) 808-8300 © 2017 MBC – Manufacturing Broadcasting Corporation. No part of this publication may be reproduced or used in any form without the prior written permission of the publisher. Metals & Manufacturing Outlook is a registered trademark of MBC.

ENERGY OUTLOOK - p.18 GLOBAL OUTLOOK - p.18 • EUROZONE OUTLOOK - p.18 • ASIA OUTLOOK - p.21 • SOUTH AMERICA OUTLOOK - 21 WORKPLACE VIOLENCE - p.22 GLOBALLY, IS THIS THE PEAK? - p. 24 IMPACT OF TAX REFORM ON MANUFACTURING - p. 26

Metals & Manufacturing Outlook

MANUFACTURING OUTLOOK BY ROYCE LOWE There is a present air of optimism encircling the manufacturing globe. With few exceptions all systems are go, and just as importantly business optimism for the near term at least is at levels not seen for several years. This optimistic scenario is being overlooked by an administration in Washington that speaks of border taxes on goods not manufactured in the U.S. - in other words protectionism. Trump has met – and will meet regularly - with a group of industry leaders to improve the employment situation in the U.S., one of his major campaign promises. He will ask America’s executives to come up with recommendations for new policies on taxes, job creation and trade. Labor leaders, although on the list of industry leaders, were not invited to the initial meetings. Meanwhile, Trump’s pledge to create 25 million new jobs may be stalled by a lack of skilled workers, as 80 percent of 400 executives surveyed say they have trouble finding skilled workers, particularly in the manufacturing sector. SEE ISSUES OUTLOOK. Jeffrey Immelt, GE’s CEO, had some interesting things to say in a letter to shareholders. SEE ISSUES OUTLOOK. U.S. consumer confidence is at its highest level since July 2001 according to a February 28 Conference Board report. World vehicle sales were up 3.7 percent y-o-y in January, at 7.55

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million, with South America up 10.9 percent to 304,000 units – the first increase in a year – and Europe up 9.7 percent to 1.51 million. U.S. light vehicle sales were slightly off, down 1.1 percent y-o-y. SEE AUTOMOTIVE/AEROSPACE OUTLOOK. The metals market continues its strong ascent, and there are moves afoot in the world’s steel industry. SEE METALS OUTLOOK. Brexit is presently about the status of the more than three million European citizens living in the UK and the more than one million UK citizens living in Europe, plus the bill Britain may have to pay on exit, a sum variously estimated at between $20 and 70 billion. The U.S. job figures for February from the ADP Research Institute show that 298,000 non-farm jobs were created, some 106,000 by ‘goods producers’, 66,000 in construction and 32,000 in manufacturing. The estimate was for 190,000 jobs. The ISM PMI figure for U.S. manufacturing continued its healthy growth mode in the month of February, with the PMI reading moving to 57.7, up from January’s 56.0 percent. The overall economy grew for the 93rd consecutive month. Significant increases were noted in both production and employment. Again, there were significant increases in the price of some

raw materials. See North American Outlook. The IHS Markit PMI for the U.S. manufacturing sector moved down slightly from 55.0 in January, to 54.2 percent in February, with production growth falling back slightly from January’s 22-month peak. Strong domestic demand offsets subdued export sales. There have been sustained increases in inventory with an expected increase in client demand. There has been greater investment spending among energy sector clients. The five ISM components are equally weighted at 20 percent each. The IHS Markit components are weighted: 30 percent New Orders, 25 percent Production, 20 percent Employment, 15 percent Supplier Deliveries and 10 percent Raw Materials Inventories. The Bureau of Economic Analysis, in its ‘second’ estimate for the annual rate of Real GDP growth in the fourth quarter of 2016, put it at 1.9 percent., the same figure as the ‘advance’ estimate.The figure for the third quarter was 3.5 percent. GALLUP’s U.S. Economic Confidence Index was running at an average of +9 in late Febuary this year, with the coincident job creation index at a nine-year high of +35. World crude steel production for the 66 reporting countries for the month

Metals & Manufacturing Outlook of January 2017 was 136.51Mt, up 7.0 percent y-o-y. U.S. crude steel production for January 2017 was 6.874Mt, up 6.5 percent y-o-y.

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

Primary Global Aluminum Production in January 2017 was reported at 5.268 million tonnes, of which 2.590 million tonnes, 49 percent, was produced in China. The Gulf Corporation Council (GCC) produced 447,000 tonnes, North America 337,000 tonnes, Western Europe 320,000 tonnes and Eastern and Central Europe 339,000 tonnes. The price of aluminum is on its way to around $2,000 per tonne. China’s exports jumped 7.9 percent y-o-y in January, against a 3.2 percent increase forecast, its imports by 16.7 percent against a 10 percent forecast. Its trade surplus was S51.3 billion, some $2 billion over estimate. The figures are attributed to a global pick up and devaluation of the yuan. THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Industrial Production, Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The industrial production figures represent year-onyear changes, as do the consumer prices increases. The unemployment figures, %, are for the month as noted.

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Metals & Manufacturing Outlook

CREDIT MANAGER’S INDEX BY CHRIS KUEHL, PH.D, CHIEF ECONOMIST, FMA even higher—63.6. This index has crested above 60 a few times last year (March, July and November) and has been above 60 in both January and February of this year, but this is the biggest leap yet. The index of unfavorable factors has likewise improved. It is now at an even 50. This is hardly as impressive as the favorable factors, but it is better than the 49.5 marked last month.

The following information is condensed from the National Association of Credit Managers report issued February 27, 2017. For the full report, please visit nacm.org under News. The rebound in the data this month was expected to a degree. There has been a nice run of good economic news to start the year—a reaction to several factors that have served to boost confidence in the business community as well as with the consumer. The trends of 2016 have carried forward into 2017 to an extent and many of these have been encouraging for business. There was the release of “animal spirits” due to the Trump victory, although it has been hard to identify what has

changed thus far. “The sense is that there has to be an improvement in the coming year if there is investment in infrastructure, tax reform and changes in the regulatory system,” said NACM Economist Chris Kuehl, Ph.D. “The challenge for the year is that these changes will take time. Nobody is sure what the patience level for consumer or business will be.” The combined score for the CMI hit a level that has not been seen since before the recession started in 2008-2009. It is now at 55.4, up from 54. This is nearly the same reading as has been registered by the latest PMI (now at 56). The jump in the index of favorable factors is

The detailed breakdown of the two sets of scores tells an interesting story. In the favorable categories, the sales reading went from 60.1 to 62.6, marking a high point for the last few years. The new credit applications data also hit new highs with a reading of 62 as compared to 60.8 last month. This category did not reach 60 through the entirety of 2016 nor in any of the previous years after the recession hit. The dollar collections reading jumped into the 60s with a reading of 63 compared to January’s 58.2. The category of amount of credit extended went from 64.1 to 66.8, far more robust than anything seen in the years since the recession. “One would have to go back to 2007 to see a period when all four of these subcategories were all above 60,” noted Kuehl. The news was not quite as impressive as far as the | March 2017

Metals & Manufacturing Outlook

for good manufacturing news. The numbers are as high now as they have been in several years—going back to the prerecession days. The combined total is now at 55.1, as robust as the numbers indicated by the Purchasing Managers’ Index. The index for the favorable factors jumped to levels not seen since before the credit collapse in 2008-2009. It is now at 63.4 from 60.5. It was just in August that these numbers were languishing at 55.3. The index of unfavorable factors failed to improve, but there were gains in some of the subcategories. The index had jumped above 50 last month to 50.1, but fell this month to 49.6.

non-favorable categories are concerned, but there was certainly improvement. There are still many sectors struggling in the overall economy and there are still many businesses that have been unable to dig out of the hole they have been in since the downturn, but the trend overall has been positive. The numbers are better than they have been. There has been a small improvement in the category of rejections of credit applications, which is good news given the better numbers found in credit applications. The number last month was above 50, but barely, at 50.6. This month there has been an improvement to 51.4. The

accounts placed for collection remains mired in the 40s and is tracking in the wrong direction as it moved from 49.4 to 48.2. The disputes reading remains in the 40s as well, but improved over last month’s reading (46.0 to 48.7). There was a nice breakthrough as far as dollar amount beyond terms is concerned, as it is now back in the 50s with a reading of 51 compared to 48.4 last month. The dollar amount of customer deductions worsened a little—going from 48.7 to 47.6. There was also some deterioration as far as filings for bankruptcies, slipping from 53.9 to 53.2. Manufacturing Sector This month marks the third in a row

The details were instructive as they usually are. The sales category dropped a little, but remained above 60 with a reading of 60.7 compared to last month’s 61.7. The reading for new credit applications also dipped slightly as it fell from 61.8 to 61.6. The big gain was in dollar collections (55.3 to 64.1), a very good sign for other than the obvious reason. “When manufacturers start to get their accounts caught up, this is a good signal that they are planning to start asking for more credit in the near future,” said Kuehl. There was also a substantial boost in the reading for amount of credit extended as it jumped from 63 to 67.2. He added, “One of the observations that can be made here is that some of the larger customers are asking for more credit and these are the same ones that have been catching up on their obligations.” | March 2017

Metals & Manufacturing Outlook

NORTH AMERICAN OUTLOOK BY ROYCE LOWE The Institute of Supply Management PMI figure registered 57.7 percent in February, up 1.7 percentage points from January’s 56.0 reading, representing the sixth consecutive month of growth in manufacturing. There was growth in the overall economy for the 93rd consecutive month. Of the 18 manufacturing industries, 17 reported growth in February in the following order: Textile Mills; Apparel, Leather & Allied Products; Machinery; Computer & Electronic Products; Primary Metals; Plastics & Rubber Products; Nonmetallic Mineral Products; Chemical Products; Paper Products; Fabricated Metal Products; Transportation Equipment; Food, Beverage & Tobacco Products; Wood Products; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Petroleum & Coal Products; and Miscellaneous Manufacturing. The only industry reporting contraction in February is Furniture & Related Products. Comments from the manufacturing sector were very positive, and most industries surveyed are looking for continuing strong demand and bookings in the short to medium term. Petroleum & Coal Products are expecting a tough 2017 in spite if increases in oil and gas products and will continue to watch their costs. New Orders

65.1 (60.4)

Production

62.9 (61.4)

Employment

54.2 (56.1)

Supplier Deliveries

54.8 (53.6) – slowing at a faster rate

Inventories

51.5 (48.5) - growing from contracting

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

47.5 (48.5) – too low

Prices

68.0 (69.0) – increasing at slower rate

Backlog of Orders

57.0 (49.5) – growing from contracting

New Export Orders

55.0 (54.5)

Imports

54.0 (50.0)

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Metals & Manufacturing Outlook

Following is a summary of the five major indexes, each weighted at 20 percent in calculation of the PMI number for February. January’s readings are in parentheses: Commodities up in Price in February were: Aluminum (4); Butadiene (2); Caustic Soda; Copper (4); Copper Based Products; Corn (2); Corrugate (5); Diesel; Ethylene; HDPE Resin; Isopropyl Alcohol; LDPE Resin; Oil; Polypropylene; Rubber – Natural; Rubber – Synthetic; Scrap Metal*; Stainless Steel (11); Steel (14); Steel Tubing; Steel – Carbon (3); Steel – Cold Rolled (4); Steel – Galvanized; Steel – Hot Rolled (3); Styrene (2); and Titanium Dioxide (3). Commodities Down in Price: Scrap Metal* Commodities in Short Supply: Garlic Note: The number of consecutive months the commodity is listed is indicated after each item. * Indicates both up and down in price. The material above is provided by the Institute for Supply Management’s Manufacturing Report on Business®. The full report can be found under the News & Research section within their website www.instituteforsupplymanagement.org

CANADA’S IHS Markit Manufacturing PMI increased from January’s 53.5 reading to a 27-month high of 54.7 in February. There were strong increases in new orders, led by domestic, particularly the energy sector; in fact export orders were at relatively subdued levels. February saw the fastest quarterly upturn since the fourth quarter of 2014, with fast growth in input buying and production levels and a sustained recovery in job creation – the strongest increase in employment for 27 months - and business confidence across the sector. There were significant increases in input costs associated with higher commodity prices, for metals and oil-related products. Alberta and B.C. saw the strongest upturn in manufacturing production since December 2010; new orders were up in all regions except Quebec and employment was up in all regions, led by Alberta and B.C. Canada produced 1.005Mt of crude steel in January, down 11.7 percent y-o-y. Canada’s light vehicle sales were up 3.2 percent y-o-y in February to 123,032 units, a new record for the month. MEXICO seems to be suffering a lack of confidence as it passes through a period of weaker new order growth – in spite of devalued-peso induced strong export sales - and high input (output) inflation. New order growth in February was at the second-lowest pace since September 2013. The PMI for February, at 50.6 was very slightly lower than January’s 50.8 reading. Production was effectively unchanged from January and employment took a weak increase. There are presently concerns over the manufacturing situation in Mexico. Mexico produced 1.51Mt of crude steel in January, up 8.4 percent y-o-y. | March 2017

Metals & Manufacturing Outlook

METALS OUTLOOK BY ROYCE LOWE

Arcelor Mittal, the world’s largest steelmaker, recently announced its biggest earnings increase in seven years amid forecasts for a better steel demand in a recovery that is gaining strength. Steel prices are up on the back of increased Chinese demand – although heavy tariffs on Chinese steel in North America and Europe must surely have contributed. Earnings before interest, taxes and depreciation and amortization (EBITDA) were up 20 percent, the most since 2010. Global steel consumption may increase by 1.5 percent in 2017, versus 1 percent in 2016. European steel prices were up by 82 percent in 2016.

And China, the number one player in the global steel business, says it will cut 500,000 jobs in its steel and coal industries in 2017, after cutting around 726,000 jobs in 2016, having previously announced plans for an overall elimination of 1.8 million jobs.The laid-off workers will enter a job placement program or be offered early retirement. ThyssenKrupp, meanwhile, has sold its Brazilian steel mill, CSA, to the Luxembourg – based Ternium Group, for 1.5 billion € ($1.57 billion), thus terminating its loss-making ‘Steel Americas’ project. ThyssenKrupp will

concentrate on its elevator, submarine and car parts businesses. On the forging front, the SMS Group received an order from China’s Shandong Iraeta Heavy Industry Co. Ltd. (SIHI) for the supply of a newly developed ring-rolling machine for the production of seamlessly rolled rings. The machine, reportedly the world’s biggest, will produce seamless rings with a diameter up to 16 meters and up to 3 meters high. The rings produced will be used as tower flanges for wind turbines and will thus have to withstand extreme loads. A further application for the rings will be large shells as required in the manufacture of large pressure vessels. And Carpenter Technology Corp. will purchase substantially all of the assets and business of Puris LLC, a Bruceton Mills, W.V.-based producer of titanium powder for additive manufacturing and advanced technology applications, for $35 million. The assets and business to be acquired include Puris’ titanium powder operations and business, additive-manufacturing assets, patents and related intellectual property. Operations will continue at the existing site, which is well positioned for future expansion and will operate as a functional unit of Carpenter Powder Products.

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Metals & Manufacturing Outlook

METAL TIDBITS – INFORMATION ABOUT STEEL ALLOYS Our metal alloy information center is an Industry Resources section that contains many brief articles on metal alloys and other general information. As this information develops, it will be categorized for greater ease of use and reference. We welcome any suggestions you have about organizing the information, and even submissions of information you think should be included in Metal Tidbits. Just send your suggestions to tidbits@steelforge. com and thank you for your input. Aerospace – Aerospace Alloy, Aerospace Forgings, Aerospace Material Alloy – Alloy 42, Alloy 49, Alloy 600, Alloy 625, Alloy 718, Alloy Custom Metals, Alloy Stainless Steel, Alloy Steel, Alloy Steel Forgings Aluminum – Aluminum Alloy, Aluminum Alloy Properties, Aluminum Bars, Aluminum Cylinders, Aluminum Discs, Aluminum Forging, Aluminum Forgings, Aluminum Material Properties, Aluminum Plates, Aluminum Plate Suppliers, Aluminum Products, Aluminum Properties, Aluminum Rings, Aluminum Round Bar, Aluminum Round Tubing, Aluminum Shafts, Aluminum Sheet Metal, Aluminum Sleeves, Aluminum Strips Ballistic – Ballistic Alloys, Ballistic Steel, Ballistic Tested Steels Corrosion – Corrosion Resistant Alloys, Corrosion Resistant Metals, Corrosion Resistant Steel Custom – Custom 450, Custom Alloy Forge – Forge Shop, Forged Metal, Forged Metals, Forged Product, Forged Ring, Forged Rings, Forged Products, Forged Steel, Forging Steel, Forgings Hastelloy – Hastelloy, Hastelloy B, Hastelloy C, Hastelloy C276, Hastelloy X Haynes – Haynes 188, Haynes 25, Haynes Alloys High Temp – High Nickel Alloys, High Temp Alloy Suppliers, High Temperature Alloys, Hot Forging, Hot Upset Forging Incoloy – Incoloy, Incoloy 800, Incoloy 825

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Metals & Manufacturing Outlook

Inconel – Inconel, Inconel 600, Inconel 601, Inconel 625, Inconel 690, Inconel 718, Inconel 722, Inconel 903, Inconel Alloys Invar – Invar, Invar 36, Invar 42 Magnesium – Magnesium Alloys, Magnesium Alloy, Magnesium Bar, Magnesium Metal, Magnesium Plates, Magnesium Sheets Maraging – Maraging 250, Maraging 300, Maraging 350, Maraging 362, Maraging Steel Metal – Metal Forging, Metal Forgings, Metal Mu Distributors, Metal Service Center Molybdenum – Molybdenum Alloys, Molybdenum Steel Monel – Monel, Monel 400, Monel K500, Monel Metal Nickel – Nickel 200, Nickel 201, Nickel Alloy, Nickel Metal Nimonic – Nimonic, Nimonic 75, Nimonic 90 Nitralloy – Nitralloy, Nitralloy 135, Nitralloy 135m Specialty – Specialty Stainless Steel, Specialty Steel, Specialty Steel Products Stainless Steel – 15-5, 15-5PH, AM350, AM355, Stainless Steel, Stainless Steel Alloys, Stainless Steel Bar Stock, Stainless Steel Bars, Stainless Steel Cylinders, Stainless Steel Flat Bar, Stainless Steel Plate, Stainless Steel Plate Suppliers, Stainless Steel Rings, Stainless Steel Round Bar, Stainless Steel Sheets, Stainless Steel Sheet Metal, Stainless Steel Stock, Stainless Steel Strips, Stainless Steel Supplier, Stainless Steel Alloy Steel – Steel Alloy, Steel Bar Stock, Steel Bars, Steel Billet, Steel Cylinders, Steel Flat Bar, Steel Forge, Steel Forging, Steel Forgings, Steel Plate Mills, Steel Plates, Steel Rings, Steel Rods, Steel Service Center, Steel Sleeves, Steel Strips, Steel Suppliers, Steel Tungsten Tensile Strength – Tensile Strength, Tensile Strength Of Steel Titanium – Titanium Bars, Titanium Blocks,Titanium Forging, Titanium Forgings, Titanium Metal Prices, Titanium Pipe, Titanium Plates, Titanium Properties, Titanium Rods, Titanium Sheet Metal, Titanium Sheet Prices, Titanium Sheets, Titanium Suppliers, Titanium Tubes, Titanium Tubing, Titanium Wire Tool Steel – Tool Steel,Tool Steel Supplier Tungsten – Tungsten Alloy, Tungsten Metal, Tungsten Metal Prices, Tungsten Suppliers

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Metals & Manufacturing Outlook

AUTOMOTIVE/ AEROSPACE OUTLOOK BY ROYCE LOWE

AUTOMOTIVE OUTLOOK makes bodies and chassis, car electronics and vision systems and it relies on the U.S. for about 25 percent of its sales, and on Mexico for another 12 percent. U.S. manufacturers are pushing their case that a tax on imports would lead to high domestic employment. Trump has discussed the potential benefits of this proposal but has not so far endorsed it.

There’s still lots of talk of a ‘border tax’ on goods made outside the U.S. and of course this would apply significantly to the automotive and auto parts industries. Although there is talk there has been no implementation nor any hint of the magnitude of such a tax. This has prompted a number of auto manufacturers to lay aside plans to build plants in Mexico, and to plan expansions in the U.S.

Canada’s Magna International, North America’s largest auto parts maker said a border adjustment tax being studied by Trump would probably hurt the automobile industry, while making it more likely that future factories will be located in the U.S. Don Walker, Magna’s CEO, went on to state that the growth of ‘protectionist sentiments’ could hurt its operations and profitability. Magna

Magna sells about $9 billion per year to the U.S., with about 90 percent of that ending up in U.S. assembly plants. Annual Canadian sales are about $6.6 billion, Mexican about $4.5 billion. Most of Magna’s Mexican revenue comes from parts shipped to carmakers in Mexico. China is buying up auto parts makers in the U.S. at a record pace. In 2016 Ningbo-Joyson Electronic Corp. a supplier of windshield washer and ventilation systems to some of | March 2017

Metals & Manufacturing Outlook

the world’s largest automakers including Ford, GM and VW, spent over $1 billion buying a Michigan air bag manufacturer and an Indiana manufacturer of assembly line equipment. The company is also looking to buy Takata, the Tokyo-based air bag manufacturer company which agreed to pay $1 billion to U.S. regulators, consumers and carmakers after its faulty air bags were linked to at least 17 deaths worldwide. But over 40 percent of Takata’s revenue comes from the U.S. There are more cases of Chinese companies buying disused U.S. factories and starting new businesses, and further of companies building new plants in the U.S. Of the approximately 90 million vehicles sold worldwide annually, some 50 percent go to the Asia/Pacific area, 20 percent to Europe, 19 percent to North America, 4 percent to South America and 7 percent to other regions. Nissan is going ahead with

plans for a new plant in Mexico despite Trump’s chiding of Toyota. Nissan and Daimler broke ground in 2015 in Central Mexico in a $1 billion investment to make Infiniti and MercedesBenz brands. Infinitis will be produced by the end of the 2017 fiscal year. And PSA, owner of the Peugeot and Citroen brands, has purchased GM’s European operation, which manufactures the Vauxhall brand in the UK and the Opel in Europe, for 1.8 billion€ ($1.9 billion). GM has been losing money on its European operations for some years, but all was further exacerbated by the devaluation of the pound Sterling following last June’s referendum. There are 5,000 jobs at stake in the UK, 18,250 in Germany. And speaking of Germany, ‘according to people familiar with the matter’, VW is in advanced talks with Tata Motors Ltd. as it takes another stab at India’s fast-growing auto market. A deal may be announced shortly, but there are no guarantees. Tata Motors owns

Jaguar/Land Rover. Elon Musk’s Tesla Motors lost 69 cents a share in the 4th quarter of 2016, lower than the analysts’ forecast of $1.14 per share. Musk says the model 3 is on track for July production. This model, at $35,000 before incentives and a reported range of 215 miles between charges. Tesla had 373,000 pre-orders for the model 3 when last updated in May 2016. Production on the model 3 is forecast at 5,000 per week at some point in the 4th quarter of this year and 10,000 per week by sometime in 2018, or a yearly rate of 500,000. This is reliant upon the gigafactory in Nevada, that began producing battery cells recently with Panasonic Corp. This model is the cornerstone of the company: suppliers are on time and battery cells are coming through. One problem that may slow the company down is a steady exit of personnel who reputedly cannot stand the pace set by their leader. GM announced production cuts and lay offs of 1,100 workers at a plant in Michigan in May as it shifts production of an SUV model to another factory in Tennessee, where some 800 new jobs will be added to a factory in Spring Hill. GM said in December 2016 that it would permanently cut some 3,000 workers at three car plants and temporarily lay off employees at five of its factories.

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Metals & Manufacturing Outlook

AEROSPACE OUTLOOK Boeing gets its seat at the top table as its CEO Dennis Muilenburg is named to Trump’s manufacturing council, and hence a direct line to the Oval Office. A question has been asked of this cozy relationship, namely ‘How close is too close?’ It seems that Muilenburg had listened in to a phone call in January between Trump and the Air Force General managing the purchases of Lockheed Martin Corp’s F-35 fighter jet. The high costs of the F-35 were the subject of Trump’s criticisms while he suggested that Boeing’s F/A-18 Super Hornet might be a cheaper alternative. Should Muilenburg have walked out? He was privy to information he would otherwise not have had. Meanwhile the Air Force cannot account for the $1 billion in savings Trump says he’s negotiated for the program to develop, purchase and operate two new Boeing jets to serve as Air Force One – after Trump’s boasts that he personally intervened to cut costs of both the F-35 and Boeing’s Air Force One. The figure for the F-35 alone is supposedly $700 million? To date tha Air Force has budgeted about $1.6 billion through 2019 for the Air Force One program. The 747 is the only U.S. - built passenger plane that can be adapted for purpose. Boeing is as usual in the aerospace news, and at the same time that it signs a deal with Singapore Air Lines for 39 widebodied 777 aircraft worth $13.8 billion, it announces, at least via

a ‘not-to-be-named person,’ that it is cutting back on its workforce in the Seattle area by 1,800 jobs in 2017 due to slowing sales for jetliners. There will be approved voluntary layoffs for 1,500 mechanics and a further 305 engineers and technical workers will leave voluntarily. Boeing has cut its workforce by 9.2 percent to 71,036 since the start of 2016. Airbus has supplied a good number of A350-900 aircraft to Singapore Airlines, which Airbus claims to be 25 percent more fuel efficient than the 777s. The Indian Air Force is looking to replace the third of its 650 planes that are over forty years old and to be retired in the coming decade. India’s air force has traditionally been Russia/former Soviet Union MIGs. Both Boeing and Lockheed Martin have promised to build plants in India if the world’s largest arms importer chooses their fighter jets and weapons. The U.S., Russia’s MIG Corp and Europe’s Airbus will doubtless be bidding. Prime Minister Modi has plans to boost his domestic defense industry by giving contracts to local companies, as well as asking foreign manufacturers to go in with local firms. In the event of U.S. participation, this would result in a lot of jobs being created overseas. Modi speaks of $250 billion in the coming years on fighter jets, submarines etc. to modernize his armed forces, but he wants ‘Make in India.’ Local conglomerates Tata Group, Mahindra & Mahindra and Tonbro Ltd have expanded more into defense and formed

joint ventures with international manufacturers. SAAB is also in this picture. Boeing will open its first European plant in Post-brexit UK., a 25,000 sq. ft. facility that will employ 30 people, with recruitment starting in 2018. The $25 million plant in Sheffield in the north of England will supply parts for the 737 and 777 models, and will specialize in systems that extend and retract aircraft wing flaps. Boeing presently employs around 2,000 people in Britain, all in non-manufacturing roles spanning training, sales and services. Aerospace companies are exempt from cross-border duties under WTO rules. GE Aviation, (GEA) a none too insignificant part of GE, lets it be known where it makes its engines and how much it invests in the U.S. and elsewhere, and how many U.S. jobs this all means. The company is looking at five new plants, in Ellisville, Miss; Auburn, Ala; Asheville, N.C.; Lafayette, IN; and Huntsville, Ala, for a total investment of $214 million. Between 2011 and 2016 GEA invested $4.3 billion in the U.S. and $1 billion overseas. The company has 44,600 employees worldwide at 85 sites, 47 of them in the U.S. There are over 25,000 employees in the U.S. It has a backlog of over $150 billion. GEA and CFM International – a 50/50 joint venture of GE and |Safran Aircraft Engines, has a backlog of more than 15,000 jet engines. | March 2017

Metals & Manufacturing Outlook

ISSUES OUTLOOK BY ROYCE LOWE The border tax, it is said, will lead to higher employment. Dow Chemical’s CEO Andrew Liveris is ‘very encouraged’ by the pro-business approach being taken by the administration. In a session on the workforce of the future, Liveris said there must be a ‘systematic fix’ to address the shortage of workers prepared for jobs requiring skills in Science, Technology, Engineering and Math (STEM). There are half a million STEM jobs that can’t be filled, said Liveris, and we need to fill them with Americans. Along with this, in federal districts across the U.S., manufacturers are optimistic about the business outlook in the near term, but some are worried about the effect of possible border adjustment taxes on the auto industry, and skilled labor shortages, particularly highly-skilled workers such as engineers and IT specialists. Plus, shortages drive wages higher. Jeffrey Immelt, GE’s CEO, wrote a letter to his shareholders recently, and said some very interesting and topical things. He also answered a few very pertinent questions. Quote....”There is a deep skepticism toward the ideas that powered economic expansion for a generation, with concepts like innovation, productivity and globalization being challenged and protectionism on the rise. We still | March 2017

see substantial opportunity to grow around the world by investing, operating and building relationships in the countries where we do business.”

met major industry leaders in January. Apple doesn’t really want to bring its manufacturing back to the U.S. and has some good reasons not to.

GE’s production was 70 percent U.S. in 2000 and is less than 50 percent today. “ The current policy favors imports, not exports,” creating an uneven playing field that benefits companies outsourcing work overseas. BUT Acqusitions have helped GE build a global manufacturing presence enabling access to various international markets...such as China...” every company and country needs a strategy to engage the secondbiggest economy on earth.” Are we witnessing the end of globalization, Mr Immelt? “ I don’t think so.”

The company started manufacturing in the U.S., then designed in the U.S. but used a network of Asian manufacturers – particularly Taiwan’s Foxconn – to produce components and assemble everything from the MacBook and iPad through to the iPhone.

APPLE was one of the companies Donald Trump was there to help do well – providing, of course, they did their manufacturing in the U.S. - when he

The company has known nothing but oodles of success and money. It seems that when Barack Obama asked the late Steve Jobs why he didn’t make iPhones in the U.S. he was met with the reply,’These jobs aren’t coming back.’ Tim Cook, Apple’s CEO, says that factories in Asia can scale up and down faster and that

Metals & Manufacturing Outlook

Asian supply chains have surpassed what’s in the U.S. He says the U.S. can’t compete. But Apple does employ in the U.S. It directly employs 66,000 people, of whom 30,000 work in Apple Stores. Further, in January 2016 the company pointed out that it was responsible for creating and supporting 1.9 million jobs in the U.S. alone, of which 75 percent, over 1.4 million are attributable to a community of app creators, software engineers and entrepreneurs building apps for iOs as well as non-IT jobs supported directly and indirectly through the app company. So what would it take for APPLE to produce in the U.S.? Financial incentives may be a good place to start, as Foxconn and China know all too well. Foxconn received over $1.5 billion from the Chinese government to build

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its huge factory in Zhengzhou where up to 500,000 iPhones are made each day. The local government helps finance the factory and the roads leading into it, and also helps cover ongoing energy and transportation costs for the operation. It recruits workers for the assembly line and pays bonuses for the factory for meeting export targets. And if all this were moved to the U.S.? Well, for a start it would increase the cost of the iPhone which already, like all Apple products, is priced at a premium. Higher production costs would mean less money for R&D and new technologies that over time would hurt both Apple and the U.S. economy. This whole thing has a Harvard Prof. worried. He doesn’t want to make things here that the

Chinese make, rather things they can’t because productivity and skills are so much higher (in the U.S.) BUT..Foxconn is considering a $7 billion flat-panel-display factory, that might undercut arguments that the electronics supply chain could not be brought here. Foxconn is talking about the creation of 30 to 50,000 U.S. jobs and has already announced plans for a $40 million investment in a factory in Pennsylvania to build precision tools and develop a robotics program. China and Apple seem to get along and in spite of increasing labor costs there, which will decrease with automation, China offers a huge and growing market for U.S. companies such as Apple and retaliation by the Chinese Government for a withdrawal of manufacturing by Foxconn would surely harm Apple from both manufacturing and retail standpoints. APPLE’S NEXT BIG THING is ongoing negotiations with the Indian Government to produce iPhones there, reportedly through Wistron Corp. India is a fast-growing market that Apple has barely tapped and the plant in India will be a new and perhaps more predictable manufacturing base. And what will Trump and his merry men offer Apple?...Apple are tight-lipped. | March 2017

Metals & Manufacturing Outlook

ENERGY OUTLOOK BY ROYCE LOWE The GE-Baker Hughes merger, announced last October, aimed at forming the industry’s largest oilfield services and equipment company, is the subject of questions by the Department of Justice. The questions have not been specified and the deal is still expected to close in the middle of 2017. ExxonMobil announced in early March that it will invest $20 billion at eleven new and existing sites in the next ten years to increase its manufacturing and export capacity along the Gulf of Mexico. The program, to be called ‘Growing the Gulf’ will involve chemical, refining, lubricant and liquefied natural gas projects at facilities along the Texas and Louisiana coasts. The company says it will reduce emissions to a minimum and will create 45,000 jobs. The project received Trump’s blessing: ‘just the kind of jobs we need.’

GLOBAL OUTLOOK BY ROYCE LOWE

EUROZONE The GE-Baker Hughes merger, announced last October, aimed at forming the industry’s largest oilfield services and e IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) took a further slight upturn in February to 55.4 from January’s 55.2 reading, to reach a 70-month high. There was accelerated growth in Germany, the Netherlands and Italy, with production, new orders and employment rising, with the

| March 2017

exception of Greece. Manufacturing production and new orders increased at the quickest rate since April 2011, but growth slowed to 3-month lows in Spain, Ireland and France, while the contraction rate in Greece moderated.

Car sales in Europe in February showed France down 2.9 percent at 161,885 units, Germany down 2.6 percent at 243,602 units, Italy up 6.2 percent at 183,777 units and Spain up 0.2 percent at 97,796 units.

Higher commodity prices pushed up input costs at the quickest rate since May 2011.

Crude steel production in Germany in January was at 3.649Mt, up 1.2 percent y-o-y; in Italy 1.825Mt, up 0.3 percent y-o-y; in France 1.145Mt, down 14.0 percent y-o-y and in Spain 1.163Mt, down 4.2 percent y-o-y.

Confidence is presently high in the eurozone manufacturing industry.

Russia’s crude steel production for January was at 6.183Mt, up 11.6 percent y-o-y; Ukraine’s

Metals & Manufacturing Outlook

was 2.103Mt, up 8.5 percent y-o-y. IHS Markit reports further solid growth in production and new orders in the UK’s manufacturing sector in February, with the PMI at 54.6 – a 3-month low - down from January’s 55.7 figure. Production and new orders showed a solid rise, but at slower rates than in January. Price inflation pressures stayed high in January. Both domestic and export demand were good, and there were good results in the consumer, intermediate and investment goods sectors, particularly in the latter. Business confidence is reported to be good. Input cost inflation remains high, with corresponding increases in output charges. There are some reports of long delivery times for raw materials. UK new car sales showed their first February -traditionally one

of the quietest months of the year - drop in six years, with new car registrations down 0.3 percent at 83,115 units. The UK produced 0.730Mt of crude steel in January, up 17.5 percent y-o-y. quipment company, is the subject of questions by the Department of Justice. The questions have not been specified and the deal is still expected to close in the middle of 2017. ExxonMobil announced in early March that it will invest $20 billion at eleven new and existing sites in the next ten years to increase its manufacturing and export capacity along the Gulf of Mexico. The program, to be called ‘Growing the Gulf’ will involve chemical, refining, lubricant and liquefied natural gas projects at facilities along the Texas and Louisiana coasts. The company says it will reduce emissions to a minimum and will create 45,000 jobs. The project received Trump’s blessing: ‘just the kind of jobs we need.’

| March 2017

Metals & Manufacturing Outlook

ASIA OUTLOOK BY ROYCE LOWE Korea 5.86Mt, up 3.2 percent y-o-y. Taiwan produced 1.83Mt in January, up 4.4 percent y-o-y. JAPAN’s manufacturing sector saw its PMI move to a 35-month high in February, at 53.3 from January’s 52.7 reading. Production, new orders, and employment were all up in February, with backlogs accumulating for the first time since December 2015. Business optimism was the second-strongest recorded since the ‘future output’ series started in mid-2012.

Input cost inflation fell back to a 4-month low but remains significantly high.

Chinese car sales fell for the first time in eleven months as the tax cut that had spurred 2016’s sales growth was rescinded. Sales dropped in January by 9.8 percent to 2.12 million units, with sedans bearing the brunt of the drop. Toyota and Nissan were hit, whereas Geely Automobile Holdings Ltd. and Guangzhou Automobile Co. saw their figures up by 28 percent on the back of sales of new SUVs. There were five fewer selling days in January because of the Lunar New Year.

Taken overall, manufacturers show the strongest optimism for future production growth since May 2015.

CHINA produced 67.2Mt of crude steel in January, up 7.4 percent y-o-y; Japan 9.002Mt, up 2.7 percent y-o-y; India 8.40Mt, up 12.0 percent y-o-y and South

Chinese manufacturing saw a stronger improvement overall in February, with production and new orders rising faster than at the start of the year. The month saw the fastest increase in new export business since September 2014. The Caixin PMI figure for February was 51.7, up from January’s 51.0 reading.

| March 2017

Japanese firms took on workforce at the fastest pace since April 2014, but also reported the quickest rise in average cost burdens for two years in February, mentioning higher prices for machinery, iron, zinc, oil, steel and copper. INDIAN manufacturing looked slightly better in February, with increases in new orders – spurred by improved export demand - and production. The PMI for February was at 53.3, up from January’s 52.7 figure. February saw increased purchases of raw materials, but lower workforce numbers. Inflation rates continue to increase, with higher costs reported for metals, chemicals, energy and plastics. Higher input costs are mostly offset by increased selling prices.

Metals & Manufacturing Outlook

SOUTH AMERICA BY ROYCE LOWE Brazil’s manufacturing downturn continues in February, but with slower contractions in new orders and production. The PMI for February, at 46.9, is up from January’s 44.0 figure, and is a 13-month high. Having said last month that nothing looks good in the Brazilian manufacturing sector, we are met with reports this month of selling prices increasing at the quickest rate since mid-2016 and a degree of optimism that is the highest in the ‘future output’s’ series history. Through all this average input costs are increasing sharply,

pushed by higher prices for metals, chemicals, plastics, textiles, paper and gasoline. Manufacturers are increasing selling prices accordingly. Some 73 percent of manufacturers forecast production growth over the next year with hopes of an economic rebound. There is a high level of positive feeling.

by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – was up to a 69-month high in February at 52.9 from January’s 52.7 figure.

Brazil’s crude steel production for the month of January was 2.856Mt, an increase y-o-y of 14.4 percent. The JP MORGAN GLOBAL MANUFACTURING PMI – a composite index produced

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The rate of expansion of the global manufacturing economy was at a three-year high, and was accompanied by increased business confidence and higher employment- the job creation rate being the best for 5.1/2 years. International trading was stronger in February, as illustrated by new export orders rising to their highest level in almost six years. Average input prices continued to rise at a marked pace in February with the inflation rate staying near january’s 68-month record. Selling prices were adjusted accordingly. | March 2017

Metals & Manufacturing Outlook

WORKPLACE VIOLENCE IS MORE THAN GUN VIOLENCE BY FELIX NATER, GUEST CONTRIBUTING WRITER WORKPLACE VIOLENCE IS MORE THAN GUN VIOLENCE By Felix Nater, Guest Contributing Writer Whether you’re a supervisor, production manager, operations manager, HR director or CEO, what does workplace violence mean to you? Are you thinking that workplace violence is about the employee who threatens or conducts gun violence? What about the employee who is the victim of harassment, verbal abuse, bullying, dictatorial supervision or some other aggressive behavior that intimidates an employee? More importantly, can workplace violence be prevented? According to an FBI Study conducted between 2000-2013 there were 160 active shooter incidents during that 13-year period involving approximately 1,043 killed. Eighty percent or 132 were worksite incidents. Seventy-three of the 132 occurred in businesses. Did it have to happen? Was somebody asleep at the switch? OSHA Federal reports an average of 2 million reported incidents a year involving fights, threats, harassments, name calling, verbal abuse and sabotage. Should the data be an indicator of concern? What about your workplace violence prevention training and reporting? Are they credible? Perception is often reality. Would you feel comfortable representing your role during an OSHA Inspection or as a witness in a civil liability lawsuit? You may be surprised to discover that a company or employee that does the right thing without the right policy in place can become liable in lawsuits filed by other employees or even the perpetrator. “It doesn’t matter whether you are a small, medium or large manufacturing business you should have a WORKPLACE VIOLENCE PREVENTION POLICY AND PLAN. The plan at a minimum must explain the prohibited behaviors, reporting, responsibilities and consequences. Small and midsize businesses are not immune from workplace violence. The risks are higher when it comes to recovery and business continuity from a workplace shooting incident, but other forms of workplace violence are toxic to productivity and teamwork. | March 2017

Metals & Manufacturing Outlook

WORKPLACE VIOLENCE PREVENTION should be comprehensive but not complicated.

Here are 10 practical workplace violence prevention tips that will energize your workplace prevention efforts. 1. Review and update the Workplace Violence Prevention and Harassment Polices annually. 2. Train supervisors on their role to evaluate, assess and document employee reports. 3. Review the incidents in a timely manner to identify patterns, repeat offenders and gaps in the policy. 4. Train employees on workplace violence prevention. 5. Inform employees that hasty reporting activates the organization’s workplace violence prevention protocols and procedures. 6. Review visitor management and access control policy and procedures. 7. Review the domestic violence/intimate partner policy to ensure employees are familiar with the policy, and services & resources available. 8. Train supervisors & managers on the leader’s role in workplace violence prevention. 9. Test your emergency evacuation plan and hostile intruder/active shooter threat procedures. 10. Conduct on site work-site specific assessments of employee work settings and operations. Remember, Compliance is a good thing but it is not prevention. Crisis Management is not prevention. Threat Assessment is not prevention. Think of Workplace Violence Prevention as your workplace security insurance policy. The workplace violence prevention mission can be a shared responsibility. Create a robust, agile, and proactive (RAP) process in managing aggression and at risk situations. Integration and collaboration of limited resources can maximize the effort. Felix Nater was the Public Information Officer at the Post Office where several postal employees were killed in one of the nation’s most widely publicized shooting incidents. He was recently featured on a segment of Manufacturing Talk Radio. He is a professional consultant in this field and can be reached at nater@naterassociates.com. | March 2017

Metals & Manufacturing Outlook

GLOBALLY – IS THIS THE PEAK? BY NORBERT ORE The following information is written by Norbert Ore provided courtesy of Strategas Research Partners, a Macro Institutional Research & Advisory Brokerage Firm that can be reached at www.strategasrp.com

For a short month, February provided impressive results. The current surveys portray a very positive picture of North America and Europe in particular with Asia also positive, but to a lesser degree of intensity. The indexes are now at a level that inspires us to ask, “Is this as good as it gets?” History indicates that current levels are hard to sustain, particularly when growth in global GDP has not yet accelerated. Of the 18 surveys that we follow, only South Korea and Brazil are reporting contraction. Taiwan has not reported, but we would expect it to be above 50 based on the recent trend. The Eurozone PMI (55.4, +0.2) reached its highest level in 70 months. The accelerating expansion is led by Netherlands (58.3, +1.7), Austria (57.2, -0.1), and Germany (56.8, +0.3). The UK PMI (54.6, -1.1) slowed somewhat, but remains at a level which equals the monthly average since BREXIT seven months ago. China’s Official Report, the CFLP PMI (51.6, +0.3) posted a five-month trend above 51 for the first time since May 2008. The Caixin China General Manufacturing PMI (51.7, +0.7) accelerated and posted growth for the eighth consecutive month. Overall, these are definitely signs of an acceleration. In North America, Canada (54.7, +1.2) report In North America, Canada (54.7, +1.2) reported growth for the 12th consecutive month and the highest level since recording a PMI of 55.3 in November 2014. Mexico (50.6, -0.2) recorded its 44th consecutive month of growth, however, a weaker trend is apparent as the PMI has averaged only 51 percent for the past eight months. U.S. imports accelerated during February and that should result in improvement in growth in the near term for Mexico. The ISM PMI™ After averaging 52.9 for the past eight years, the PMI is making an aggressive move upward as the index has averaged 56.9 for the first two months of 2017. The monthly numbers are the best since August 2014 when the posting was 57.9. The faster rate of growth was generated by strength in New Orders (65.1, +4.7) combined with an equally impressive Production Index (62.9, +1.5). The remaining PMI components performed credibly: Employment (54.2, -1.9), Supplier Deliveries (54.8, +1.2), and Inventories (51.5, +3.0) also contributed. A key manufacturing measure is New Orders Minus Inventories. In February, New Orders grew 13.6 pp (+1.7) faster than Inventories marking a third consecutive month of significant inventory liquidation. When compared to the 6.7 pp average (2014present) gap between New Orders and Inventories this indicates the likelihood of increasing demand. | March 2017

Metals & Manufacturing Outlook

The Customers’ Inventories Index (47.5, -1.0.) shows continuing balance of outputs at the finished goods level. The three manufacturing industries reporting customers’ inventories as being too high during the month of February are: Nonmetallic Mineral Products; Transportation Equipment; and Computer & Electronic Products, while the eight industries reporting customers’ inventories as too low — listed in order — are: Plastics & Rubber; Machinery; Computer & Electronic; Chemical; Apparel, Leather & Allied Products; Primary Metals; Miscellaneous Manufacturing; Plastics & Rubber Products; Paper Products; Chemical Products; Food, Beverage & Tobacco Products; and Machinery. Manufacturers’ input costs as evidenced by February’s Prices Index (68.0, -1.0) continue to firm giving suppliers pricing power. This strength in the index is driven by the following commodities that are up in Price: Aluminum (4); Butadiene (2); Caustic Soda; Copper (4); Copper Based Products; Corn (2); Corrugate (5); Diesel; Ethylene; HDPE Resin; Isopropyl Alcohol; LDPE Resin; Oil; Polypropylene; Rubber – Natural; Rubber – Synthetic; Scrap Metal*; Stainless Steel (11); Steel (14); Steel Tubing; Steel – Carbon (3); Steel – Cold Rolled (4); Steel – Galvanized; Steel – Hot Rolled (3); Styrene (2); and Titanium Dioxide (3). (Note: The number of consecutive months the commodity is listed is indicated after each commodity).

| March 2017

Metals & Manufacturing Outlook

THE IMPACT OF TAX REFORM ON UNITED STATES MANUFACTURING BY MIKE WOMACK, STAFF WRITER

The United States manufacturing industry has struggled to keep pace with the rest of the world. Higher taxes and overregulation have hindered US manufacturers effectiveness. The new administration spoke often about addressing these key areas of concern on the campaign trail and after taking office. Many are wondering what kind of an impact addressing these problems would actually have on the manufacturing industry, so PwC took a closer look. | March 2017

PwC provides professional services which include audit and assurance, tax and consulting. Their operations span the globe, supported by more than 223,000 people in 157 countries. In the report released by PwC, they dive into the potential impact of tax reform on US manufacturers. They also touch on the controversial border tax adjustment and how it may impact companies here in the US.

Looking at the House Republican Blueprint, two of its major corporate proposals could dramatically benefit many US manufacturers. The first area of interest is reducing the corporate tax rate from 35% to 20%. Currently, the 35% tax rate is much higher when compared to countries in the Organisation for Economic Co-operation and Development. On average corporate tax rates are at 24%. If US manufacturers are in the future, taxed at a rate close to 24% it can greatly increase their competitiveness around the globe. The second proposal would eliminate the current US worldwide tax regime and replace it with a territorial tax system. As of now, the law states a US company must pay a tax on their foreign earnings in the country where they do business and an additional incremental US tax when they bring those earnings back into the US. Most other non-US businesses use a territorial tax system. This means they are able to repatriate foreign earnings with little or sometimes no residual home-country tax.

Metals & Manufacturing Outlook

The border adjustment portion of the House Republican Blueprint was developed without input from President Trump. However, the ideas put forth in this section are in line with the administration’s “America First” initiative. If the plan were to pass as envisioned today, border adjustability will prevent US companies from deducting the cost of raw materials or finished products that were imported into the United States. The example given in the PWC brief is as follows, “A US manufacturer that had been importing $800 worth of materials for a product it assembled in the United States and sold for $1,000 would no longer be able to deduct the $800 in costs from its income. It’s tax obligation would be calculated not off of the $200 profit – the difference between the receipts and

imported materials costs – but off of the full $1,000 it received for the product. In a world of 20% taxes, such a company would pay $200 instead of $40 in taxes.” http://pwc. to/2mtHpfD It is clear that some of the proposed tax reforms could have a dramatic impact on US manufacturers and their ability to compete globally. However, other areas in this legislation could create the need for manufacturers to reorganize their supply chain. PwC offers some advice at the end of the report. It will be important for manufacturers to expect answers to be complicated, these businesses must model the possible scenarios to ensure they can survive in

the future and it’ll be critical for businesses to wait to see how the potential law progresses before reorganizing their company’s structure. Manufacturers in the United States are at a crossroads. These reforms could greatly improve the business environment within the US, making it much easier to thrive. However, only time will tell what actually ends up becoming law. Make sure to check back on Manufacturing Talk Radio again soon to keep up with the latest information coming out of the industry. We’ll be offering more details focused on tax and regulation reform as they become available.

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David Cameron The former Prime Minister of the United Kingdom will keynote regarding current geopolitical and public-policy issues, many of which impact global business and the supply chain. Cameron promises to deliver a riveting and eye-opening firsthand account of his own experiences, including those surrounding the Brexit vote, during his tenure as Prime Minister.

Colin L. Powell Like supply managers everywhere, General Colin L. Powell, USA (Ret.) is no stranger to delivering short-term supply solutions â&#x20AC;&#x201D; and leadership â&#x20AC;&#x201D; during a time of crisis. As former Chairman of the Joint Chiefs of Staff, Powell assembled a multibillion dollar supply chain involving 42 nations during Operation Desert Storm in the Persian Gulf.

*Off onsite pricing.

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