10 HIDDEN THREATS TO MANUFACTURING: PARTS 3 & 4 PAGE 22
CREDIT MANAGER’S OUTLOOK PAGE 20
AEROSPACE OUTLOOK PAGE 11
IN THIS ISSUE PUBLISHERS STATEMENT - p.2 Publisher – Lewis A. Weiss Editor-In-Chief – Tim Grady Design – Rovere Media
MANUFACTURING OUTLOOK - p.3 LOCKHEED’S MIXED REALITY by MIKE WOMACK - p 6
Contributing Writers:
NORTH AMERICAN OUTLOOK - p. 7
Royce Lowe, UK and EU International Correspondent
METALS OUTLOOK - p.9
Tim Grady, Co-Host, Manufacturing Talk Radio Chris Kuehl, PH.D - Chief Economist, FMA Norbert Ore, Senior Correspondent for Global PMI Survey Reports Mike Womack, Social Media Manager, Manufacturing Talk Radio Andrea Olson - MSC - CEO of Prag’madik Advertising Frank Cipolla - fcipolla@mfgtalkradio.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. © 2017 MBC.
AUTOMOTIVE OUTLOOK - p.10 AEROSPACE OUTLOOK - p.11 GLOBAL PMI OUTLOOK by NORBERT ORE - p.12 ISSUES OUTLOOK by ROYCE LOWE - p.13 ENERGY OUTLOOK by ROYCE LOWE - p.14 EUROZONE OUTLOOK - p.15 ASIA OUTLOOK - p.18 SOUTH AMERICA OUTLOOK - 19 CREDIT MANAGERS OUTLOOK by CHRIS KUEHL - p.20 10 HIDDEN THREATS TO MANUFACTURERS by ANDREA OLSON - p.22
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Metals & Manufacturing Outlook
PUBLISHERS STATEMENT
BY LEWIS A. WEISS
hank goodness the T manufacturing sector is doing so well. If it wasn’t, we’d be forced to provide commentary on the current dysfunctional administration, including both the Executive branch and the Legislative branch.
Whether you are a follower of the ISM’s Manufacturing Report on Business® or IHS Markit® reports, MAPI releases or any other source of information on the current state of manufacturing in the USA, you will read about all the positives and very few negatives in the sector which has operated above 50 all year long – a reading above 50 indicating expansion. If there is any somewhat tepid news, it is the GDP which is performing in the low 2’s, although there are indications of upward movement versus a downward slide. Previous predictions for 2017 are inching upward – and that may be a solid sign for 2018. I think 2019 and 2020 are still a bit too far out to | August 2017
social acceptance of recreational drug use or problems with opioid addiction, and while some may decry the increased use of robots, cobots and automation, manufacturers are not going to pare down growing productivity simply because people are not available for modern manufacturing that uses powerful and complex machinery to accomplish a variety of material handling and production tasks. As one manufacturer was quoted as saying, “I just can’t take the risk of someone under the influence operating a 150-ton overhead crane.” While no one expects the Skills Gap to close in anything short of a decade, this exacerbates the problem significantly and may create a domino effect where jobs requiring human skill must be engineered out of manufacturing at an accelerated rate over the next 5 years. It just does not make sense for America to fall behind because Americans are too high or have too low a skill set to keep manufacturing production at pace with domestic and global demand.
anticipate the 4.0 that President Trump pitched on the campaign trail, but 3.0+ for 2018 may be achievable. Keep in mind that 3% growth of a $19 trillion economy, or $570 billion dollars, is greater than the GDP of any one of 40 of our 50 United States, and more than any one of more than 150 developed or developing countries of the 186 regularly measured by the International Monetary Fund. It’s a really big number. There is one odd headwind that we didn’t anticipate, which is a new kink in the Skills Gap – the inability of job applicants to pass a drug or alcohol test. Alcohol, the opioid epidemic, whether bought on the street or legally prescribed, and recreational use of marijuana, is disqualifying 4 out of 10 job applicants. Plus, 3 out of 10 do not have the requisite skills for modern manufacturing, so as many as 7 in 10 job applicants won’t make the cut. What is a manufacturer to do? All the apprenticeship programs in the world will not overcome the
Of final note is that manufacturing, when measured from the C-suites to the loading dock doors instead of merely the production floor accounts for over 30 percent of U.S. employment, so as manufacturing goes, so goes the economy. In fact, this can be readily observed in a cursory overview of manufacturing employment over the last 70 years – when manufacturing employment begins to wane, a recession is in the wind, and when manufacturing employment begins steady expansion, an economic expansion is leading the U.S. out of recession. So celebrate manufacturing – especially in 2017, as you read through this issue of
Best Regards, Lewis A. Weiss
Metals & Manufacturing Outlook
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MANUFACTURING OUTLOOK BY ROYCE LOWE
From One Day To The Next...
W
e never know what’s going to happen these days from one day to the next, but in spite of continuing chaos in Washington D.C., where idiocy and arrogance, even extreme arrogance, reign supreme in the Oval Office; going-nowhere-fast Brexit negotiations and a new French president whose own arrogance seems to be bringing him early grief; in spite of all this global manufacturing is healthy and optimism is showing through just about everwhere. The nonfarm, private sector jobs report for July from the ADP Research Institute and Moody’s Analytics states that 178,000 nonfarm private sector jobs were created in the month. Small business (1-49 employees) created 50,000 jobs; midsized (50-499) created 83,000 jobs; and large business (500+)
created 45,000 jobs. All but 4,000 jobs came from the services sector, with natural resources and mining adding 3,000 jobs, construction adding 6,000 jobs and manufacturing losing 4,000 jobs.
albeit with one less sales day than in 2016. After a many-years boom in sales, perhaps the peak has been reached for the time being. The day of the electric car may be nigh – see AUTOMOTIVE OUTLOOK.
The report from the BLS showed nonfarm payroll employment was up by 209,000 jobs in July, with gains in professional and business services at 49,000 jobs, health care 39,000 jobs and food and drink services 53,000 jobs. Mining added around 1,000 jobs and there was little change over the month in construction and manufacturing. The unemployment rate for July was announced at 4.3 percent.
Who’s afraid of the electric car? Big Oil may be! See ENERGY OUTLOOK.
Toyota/Mazda to spend big in U.S. See AUTO OUTLOOK. U.S. light vehicle sales were off by seven percent, y-o-y, in July,
Is it true that Elon Musk’s Boring Company – hardly an appropriate name for one of his enterprises has verbal government approval to build a 220-mile hyperloop tunnel from New York to D.C. that would whisk passengers there in 29 minutes? The ISM PMI figure for U.S. manufacturing fell in July from June’s 57.8 percent to 56.3. The overall economy grew for the 98th consecutive month. See NORTH AMERICAN OUTLOOK. | August 2017
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Metals & Manufacturing Outlook
IHS Markit reports July’s PMI for the U.S. manufacturing sector as showing a solid improvement, at a four-month high of 53.3 up from 52.0 percent in June.
Asia up 4.8 percent at 576.8 Mt; EU up 4.1 percent at 86.1 Mt and North America up 2.4 percent at 57.4 Mt.
There was stronger growth in production and new orders, and employment was up, as was purchasing activity – at the quickest rate since February. New export orders were slightly off for the first time in ten months. Business confidence is at a sixmonth high.
The Association of Manufacturing Technology reports that U.S. manufacturers’ and machine shops’ new orders for machine tools were up to $351.85 million in May 2017, up 3.1 percent versus April and up 21.8 percent over May 2016. Y.T.D. figures for January to May are up 7.4 percent over 2016, at $1.67 billion.
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 recently released its ‘advance’ estimate for the annual rate of Real GDP growth in the second quarter of 2017, putting it at 2.6 percent. The figure for the first quarter of 2017 was revised to 1.2 percent. GALLUP’s U.S. Economic Confidence Index is around the +4 level in late July. The coincident Job Creation Index is still around a record high, +37 in late July. Meanwhile, smallbusiness owners’ optimism is at its highest level in ten years. World crude steel production for the 67 reporting countries for the month of June 2017 was 141.0 Mt, up 3.2 percent y-o-y. Capacity utilization for the month was 73.0 percent, up 1.4 percent on June 2016 and up 1.3 percent on May 2017. World production for the first six months of 2017 was 836 Mt, up 4.5 percent y-o-y, with | August 2017
U.S. crude steel production for June 2017 was 6.707 Mt, down 1.7 percent y-o-y.
Primary Global Aluminum Production in June 2017 was reported at 5.189 million tonnes, of which 2.931 million tonnes, over 56 percent, were produced in China. The Gulf Corporation Council (GCC) produced 439,000 tonnes, North America 323,000 tonnes, Western Europe 309,000 tonnes, Eastern and Central Europe 327,000 tonnes and Asia, excluding China, 309,000 tonnes. Here are the latest figures for US new car and light truck sales for ‘the big eight’ for July 2017.
Metals & Manufacturing Outlook
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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. This data is 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.
Manufacturing Laughs
| August 2017
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Metals & Manufacturing Outlook
LOCKHEED MARTIN USING MIXED REALITY TO IMPROVE MANUFACTURING BY MIKE WOMACK
L
ockheed Martin continues to push boundaries and innovate the manufacturing process. Now tasked with prototyping a deep space habitat for NASA they will utilize revolutionary technologies to ensure its success. The goal is to create a habitat that will keep astronauts safe while onboard and at the same time able to operate the spacecraft autonomously when unoccupied. This is part of their public-private partnership called ‘The NextSTEP program’ and Lockheed Martin will be using mixed reality to accomplish this ambitious goal. Mixed reality in combination with rapid and virtual prototyping will be used to create the entire module. The company has yet to specify which kind of mixed reality or augmented reality technology they will be utilizing but one can assume Microsoft HoloLens will be a contender. Microsoft HoloLens has so much potential in the modern manufacturing industry. | August 2017
Being able to see a completed model of a product, component or in this case, spacecraft virtually laid out in front of the engineers and the manufacturers can prove invaluable. More on Augmented Reality in the modern manufacturing industry. The production of this prototype will take place at NASA’s Kennedy Space Center in Florida and work will continue over the next 18 months. This initiative will help to further understand the systems, standards and common interfaces needed to make living in deep space possible. Augmented and mixed reality will be an essential aspect of its development. It can provide unprecedented insights into production, helping to reduce costs and improve efficiency. This isn’t the first time Lockheed Martin is using mixed reality to help with the manufacturing process. In the advanced factory where they build the F-35 fighter
jets, engineers use augmented reality glasses and educational software that offer individuals real-time visuals throughout the assembly process. As time goes on and more manufacturers have access to this advanced technology, the benefits will entice smaller businesses to get on board. These systems are already becoming more affordable by the day and SME’s are utilizing incredibly advanced technology to help them remain competitive. Companies like Lockheed Martin are leading the way forward, offering a roadmap for smaller manufacturers to follow. Be sure to check back on MFG Talk Radio soon for the latest developments moving the manufacturing industry forward. As more information comes to light about the mixed reality system Lockheed Martin will be using, this article will be updated.
Metals & Manufacturing Outlook
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NORTH AMERICAN OUTLOOK BY ROYCE LOWE
The Latest Manufacturing Reports from the United States, Canada and Mexico
T
he Institute of Supply Management PMI figure slipped from 57.8 percent in June to 56.3 percent in July, representing the eleventh consecutive month of growth in manufacturing. There was growth in the overall economy for the 98th consecutive month. Of the 18 manufacturing industries, 15 reported growth in July in the following order: Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Wood Products; Fabricated Metal Products; Machinery; Chemical Products; Paper Products; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Computer & Electronic Products; Nonmetallic Mineral Products; Furniture & Related Products; Miscellaneous Manufacturing; Primary Metals; and Transportation Equipment. Three
industries reported contraction in July compared to June: Apparel, Leather & Allied Products; Textile Mills; and Petroleum & Coal Product. Comments from those surveyed continue to show overall optimism. A Fabricated Metal Products comment, for example, reports six consecutive profitable months, for the first time since 2007. Transportation equipment reports ‘pretty universal labor shortages’ leading to longer lead times through the supply chain. Following is a summary of the five major indexes, each weighted at 20 percent in calculation of the PMI number for July. June’s readings are in parentheses: New orders
60.4 (63.5)
Production
60.6 (62.4)
Employment
55.2 (57.2)
Supplier Deliveries
55.4 (57.0)
Inventories
50.0 (49.0)
The following five components are not instrumental in the PMI calculation, but are an important part of the manufacturing industry: Customer Inventories 49.0 (50.5) Prices 62.0 (55.0) Backlog of orders
55.0 (57.0)
New export orders 57.5 (59.5) Imports
56.0 (54.0)
Commodities Up in Price in July Aluminum (9); Caustic Soda; Corn; Corrugate (10); Corrugated Boxes (5); Electric Components (2); LCD Displays; Lumber; Memory — Computer; Polypropylene; Precious Metals; Steel — Cold Rolled; Steel — Hot | August 2017
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Metals & Manufacturing Outlook
Rolled* (8); Titanium Dioxide; and Wheat. Commodities Down in Price Milk Products; and Steel — Hot Rolled* (2). Commodities in Short Supply Capacitors; Electric Components (2); Electronic Components (5); Integrated Circuits; Mechanical Components; Memory — Computer; Resistors; and Titanium Dioxide Note: The number of consecutive months the commodity is listed is indicated after each item. * shows products both up and down in price. CANADA saw growth in production speeding to a
four-month high in July, together with a strong improvement in new orders, mostly domestic, and a further reduction in input cost inflation. The PMI increased from June’s 54.7 reading to 55.5 in July. Employment increased accordingly and was up in all regions surveyed. Alberta and B.C. were the best performers for manufacturing growth in July, with the fastest new order increases seen in Alberta, B.C. and Ontario. Canada produced 0.97 Mt of crude steel in June, down 11.5 percent y-o-y. Canada’s light vehicle sales for July were again very strong, up 4.9 percent y-o-y. GM was up 22 percent, Honda up 12.7 percent
ISO9001:2008 and AS9100C
| August 2017
and VW up 37.9 percent. MEXICO’s growth eased in July with slow increases in production and new orders, and new export sales slowing for the first time since July 2016. Input price inflation was at its lowest for over 2 1/2 years. An accelerated pace of job creation was associated with a reduction of backlogs. The PMI for July was at 51.2, down from June’s 52.3. There is still optimism, with some 50 percent of manufacturers expecting increased production volumes and 7 percent less. Mexico produced 1.685 Mt of crude steel in June, up 1.0 percent y-o-y.
Metals & Manufacturing Outlook
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METALS OUTLOOK
BY ROYCE LOWE
A
llegheny Technologies Inc. (ATI) announced a joint venture with GE Aviation for the development of a new meltless titanium-alloy-powder manufacturing technology. The joint venture will construct a new R&D pilot production facility. The titanium alloy powders are being developed for use in additivemanufacturing applications,
including 3D printing. ATI will provide operational, technical and project support to the joint venture, which will leverage the company’s technology and manufacturing in the production of specialty metal powders and
premium-quality titanium and nickel-based alloys. The joint venture will also draw upon GE Aviation’s technical knowledge of the use of alloyed titanium powders. ATI also announced a new longterm purchase agreement with Pratt and Whitney regarding supplies of isothermal forgings and nickelbased powder alloys for jet engine manufacture. The agreement will extend from 2017 through 2030 and could be valued at $1 billion.
Researchers in Japan claim the development of a magnesium alloy, 75 percent lighter than steel, 33 percent lighter than aluminum, that has excellent room temperature formability, comparable to that of aluminum used in auto body panels. The alloy contains 1.1 percent Al, 0.3 percent Ca, 0.2 percent Mn and 0.3 percent Zn. We may or may not hear more about this alloy. | August 2017
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Metals & Manufacturing Outlook
AUTOMOTIVE OUTLOOK
BY ROYCE LOWE
Tesla Unveils The Model 3 Toyota and Mazda’s $1.6B Deal and More...
L
ate July belongs to the unveiling of Tesla’s Model 3, when the first of what the company predicts will be hundreds of thousands of the model ran off the production line and was quickly claimed by Tesla’s ebullient boss, Elon Musk. The company has over 500,000 deposits, each $1,000, for the model, one version of which at $35,000 has a between-charge range of 220 miles (350 kms) and another, at $44,000 a range of 310 miles (500 kms). The car has been lauded by those who purport to know about such things. Production is forecasted at 5,000 per week in 2017; 10,000 per week in 2018. With a federal electric car tax credit, the price of the cheaper model could come down to $27,500. Toyota Motor Corp and Mazda Motor Corp will buy stakes in each other and together build a $1.6 billion factory in the U.S., even as carmakers band together to share costs and investments in new technology. | August 2017
Mazda has no U.S. factories, which will leave it open to trade risks. A U.S. factory will hide them from Trump’s threat to tax imported cars. The plant will eventually create 4,000 jobs. The two companies will work together to develop EV technology.
GM has completed the $2.6 billion sale of its European operations to PSA – the manufacturer of Peugeot and Citroen vehicles – making PSA Europe’s second-largest automaker.
Metals & Manufacturing Outlook
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AEROSPACE OUTLOOK
BY ROYCE LOWE
T
he Pentagon awards $5.5 billion to Lockheed for the next F-35 sequence, a low-rate initial production of 74 aircraft. To date 230 aircraft have been built by Lockheed and other major contractors – BAE Systems, Northrup Grumman and Pratt and Whitney – all of whom are under pressure to cut costs. The Pentagon’s total costs for the job may rise by 7 percent to $406.5 billion. The Defense Department has disclosed estimates of $43 million in cost overruns for materials by Pratt and Whitney, which the company will have to absorb if they wish to persist with the contract.
Manufacturing Laughs
| August 2017
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Metals & Manufacturing Outlook
GLOBAL PMI OUTLOOK
BY NORBERT ORE
M
anufacturing in the Eurozone, U.K., and the U.S. continues to enjoy a significant tailwind despite the political landscape. For the seven months of 2017 both the Eurozone and the U.S. PMI’s have averaged 56.4 and the UK posted 55.2 for the period. Manufacturing is enjoying strong growth easily outpacing NonManufacturing which is typically slower to respond. The Eurozone PMI (56.6, -0.8) fell back from its highest level in 74 months, but still looks quite strong. The continuing expansion is led by Austria (60.0, -0.7), Netherlands (58.9, +0.3), and Germany (58.1, -1.5). Even more encouraging, all eight Eurozone countries (Greece inclusive) reported a PMI above the 50 mark for the second consecutive month. The UK PMI (55.1, +0.9) rose above the monthly average (55.0) for the post BREXIT period. The UK reported Exports and Employment at almost record levels. China’s Official Report, the CFLP PMI (51.4, -0.3) continued above 51 for the tenth consecutive month. The Caixin China General Manufacturing PMI (51.1, +0.7) signaled a second month of expansion after a one-month decline. Realistically, the China data reflects little variability making the measurement of change problematic. Noteworthy this month is the significant decline in the India (47.9, -3.0) Index which reflects the impact of a new Goods & Services Tax being implemented; we would have expected a surge in May and June in expectation of the tax, but | August 2017
that doesn’t seem to be the case as the PMI for the trailing months averaged only 51.3. Also, Taiwan (59.0, +1.4) continues to post very strong numbers as current and anticipated product rollouts drive the semiconductor industry. In North America, Canada (55.5, +0.7) reported growth for the
17th consecutive month; with an average of 55.0 for the first seven months of 2017. Mexico (51.2, -1.1) recorded its 48th consecutive month of growth, however, a weaker trend is apparent as the PMI has averaged only 51.2 percent for the past 12 months.
Metals & Manufacturing Outlook
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ISSUES OUTLOOK
BY ROYCE LOWE
F
OXCONN’s chairman, Terry Gou, recently announced his company would be investing $10 billion in a plant in Wisconsin to manufacture LCD display monitors. He announced this in English even inferior to Trump’s who, unable to let the occasion pass, announced, ‘If I didn’t get elected, he wouldn’t be spending ten billion dollars.’ The plant will initially employ 3,000 workers, a figure that could go to 13,000. It seems that Paul Ryan and Reince Priebus were personally involved in securing the factory for Wisconsin. Trump later suggested that the amount to be invested might go to $30 billion.
Manufacturing Laughs
| August 2017
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Metals & Manufacturing Outlook
ENERGY OUTLOOK
BY ROYCE LOWE
I
s ‘Big Oil’ waking up to the threat of rising electric car demand? This is a question posed and studied by Bloomberg New Energy Finance (BNEF) in a recently-released report, wherein it states that it expects plug-in EVs to reduce oil demand by 8 million barrels by 2040, more than the current combined production of Iran and Iraq. Something over $700 billion a year goes to fossil-fuel industries. Oil producers are not as aggressive as BNEF, who expects EVs to outsell gasoline and diesels by 2040, reflecting a rapid decline in the cost of lithium-ion batteries. BNEF expects 530 million plugins by 2040, or one third the total number of vehicles worldwide. There are of course many other options/estimates regarding this scenario: the International Energy Agency looks for an increase from | August 2017
23 million to 58 million EVs by 2030; Exxon an increase from 65 million to 100 million by 2040; BP 100 million by 2035 and Statoil ASA, the Norwegian State Oil Company, sees EVs representing 30 percent of new sales by 2030.
domestically. Other system components will be manufactured in the U.S.
The wind farm should be fully operational in mid 2020, and according to GE up to 1.1 million customers in Arkansas, Louisiana, The world’s top automakers combined might sell 6 million EVs a Oklahoma and Texas would be year by 2025, over 8 million by 2030. supplied with energy generated by the facility. Somebody in all this may be right. Tesla has undertaken production A 2,000 MW wind farm, the largest of the world’s largest lithiumin the U.S. and second-largest in ion battery to back up the state the world – once operational – is of South Australia’s blackoutbeing developed in NW Oklahoma prone power grid, to the extent by General Electric GE Renewable of 100 megawatts of storage by Energy Division and Invenergy, December 1, 2017, pairing it with a Chicago-based developer and a windfarm operated by France’s operator of wind farms and energyNeoen. The system, at 129 MwH, storage centers. The Wind Catcher project will have 800 2.5-MW will have enough power for 30,000 turbines supplied by GE, which said hours. Tesla will build the system it would have all turbine machine and get it working within 100 days heads and hubs manufactured of contract, or it will be free.
Metals & Manufacturing Outlook
GLOBAL OUTLOOK
BY ROYCE LOWE
15
2.085 Mt, up 1.8 percent y-o-y; in France 1.325 Mt, up 1.3 percent y-o-y and in Spain 1.261 Mt, up 8.1 percent y-o-y. Car sales in Western Europe were up by 11 percent in France, up 1.5 percent in Germany, up 5.9 percent in Italy and up 2.5 percent in Spain. Russia’s crude steel production for June was at 5.341 Mt, down 8.0 percent y-o-y; Ukraine’s was 1.593 Mt, down 13.0 percent y-o-y.
EUROZONE
I
HS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) decreased from June’s 57.4 to 56.6 in July, amid a slight slowdown in growth and further decreases in input price pressures. The most improved operating conditions were seen in Austria, the Netherlands and Germany, with sold improvements in Italy, France, Ireland and Spain. Growth in France sped to one of its fastest rates in over six years.
Although the rates of expansion in production, new orders and new export business all eased in July, they remained among the best seen since the first half of 2011. Further increases in employment were associated with further backlog accumulations. The rate of increase in employment in France was the fastest seen in almost 17 years. Business optimism is still high in Europe. Crude steel production in Germany in June was at 3.605 Mt, down 1.7 percent y-o-y; in Italy
IHS Markit reports a near-survey record growth of new export orders in the UK in July with the PMI at 55.1, up from June’s 54.3 reading. Job creation was among the best recorded in the past three years. New orders, production and employment were up, as were supplier delivery times. The increase in export orders was due in some part to the exchange rate, but there was stronger economic growth in key markets – Euro, North America and Asia Pacific. The consumer goods sector showed the strongest increase in production, closely followed by intermediate goods. Some 49 percent of manufacturers expect increased production in a year from now, 5 percent reduced. UK car registrations fell for the fourth straight month in July, by 9 percent y-o-y, according to the Society of Motor Manufacturers and Traders (SMMT). Concern over Brexit is blamed by the SMMT. The UK produced 0.747 Mt of crude steel in June, up 32.3 percent y-o-y. | August 2017
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Metals & Manufacturing Outlook
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4AL-3MO-1V 4AL-4MN 5AL-2.5SN 6AL-2SN -4ZR-2MO 6AL-2SN -4ZR-6MO 6AL-4V 6A1-6V-2SN 7AL-4MO 8AL-1MO-1V 13.5V -11CR-3AL Ti17
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| August 2017
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Metals & Manufacturing Outlook
GLOBAL OUTLOOK
BY ROYCE LOWE
ASIA
C
HINA saw its PMI figure increase to a four-month high, from June’s 50.4 reading to 51.1 in July. Production and new orders were up at the fastest rates in five months, while there was a sold upturn in new export sales to the second fastest rate since September 2014. Manufacturers are cautious regarding employment, with numbers down in July. Despite the July upturn, optimism for the year ahead slowed to an eleven-month low.
CHINA produced 73.231Mt of crude steel in June, up 5.7 percent y-o-y; Japan 8.391Mt, down 4.3 percent y-o-y; India 7.950 Mt, down 1.1 percent y-o-y and South Korea 5. 906 Mt, up 7.7 percent y-o-y. Taiwan produced 1.930Mt in June, up 5.6 percent y-o-y. Chinese passenger vehicle sales were up 3.2 percent in June. Growth continued in JAPAN’s manufacturing sector in July, but there were slower gains in production, new orders and employment, with exports increasing at their weakest pace
in almost 12 months. The PMI was down slightly in July at 52.1 from June’s 52.4 reading. Optimism regarding future production has not been higher in over five years of data collection, amid positive projections for demand, planned new product lines and preparations for the 2020 Tokyo Olympics. INDIAN manufacturing production was hit by the implementation of
Manufacturing Laughs a Goods and Services Tax which forced new orders and production into their steepest contraction since February 2009. The PMI for July was at 47.9 from June’s 50.9 figure. The downturn affected the three broad manufacturing areas with intermediate goods being the worst. Against the grain, new export orders continued to rise in July. The 12-month outlook is nonetheless positive, with companies awaiting more clarity regarding the GST to support growth. The confidence level is at an 11-month high. | August 2017
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GLOBAL OUTLOOK
BY ROYCE LOWE
SOUTH AMERICA
B
razil saw a slowdown in growth of both production and new orders in July, despite a reduction in selling prices for the first time in three years. Employment and purchasing levels were down. The PMI for July was at 50.0, down from June’s 50.5 reading. New exports orders were up in July. Job losses were spread across the three manufacturing sectors, but the overall reduction rate was slower than in June. There is still optimism. Brazil’s crude steel production for the month of June was 2.649 Mt, an increase y-o-y of 4.0 percent. The JP MORGAN GLOBAL
MANUFACTURING PMI – a composite index produced by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – was up slightly from 52.6 in June to 52.7 in July. July saw a further month of improvement in the global manufacturing sector, with an improvement in operating performance for the seventeenth consecutive month. Europe is leading growth, with eight of the ten best-performing countries in Europe; Canada fourth and Australia tenth. Employment increased in the U.S., all euro area countries covered by the survey, Japan, UK, Taiwan and South Korea, with cuts registered in Brazil, Russia, India and China.
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Metals & Manufacturing Outlook
CREDIT MANAGER’S OUTLOOK
BY CHRIS KUEHL
The following information is condensed from the NACM.org Credit Manager’s Index report issued July 31, 2017. For the full report, please visit CMI Credit Managers’ Index under News at NACM.org.
H
ere we go again. It had been hoped that there would be some consistency with the readings this month, but now we are back in the dumps again. This is probably overstating the trend, as the readings are still solidly in the mid- 50s, but this back and forth pattern has been more than a little vexing. “The fact is that much of the country’s economic data has been like this for the past few months with lots of contradictions,” said NACM Economist Chris Kuehl, Ph.D. “The CMI has been right in there with data that shifts from upbeat to downbeat as one month yields to another.” The overall reading for the index is not that bad at 54.6, but it is | August 2017
down from the month before when it was 56.1. The important note is that this month’s reading is the fourth-best in the last 12 months. It would have been considered really encouraging a year ago when the reading was at 53.5. The overall score for the favorable factors also dipped a little (63.9 to 61.7). It is hard to get too upset over a reading in the 60s, but it was higher in February, April and June. It had been assumed there would be more growth as the year progressed. As has been the case for the last several months, the majority of the distress has been seen in the unfavorable categories with an overall reading of 49.9—just slightly under the 50.9 that was registered last month. The good news is that this reading didn’t weaken any more than it did, but the bad news is that this reading has been sitting very close to the contraction zone for the better part of two years. There is more information to
be gleaned from the specific readings. The sales category slipped from 66.5 to 62.8, but is pretty consistent with the numbers that have been posted all year. The new credit applications reading barely moved as it went from 59.8 to 59.7. There is quite obviously demand for new credit, Kuehl said. “This is consistent with what has been observed for durable goods and factory goods orders as well as for capacity utilization.” (Nationally these are close to normal rates at around 77%. The ideal is said to be between 80% and 85%.) In the last few months, there has been a great deal of variability as far as dollar collections, but there was not that much difference this month as it shifted from 62.5 to 60.2. There was a bit more movement as far as amount of credit extended is concerned with a reading of 64.1 compared to 66.8 in June. There was more variance as far as the unfavorable numbers were concerned. The rejections of credit applications numbers went from 52.6 to 51.9, a significant decline, but the important note is that the readings remained in the 50s. There had been some hope that the reading for accounts placed for collection would crest above 50 (the line that separates contraction from expansion) this month as it had been at 49.3, but it dipped to 48.9. The reading for disputes fell back to 48.8 after being above 50 only once this year in June (50.4). The reading for dollar amount beyond terms also sank back into contraction territory with a reading of 48.3 after one of 50.4. This is a continuation of the see-saw we have seen with slow pay for months, noted Kuehl. “It looks like companies are
Metals & Manufacturing Outlook catching up with their creditors one month and falling back the next. This is another month where they are losing ground.” The shift in the reading for dollar amount of customer deductions was not quite as dramatic as it went from 49.1 to 48.1. The change in filings for bankruptcies was something of a shock as there was a minor improvement from 53.4 to 53.6. This may simply be an anomaly for the month or it may suggest that the majority of companies are managing to stave off bankruptcy as they cope with the economic confusion of the moment. Manufacturing Sector: The same up and down shifts that were manifesting in the overall CMI showed up in the manufacturing sector as well. This is not inconsistent with the other data that has been collected as regards the manufacturer. “The durable goods data of late has been very strong, but only because of the aerospace activity,” Kuehl said. “The industrial production numbers have looked better, but mostly due to the oil and gas sector, which is not likely to last. Automotive seems to have lost much of its momentum, but is still not in full retreat.” The overall score for the manufacturing favorable factors moved from 63.8 to 62.5, certainly a retreat of sorts, but the really good news is that the readings have been solidly in the 60s since January. The overall index of the unfavorable index also shifted slightly from 50.7 to 50.1—barely hanging on to the expansion zone. The details in both index readings are instructive.
another. The dollar collections numbers have been all over the place of late. They have been part of the month-to-month volatility of the index, but this month the movement was more subdued as it went from 61 to 61.1— essentially flat, but with some movement in a positive direction. The amount of credit extended fell from a reading of 67.4 to 64.5. The encouraging aspect of this month’s data is that all the readings in the favorable category are above 60, Kuehl noted, and that could not be said last month. The data in the unfavorable categories has not been as encouraging. The rejections of credit applications shifted down a bit (53.3 to 52.9). There was no movement as far as accounts placed for collection as this
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stayed right where it was at 49.8. That is about as close to 50 as one can get. It has been hovering very close to that expansion territory since April when it dropped from 50.1 to 49.5. The disputes reading fell from 49.6 to 47.8, a signal that there is more stress among creditors. The dollar amount beyond terms has also been very volatile until this month when the movement was slight (49.3 to 49.4). “The ups and downs that have been marking the index for the past few months were largely due to changes in the measures of dollar collection and the slow pays, but this was not the issue this month,” Kuehl said. The dollar amount of customer deductions slipped from 48.7 to 47.6, while the filings for bankruptcies dropped only slightly, from 53.6 to 53.
Manufacturing Laughs
The sales category dropped a bit, but is still high at 64— it was at 66.9 last month. The new credit applications reading went from 59.8 to 60.6, a nice little improvement that suggests companies out there still bent on expansion to one degree or | August 2017
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Metals & Manufacturing Outlook
THE 10 HIDDEN THREATS TO Parts #3 and #4 of a MANUFACTURERS 10-Part Series
BY ANDREA OLSON
#3 - The Culture Threat
O
rganizational culture is an amorphous thing. It is incredibly hard to define, and virtually impossible to measure. Leaders try to influence and shape organizational culture through a variety of tactics, from incentives and perks, to team building activities. Yet, more often than not, the “culture” seems to remain the same. The most frequently asked questions are “why” and “how do we fix it”? The traditional definition of organizational culture is “a system of shared assumptions, values, and beliefs, which governs how people behave in organizations”. | August 2017
These assumptions, values, and beliefs don’t arise simply because they are outlined in a mission statement, or reiterated ad nauseum during company meetings. Culture is shaped by behaviors - particularly of organizational leaders - which don’t singularly exist within one’s title. Manufacturers have voiced their concerns with organizational culture. Many we have surveyed have complained about lack of employee drive, proactive innovation, problem-solving abilities, and communication. We tend to lose sight of the fact that there are two parts to the leadership equation.
For leaders to lead, they need the ability to attract followers. In addition, leaders can have their own biases<https://www. linkedin.com/pulse/why-dowe-stick-status-quo-andreabelk-olson-msc>, which can cloud judgement and unwittingly reinforce counter-productive behaviors in their followers. These biases are often built by previous experiences, which unwittingly create a corporate culture<http:// www.makingchips.com/ mc106-pragmadik-pragmaticway-elevate-manufacturingcompany/> that can be stuck in the past. Many mid-market manufacturers are led by second, third, or even
Metals & Manufacturing Outlook
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to keep things running smoothly was a group of caretakers. Today, however, companies are beginning to realize that they need something more than caretakers and specialists. They need generalists—people with an architect’s skill, who can pull out a fresh sheet of paper and design something new. As older employees begin to retire, and the remaining employees are pushed out of their comfort zones to become “architects” when they have been “caretakers” for 25 years, the struggle to retain talent will dramatically increase.
fourth generation owners, which have grown up through the ranks in the organization. While this immersive experience<https:// hbr.org/2008/02/the-experiencetrap> can be an asset to the organization, often there is minimal exposure to continuous change or outside perspectives. This can form a “groupthink” mentality, where the company remains mired in a narrowed view of “the way we do business”, and unintentionally resist progress.
these products were in their comfort zones - confident that these products would never become obsolete. But advancements in technology, even outside of the core industry, impacted the health and survival of these manufacturers. Those companies that stay set in their ways and remain culturally insulated will run the risk of potentially having their entire businesses go the way of the do-do.
This is the essence of the Culture Threat - the lack of diversification in behaviors and continuous learning, creating a resistance to change. Whether this resistance stems from fear, lack of exposure, pride, comfort, or simply laziness, retaining a “status quo” culture will ultimately diminish the organization’s ability to compete, and in turn, put the company’s fiscal health at risk.
2) Employee Retention will continue to suffer, as manufacturers grapple with
3) Talent Acquisition will become harder, with the Millennial generation having grown up in the digital era. Organizations that rely on outdated methods of data management, customer engagement, communication, and employee relations will find young prospects flocking to more tech-savvy companies, where the opportunity to be challenged and make an impact are more prevalent. Manufacturers that keep the old guard without integrating new blood will continue to fall further behind and struggle to stay afloat.
implementing change in organizational cultures designed to resist it. Over the past 30 years or so, top executives have tended to choose a certain kind of person to manage their manufacturing organizations. They assumed that if the manufacturing process was carefully set up, staffed, and equipped, all they needed
4) Innovation will be more elusive, with less new ideas and perspectives coming into the company. Manufacturers that are risk-averse, who’s culture relies on consistency and the status quo, will miss new opportunities in the marketplace to grow and expand, generating new revenue streams and reducing operational
There are 4 primary impacts of the Culture Threat: 1) Obsolescence or Commoditization of the organization’s offerings, due to comfort in the perception that things will always remain the same. For example, consider things like the Phone Book, Floppy Disks, VCRs, Printed Maps, and the Rolodex. Manufacturers of
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Metals & Manufacturing Outlook
costs. Think back to a time where customer data was managed on spreadsheets and business cards, versus utilizing a CRM (customer relationship management) system. The amount of insights a company gains from purchase behavior tracking alone, can create new opportunities for intelligent up-selling and cross-selling never before realized. Companies that aren’t embracing innovation throughout their organizations will find themselves exponentially falling behind the competition and will reach a tipping point where crossing the chasm is virtually impossible.
introspection must be done. Are your behaviors supporting change and new ideas, or are you holding back disruption for fear of its repercussions? As the old adage goes, nothing worth having comes easy. Maybe it’s time for a change. #4 - The Data Insight Threat It’s that “Aha” moment. The time where you discover what
make better decisions. Your organization might be sitting on the world’s largest data pile, but it’s useless unless you have the means to translate it into insights that drive your business. The problem is, many mid-market manufacturers lack the critical infrastructure to capture the right data, and the business acumen to effectively evaluate and utilize it. Gaining successful insights means
Good leadership is perhaps the most important competitive advantage a company can have. While organizational culture is shaped by leadership, it’s sustained and grown by the
employees living within that ecosystem. An organizational culture is like a community, where each individual influences that community, and brings a unique perspective to the table that can create a positive impact. If that community isn’t continually nurtured, it will have a harder time adapting to a changing market environment, and when a change becomes critical, it will likely be unable to implement that change. Are you thwarting your own progress as a company? As a first step in understanding and shaping your culture, a level of | August 2017
you’ve been missing. This moment is coming sooner rather than later for many mid-market manufacturers in regards to the need and use of data insights. The realization that there’s business and profits being lost through the lack of data insights. What we mean by “data insights” is the impact of information and communication automation systems to predict and respond to customer behavior and market demands. In 1910, Scottish writer and poet Andrew Lang said, “He uses statistics as a drunken man uses lampposts—for support rather than illumination.” Decades later, many modern businesses still do just that, using data to support rather than drive their decisions. Why? After all, data really is valuable only if it helps a company
figuring out what you want from your data—finding its value. Consider what you want to do with the actual data. What are you trying to achieve? What business question are you trying to answer? Building the best insights often come from looking not at singular data points but at trends, especially when they change direction. Examine different time ranges, are often the most powerful and insightful discoveries in data analysis are the relationships between variables. Sounds simple, right? The challenge lies not in the tactics, but the strategy. Defining and understanding the critical business questions that can take an organization down a path to the enlightenment of “data insights”. Regrettably, too many companies are simply scratching
Metals & Manufacturing Outlook the surface, with month-overmonth sales trends or profit by product line percentages. Without deeper examination through data, these companies will never find and address root causes or new business opportunities.
these technologies impact your business, and more importantly your customers’ business, will provide companies the ability to be proactive with necessary organizational and operational changes to survive the long-term.
There are 3 primary impacts of the Data Insights Threat:
3) Intelligence On Profitability is often overlooked, and to many companies detriment. Understanding ordering and purchasing behavior, by regional, seasonal, or industry patterns just scratches the surface. Utilizing data insights to fully understand how the business makes and loses money in the micro sense is critical. Examining pricing strategies, understanding true costs of sales channels, identifying areas of financial losses, spotting duplicate investments, defining true operating costs, finding opportunities to increase sales of high-profit products - these are all areas where data insights can provide value. If you’re still working on a cost-plus model, and adding a broad 25% cost of overhead, you’re leaving money on the table by not digging into the numbers.
1) Missed Cross-Sell/Up-Sell/
New Business Opportunities will exponentially increase if purchasing behaviors and insights on customer business challenges aren’t thoroughly understood and analyzed. The new business climate seeks business partners, not simply vendors. If your organization remains in the position of “vendor”, it’s a price race to the bottom. Using data insights to identify ways to reduce downtime, increase efficiency, and improve performance of your customers’ business, will increase cross-selling and up-selling opportunities, and in turn, increase bottom line profits.
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As mid-market manufactures move to become more competitive, they will need to look beyond the traditional product enhancement/new product development channels. Indeed, data insights can also help bolster and hone these investments, but using data insights in a broader, more strategic business sense, will separate the men from the boys. Those that don’t start understanding how to use and analyze data, will remain exactly that - a mid-market player at risk of being at best acquired, and at worst, out of business. Andrea Olson is CEO and Founder of Prag’madik and the author of No Disruptions: The New Future For Mid-Market Manufacturing. A 4-time ADDY® award-winner, she began her career at a tech start-up and led the strategic marketing efforts at two global industrial manufacturers. In addition to writing, consulting and coaching, Andrea speaks to leaders and industry organizations around the world on how to craft an effective marketing and communications programs to discover new sources of revenues and savings. She can be reached via www.pragmadik.com.
Manufacturing Laughs
2) Insights On New Market Trends will be overlooked, as companies remain focused on the microview of day-to-day business, versus overarching trends. New competitors in the advanced age of technology can come from anywhere - especially outside of your core industry and business. Advancements such as additive manufacturing, can upset the apple cart of traditional, longstanding business models. Using data insights to understand how | August 2017