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IN THIS ISSUE PUBLISHERS STATEMENT - p.2 Publisher – Lewis A. Weiss
MANUFACTURING OUTLOOK - p.3
Editor-In-Chief – Tim Grady
NY INVESTS IN GREEN ENERGY - p.6
Design – Rovere Media
NORTH AMERICAN PERSPECTIVE - p. 7
Contributing Writers:
METALS OUTLOOK - p.9
Royce Lowe, UK and EU International Correspondent
AUTOMOTIVE OUTLOOK - p.10
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.
STRONG GROWTH CONTUNIES by NORBERT ORE - p.12 AEROSPACE OUTLOOK - p.13 ISSUES OUTLOOK by ROYCE LOWE - p.14 ENERGY OUTLOOK by ROYCE LOWE - p.15 GLOBAL OUTLOOK - p.17 • EUROZONE OUTLOOK - p.16 • ASIA OUTLOOK - p.17 • SOUTH AMERICA OUTLOOK - 18 10 HIDDEN THREATS TO MANUFACTURERES by ANDREA OLSON - p.19 CREDIT MANAGERS INDEX by CHRIS KUEHL - p.21
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Metals & Manufacturing Outlook
PUBLISHERS STATEMENT
BY LEWIS A. WEISS
Currently, the outlook for manufacturing is consistently positive. All of the people taking the pulse of the patient are recording favorable vital signs for manufacturing. ISM reports are favorable, MarkIt reports are favorable, and NACM reports are favorable. If there are any headwinds, they are brewing in D.C. and may blow back East to West across the country in the form of infrastructure stagnation, regulatory reform paralysis, tax reform inertia, a health care reform mess, and the widening of the skills gap, all brought to us by D.C. bickering partisanship – more of the same that we have witnessed for a dozen years or more. Are you gagging yet? While manufacturing looks to Washington D.C. for action on tax reform, infrastructure, regulatory reform, health care reform, and the ubiquitous skills gap, our politicians have consumed the first 6 months of a new administration eating each other and running down blind alleys looking for the Russians | June 2017
behind every garbage can. So far: Investigating Committees – 4, Special Prosecutors – 1, Russians – 0. It has been a colossal waste of the People’s time with little or no work being done on the People’s business. This creates uncertainty, and no business likes uncertainty. Calm waters and clear skies allow businesses of all types to see greater distances and plan for both good weather and bad. So, as manufacturing moves through a long recovery, we are hearing more and more that business leaders are absolutely fed up with Washington which now creates more problems than it solves. Manufacturers are turning to their respective States for government leadership where it is necessary for making progress. They are also turning to institutes of learning at all levels because one of the biggest unknowns isn’t raw material availability, transportation, supply chain, R&D funding, automation, smart machines or robotics – it is skilled human resources.
Forget “job creation” – America doesn’t need job creation – it has jobs. Right now, manufacturing alone has over 300,000 job openings. With the Baby Boomers retiring at the rate of 10,000 a DAY, the need for skilled replacement workers will grow to over 3 million in a few years – or so the forecasters say. And if America cannot produce the workers through STEM schools and Tech schools or county colleges, manufacturers will find another way to manufacture their products using automation, smart machines, and robots. They aren’t going to throw up their hands and close their doors claiming they just couldn’t find the workers – they will innovate as American manufacturing has been doing since the dawn of the moving assembly line. Certainly the outlook for ‘disruptive’ technology grows and accelerates each year, with GM expecting to see as much technological innovation over the next 5 years as they have seen over the last 50 years. More automation, smart machines and collaborative robots are entering the shop floor to perform mundane and repetitive tasks including heavy lifting, material handling, laser cutting, inspection that will save time, dollars and potential human injuries. In addition to the D.C. twostep blowback and disruptive technology, we are starting a series on The 10 Hidden Threats to Manufacturers by Andrea Olson, one of our contributing writers. Keep up with Metals & Manufacturing Outlook as we reveal two of these issue by issue. You’ll find more information within this issue of Metals & Manufacturing Outlook as well as on Manufacturing Talk Radio each Tuesday at 1:00 p.m. EST and at www.mfgtalkradio.com. We hope you enjoy the read. Best Regards, Lewis A. Weiss, Publisher
Metals & Manufacturing Outlook
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MANUFACTURING OUTLOOK BY ROYCE LOWE
So That’s That Then! I
n spite of pleas from U.S. business leaders, foreign leaders and Pope Francis, the U.S. is out of the Paris Climate Agreement. A number of U.S. business leaders, including Elon Musk and Tim Cook, have walked away from the White House advisory councils. There is a global ‘repair job’ to be done here.
created 83,000 jobs; midsized (50499) created 113,000 jobs; and large business (500+) created 57,000 jobs. Construction added 37,000 jobs, Manufacturing added 8,000 jobs, and Natural Resources and Mining gained 3,000 jobs. The balance 205,000 jobs were created in the service sectors.
China will spend $360 billion and create 13 million new jobs through 2020 in the alternate energy industries.
According to the BLS, nonfarm payroll employment in May was up by 138,000 jobs, versus the average monthly gain of 181,000 jobs over the prior twelve months. Health care accounted for 24,000 jobs, mining for 7,000 jobs.
The ISM PMI figure for U.S. manufacturing continued in healthy growth in May with the PMI figure moving up very slightly from April’s 54.8 percent to 54.9 percent in May. The overall economy grew for the 96th consecutive month. See NORTH AMERICAN OUTLOOK.
U.S. light vehicle sales were off by half a percent, y-o-y, in May, but with one more sales day. There are ‘goings-on’ at Ford. See AUTOMOTIVE OUTLOOK.
IHS Markit reports May’s PMI for the U.S. manufacturing sector as easing back very slightly from 52.8 percent in April, to an eight-month low of 52.7 percent in May.
Manufacturing Extension Partnerships (MEPs) will be hit by the 2018 proposed federal budget. See ISSUES OUTLOOK
There was a moderate improvement in overall business conditions with new orders rising at their slowest rate since September 2016. Input cost inflation moved to a six-month low.
The general global manufacturing scene still looks good, with continued growth in the U.S. manufacturing sector, sparkling results coming from Europe, and good results from the UK and Japan. There was further easing in China, taking its PMI back below the 50 mark. There is continuing optimism in global manufacturing. The nonfarm, private sector jobs report for May from the ADP Research Institute and Moody’s Analytics states that 253,000 nonfarm private sector jobs were created in the month. Small business (1-49 employees)
In March this year, Germany reported much-increased demand from the 19-nation euro area, with investment goods up seven percent in the region and consumer goods up 20.5 percent. Business confidence was at its highest level in almost six years.
| June 2017
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Metals & Manufacturing Outlook level in late May/early June, the lowest level since November 2016. The coincident Job Creation Index is approaching the 40 mark. World crude steel production for the 67 reporting countries for the month of April 2017 was 142,080Mt, up 5.0 percent y-o-y. Capacity utilization for the month was 73.6 percent, up 2.5 percent on April 2016 and up 1.7 percent on March 2017.
There was an upturn in business conditions in May, but the latest survey showed a further loss of momentum from the high point seen at the beginning of the year. There was a relatively subdued increase in production and employment.
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.
Some manufacturers reported weak export sales and there were lower backlogs for the first time since May 2016.
The Bureau of Economic Analysis, in its ‘second’ estimate for the annual rate of Real GDP growth in the first quarter of 2017, put it at 1.2 percent. The figure for the fourth quarter of 2016 was 2.1 percent.
Overall, business conditions are said to be resilient and there is an optimism about the general economic outlook that helped with May’s hiring situation.
| June 2017
GALLUP’s U.S. Economic Confidence Index is still hovering around the +3
U.S. crude steel production for April 2017 was 6.717Mt, up 1.8 percent y-o-y. Primary Global Aluminum Production in April 2017 was reported at 5.026 million tonnes, of which 2.766 million tonnes, 55 percent, was produced in China. The Gulf Corporation Council (GCC) produced 438,000 tonnes, North America 326,000 tonnes, Western Europe 304,000 tonnes, Eastern and Central Europe 327,000 tonnes and Asia, excluding China, 319,000 tonnes.
Metals & Manufacturing Outlook
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Light vehicle sales for the first five months of 2017 are 2 percent down on the corresponding period of 2016, with car sales down 11 percent, light truck sales up 4.7 percent. Both periods had 126 selling days. Total cars
May’17 584,005
May 16 644,124
YTD - 9.3
Domestic cars
149,833
174,136
-14.0
Import cars
434,172
469,988
-7.6
Total l/trucks
935,170
882,420
6.0
Domestic trucks
521,074
495,518
5.2
Import trucks
414,096
386,902
7.0
1,519,715
1,526,544
-0.5
Total L/V sales
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-on-year changes, as do the consumer prices increases. The unemployment figures, %, are for the month as noted.
ISO9001:2008 and AS9100C
| June 2017
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Metals & Manufacturing Outlook
NEW YORK TO INVEST $1.5B IN RENEWABLE ENERGY PROJECTS BY MIKE WOMACK
The Empire State Responds to Trump’s Pull From The Paris Agreement. In the wake of President Trump’s decision to pull from the Paris Agreement, an international pact to lower greenhouse gas emissions, New York decided to push a major clean energy initiative. Governor Andrew Cuomo announced last Friday that the state would be investing $1.5 billion into renewable energy projects such as wind, solar arrays, hydro and fuel cell technology. This is all in an effort to reach the goal of generating 50% of electricity from renewables by 2030. In a statement on the current administration’s decision to leave the global pact, Governor Cuomo said “his administration is abdicating its leadership and taking a backseat to other countries in the global fight against climate change.” He continued by saying that “New York State is committed to meeting the standards set forth in the Paris Accord regardless of Washington’s irresponsible actions.” | June 2017
Cuomo also announced the Clean Climates Careers initiative, which he refers to as “a multi-pronged strategy to grow New York’s emerging clean energy economy and prepare the workforce for the long-term careers associated with this industry.” (http://bit. ly/2rQ9v8C) This new initiative is being worked on in conjunction with the Worker Institute at Cornell University. The first phase of the plan will be to take the $1.5 billion and put it into various renewable energy projects. A majority of the initial funding will go toward expanding the state’s energy efficiency and solar installations for public buildings such as schools. New York also issued proposals to build renewable energy projects that will generate 2.5 million megawatthours of electricity a year, this is enough to power about 350,000 homes. To help create jobs, the initiative
will invest $15 million in educators and trainers that are partnered with the clean energy industry to help create training and apprenticeship opportunities. The governor has high hopes that this initiative will create 40,000 clean jobs by 2020. This initiative shows that some states are taking it upon themselves to address this issue. Putting more money into clean energy is a big move for New York that is sure to help more than hurt, especially with the amount of jobs it is expected to create. One of the biggest stigmas of the manufacturing industry is the amount of CO2 emissions that it generates, so any work that is done to lower that impact accomplishes a great deal for the industry. Manufacturing Talk Radio will be keeping a close eye on Governor Cuomo’s initiative, so make sure to keep checking back at MFGTALKRADIO.COM for the latest information.
Metals & Manufacturing Outlook
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NORTH AMERICAN PERSPECTIVE BY ROYCE LOWE
The Latest Manufacturing Reports from the United States, Canada and Mexico
T
he Institute of Supply Management PMI figure increased very slightly from 54.8 percent in April to 54.9 percent in May, representing the ninth consecutive month of growth in manufacturing. There was growth in the overall economy for the 96th consecutive month. Of the 18 manufacturing industries, 15 reported growth in May in the following order: Nonmetallic Mineral Products; Furniture & Related Products; Plastics & Rubber Products; Machinery; Primary Metals; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Paper Products; Miscellaneous Manufacturing; Computer & Electronic Products; Transportation Equipment; Chemical Products; Fabricated Metal Products; Petroleum &
Coal Products; and Printing & Related Support. Comments from those surveyed indicate good business and optimism. Two things that come to the forefront are pricing pressure on raw materials and again – if not more forcefully – the difficulty in finding qualified skilled labor. Following is a summary of the five major indexes, each weighted at 20 percent in calculation of the PMI number for May. April’s readings are in parentheses: New orders
59.5 (57.5)
Production
57.1 (58.6)
Employment 53.5 (52.0) Supplier Deliveries Inventories
53.1 (55.1)
51.5 (51.0)
The following five components are not instrumental in the PMI calculation, but are an important part of the manufacturing industry: Customer Inventories 49.5 (45.5) Prices 60.5 (68.5) Backlog of orders
55.0 (57.0)
New export orders 57.5 (59.5) Imports
53.5 (55.5)
Commodities Up in Price in May: Aluminum (7); Corrugate (8); Corrugated Boxes (3); Lumber (2); Oil (2); Plastic Resin (3); Polypropylene (4); Rubber; Scrap Metal (4); Steel* (17); Steel – Cold Rolled (7); Steel – Hot Rolled (6); and Steel Tubing (4).
| June 2017
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Metals & Manufacturing Outlook
Commodities Down in Price Butadiene; Copper; Methanol; Nickel; and Steel*. Commodities in Short Supply Capacitors; Electronic Components (3); and Methacrylates. Note: The number of consecutive months the commodity is listed is indicated after each item. * shows products both up and down in price.
A recent survey by the ISM Business Survey Committee answered a number of questions relating to what is expected from certain aspects of manufacturing over the balance of 2017. 64 percent of respondents are looking for revenues to increase by 8.5 percent in 2017 over 2016; 12 percent are looking for revenues to fall by 9.6 percent over the same period and 24 percent are looking for no change. An overall average forecast puts revenue growth at 4.4 percent for manufacturers in 2017, operating capacity at 82.5 percent, an expected capital expenditure increase of 5.2 percent, a 2.5 percent increase in raw material prices, and a 1.3 percent increase in employment by the end of 2017 versus the end of 2016. As such manufacturing is considered to be well positioned to grow revenues while managing costs through the remainder of 2017. When asked about off-shoring and re-shoring, 18.5 percent of respondents said they were actively off-shoring ‘significant’ volumes of work, with 9.9 percent actively re-shoring, and 71.6 percent doing neither. The reasons given by 81.4 percent of respondents for off-shoring were cost advantages in the host country (ies) and by 7 percent a shortage of usable plant/asset capacity in the U.S. | June 2017
Since the recent election, 19.7 percent of respondents have increased their capital spending plans, 6 percent have decreased and 74.2 percent have made no change. The reasons given by 71.7 percent, are the general business outlook; by 17.4 percent proposals for regulatory reform and by10.9 percent for other reasons.
Quebec continued to outperform in new orders growth.
The vast majority of respondents, 96.6 percent, believe their supply chain will be able to meet their 2017 needs.
Canada’s light vehicle sales for May broke a record set in April 2016. Light vehicle sales were up 11 percent to 216,861 units, only the second time monthly sales have topped the 200,000 mark.
Ontario saw the sharpest improvement in new export sales, and Alberta and B.C. witnessed the strongest job creation Canada produced 1.14Mt of crude steel in April, up 4.3 percent y-o-y.
Sales to date in 2017 are five percent ahead of the pace set in 2016, itself a record year.
CANADA saw strong
production growth sustained in May, with the PMI, at 55.1, slightly down from its six-year peak of 55.9 in April. There were strong increases in production, new orders and employment in Canada’s manufacturing sector. There was an increase in suppliers’ lead-times to the greatest degree since March 2014. The average PMI reading so far for the second quarter of 2017, at 55.5, points to the best improvement in business conditions since the 1st quarter of 2011. There were particularly good orders from clients in the energy sector, and good increases in export orders, particulary from the U.S. All this led to one of the strongest rates of job creation for five-and-a-half years. All regions saw an improvement in manufacturing sector business conditions.
MEXICO saw a modest
improvement in its manufacturing sector business conditions in May, with employment and new orders increasing at faster rates, and the strongest business optimism since April 2016. The PMI for May was at 51.2, up from April’s 50.7 reading. There was a relatively weak domestic demand but the strongest increase in export sales for three months. Over half those surveyed foresee a rise in production during the coming twelve months, with only five percent calling for a reduction. Mexico produced 1.65Mt of crude steel in April, up 7.4 percent y-o-y.
Metals & Manufacturing Outlook
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METALS OUTLOOK
BY ROYCE LOWE
S
teel prices are more or less holding up, but there are some signs, for example in Asian hotrolled coil and Northern-European cold-rolled coil, of some slight, perhaps temporary, reductions. ArcelorMittal, the world’s largest steelmaker, recently reported its biggest quarterly profit in almost five years, and earnings were up at ThyssenKrupp AG, yet both shares dropped as ArcelorMittal tempered its outlook for the second quarter and said Chinese exports remain a concern. Cautious is the word as there are already signs that cooling prices in China are impacting global prices and ArcelorMittal said that ongoing over-capacity in the global steel industry, especially in China, means that the sector is still affected by ‘unfair imports’ in many of its key markets. But the world is using more steel – not forgetting that advanced highstrength steels in automobiles mean less steel overall in the average vehicle. Excluding China, global demand is estimated to rise 2.4 percent in 2017.
Producers are also benefitting from an easing of Chinese exports, with shipments falling 26 percent to 27.2 million tonnes in the first four months of the year.
The world steel industry is full of contradictions, but at present it is really quite healthy. As previously noted here, France’s Le Creusot Forge (LCF), a supplier of forgings to the nuclear power industry, ceased operations in December 2015 upon the discovery of quality anomalies regarding the composition of certain steel components used in reactor vessels. The Autorité de Sûreté Nucléaire (ASN), France’s nuclear regulator, defined the preconditions for the resumption of forging operations at LCF In April 2017. These include a search for other technical defects similar to those found in 2015, the implementation of manufacturing quality reviews on parts at Areva NP (LCF’s parent company) that enabled the discovery of the defects initially, and the implementation of a review of nuclear installation licensee monitoring contractors
and subcontractors under ASN supervision. The action plan is in the process of being implemented and monitored for approval by ASN. Further on the forging front, Selma Precision Technologies (SPT), an India-based company, will take over the former Sona BLW Precision Forge site in Selma, N.C., and reopen it in June or July. According to Vinay Upadhyay, director of business strategies and growth for SPT, the company has invested $7.2 million in the property and bringing the 100,000 squarefoot plant back to operation.
The facility will manufacture transmissions, gear boxes and differentials, and will start with some 40 employees. SPT plans a further $3-4 million investment in the facility over the next two years.
| June 2017
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Metals & Manufacturing Outlook
AUTOMOTIVE OUTLOOK
BY ROYCE LOWE
Ford Cuts Costs, Fiat Chrysler Sued by The US Justice Department, Toyota Dumps Tesla and More...
M
ark Fields, Ford’s CEO since he replaced Alan Mulally in July 2014, has been relieved of his post, and replaced by Jim Hackett, who was leading Ford’s self-driving car and ride-sharing business. Ford will cut costs by some $3 billion this year, and plans to cut about 10 percent of its staff worldwide, mostly salaried employees. The company’s performance lagged even during times when the U.S. market was doing extremely well. Ford’s shares are down 36 percent since Fields replaced Mulally, and Fields poured billions into electric autos, self-driving cars and ridesharing experiments, even as its conventional vehicle business struggled more then GM’s amid a slowing U.S. market. Jim Hackett, who once sold office furniture from Steelcase to Steve | June 2017
Jobs, has three priorities in his new post: sharpening operational execution; modernizing Ford’s present business and transforming the company for the future.
It is reported that Fields could walk away from Ford with $57.5 million. Ford’s Mustang, popular with drivers of all ages, is presently the best-selling sports car in France, Sweden, Sweden, Poland, Czech Republic, Hungary, Romania, Finland, Greece and the UK. But in neither Germany or Italy apparently. In other automotive news, Fiat Chrysler will be sued by the U.S. Justice Department if talks fail to resolve the differences over the automaker’s alleged violations of U.S. clean-air rules with its diesel vehicles, according to two people briefed on the matter.
The company is adamant that its controls were not designed to cheat emissions tests like VW’s. Speaking of VW brings us to their hesitancy in going ahead with a U.S. expansion in Tennessee. They want to hear more details on Trump’s threatened import duties – most of their sales in the U.S. come are produced in either Mexico or Europe – before committing. Germany has been accused of selling ‘too many cars’ in the U.S., so VW is treading softly, and going ahead with its expansions in China, where it plans to become heavily involved in electric vehicle manufacture. It plans to sell some 400,000 electric vehicles in China in 2020 in a joint venture with China’s JAC Motors. China recently became the world’s top market for electric vehicles, helped by government purchase initiatives. Toyota, has decided to sell its stake in Tesla – almost 1.5
Metals & Manufacturing Outlook percent of the company – and to go on its own merry way with electric car development. As mentioned last month here, there is a serious shortage of tool and die makers in the U.S. auto industry, and this is being strongly felt at Toyota. The new vehicle models presently under production in Kentucky have upped the need for new dies to the highest level in 25 years, and with over a third of Kentucky’s tool and die makers at or near retirement age, Toyota had to do something to alleviate the situation. Toyota went looking for tool and die makers but came up almost empty-handed. Local trade schools, apprenticeship programs, several million dollars from Toyota and a number of applicants who had shown some promise were brought together, with the apprentices needing to pay for their tuition but getting some of it back for good grades. Then they work and train, work and train and if they’re hired after 30-month apprenticeships, they’ll start working at $50-70K. This is a tough row to hoe, and illustrates the importance of work and training. It takes time and teamwork. Toyota are on the right road in Kentucky.
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That U.S. icon, Harley Davidson, which can surely qualify as part of the automotive scene, has decided to build a plant in Thailand, to start production in late 2018, to attract new Asian buyers and to profit from lower tariffs. U.S. bike brands were dealt a blow by Trump’s decision to pull out of the twelve-country TPP trade deal, which would have abolished tariffs on their products across 40 percent of the world’s economy. Harley already has two assembly plants in Brazil and India that put together bike kits made from parts from its U.S. factories. The Thai plant will do the same. A spokewoman for H-D says there is no intent to reduce U.S. manufacturing following this expansion, and that H-D U.S. manufacturing will continue to supply the U.S. and other global markets. General Motors will stop sales in India by the end of 2017 – as it is not economically feasible – but will continue to manufacture cars there for export. The market in India is presently around 4 million vehicles per year, projected to rise to 7 million by 2022, which would be about a quarter of China’s present market.
Manufacturing Laughs
| June 2017
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Metals & Manufacturing Outlook
STRONG GROWTH CONTINUES
BY NORBERT ORE
W
hile momentum in North America peaked in February, the Eurozone continues to climb driven by production, export orders and employment at levels that have not been realized in over six years – levels that are difficult to sustain. In Asia, the story is less compelling as the two China surveys hovered near the 50 mark in May with the CFLP survey slightly above and the Caixin slightly below. Overall, these are good times for the global economy particularly as it relates to manufacturing. Of the 18 surveys that we follow, only South Korea and China Caixin reported contraction (p. 5). Even Brazil, which broke 26 months of decline in April (50.1), mustered an even better report in May with a reading of 52.0. The Eurozone PMI (57.0, +0.3) reached its highest level in 73 months, thanks to Germany (59.5, +1.2), Austria (57.9, -0.1), and the Netherlands (57.6, -0.2). The UK PMI (56.7, -0.6) remained solid at a level significantly above the monthly average for the post BREXIT period (55.1). China’s Official Report, the CFLP PMI (51.2, unch) continued above 51 for the eighth consecutive month. The Caixin China General Manufacturing PMI (49.6, -0.7) decelerated and ending 10 | June 2017
months of expansion. These mixed readings from China indicate April was at least a shortterm peak in the overall expansion. Realistically, the China data reflects little variability making the measurement of change and the rate of change difficult. In North America, Canada (55.1, -0.8) reported growth for the 15th consecutive month; with an average of 54.9 for the first five months of 2017. Mexico (51.2, +0.5) recorded its 47th consecutive month of growth, however, a weaker trend is apparent as the PMI has averaged only 51 for the past 12 months. The ISM NMI™ The ISM Non-Manufacturing Index (56.9, -0.6) slowed somewhat
during May, but is still expansionary. The five-month average (56.7) remains notably above the 2016 average (54.9). Supplier Deliveries (51.5, -1.5) quickened and the Employment Index (57.8, +6.4) extended while Business Activity (60.7, -1.7) and New Orders (57.7, -5.5) decelerated. Unlike the recent jobs report, the NMI indicated strong employment activity in the services related industries. In May, pricing pressure weakened once again as the Prices Index (49.2, -8.4) indicated lower prices on average at the finished goods level for the first time since February 2016.
Metals & Manufacturing Outlook
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AEROSPACE OUTLOOK
BY ROYCE LOWE
B
oeing Co. and Lockheed Martin Corp. stand to profit to the tune of a $350 billion tenyear contract in a Saudi Defense deal that will, according to Lockheed chair, president and CEO Marillyn Hewson ‘enhance national security in Saudi Arabia, strengthen the course of peace in the region, and provide the foundation for job creation and economic properity in the U.S. and in the Kingdom.’
with exports of Bombardier’s CS100 aircraft it is all the more difficult to see these allegations as legitimate, particularly since Boeing’s 737 family dominates the U.S. market. Boeing further calls Canada a valued customer and it places much commercial and defense work in Canada and has a supply chain across all regions. The partnership dates back to 1909. Isn’t Trump buddy buddy with the head of Boeing?
Boeing meanwhile is challenging Canada’s Bombardier, by asking the International Trade Commission to find that it has suffered injury to its business at the hands of Bombardier, claiming its C series is being sold at unfairly low prices. Boeing is thus looking for duties to be imposed on Bombardier. The Canadian government, which will defend Bombardier’s interests, is currently reviewing military procurement relating to Boeing. Since Boeing admits it does not compete
Boeing Defense, Space and Security has committed to assemble its version of the T-X Air Force training jet at its plant in St. Louis, Mo if successful in its bid for that $16 billion contract that would support 1,800 jobs in the St. Louis region. Boeing’s chief rival Airbus is producing its first A320 in Mobile, Alabama, on the $600 million single-aisle assembly line it committed to build in 2012. The plant was designed to assemble
the Airbus A320 series of narrowbody aircraft (A319, A320 and A321.) The A320 now under construction will be delivered later this year to Sprint Airlines, the Florida-based carrier that operates an all-Airbus fleet. Airbus meanwhile has a new $3.45 billion order from Delta Air Lines for 30 A321ceo aircraft, its fourth order in as many years
Airbus Helicopters has a joint venture with China’s Qingdao United General Avation Company to build a plant for completion at the end of 2018 for the production of civilian helicopters – of which there is a great shortage in China - for emergency medical purposes. | June 2017
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Metals & Manufacturing Outlook
ISSUES OUTLOOK
BY ROYCE LOWE
M
anufacturing Extension Partnerships (MEPs), in existence since 1988, are a public-private network of centers that assist small and medium-sized manufacturing firms with R&D, process improvement and job creation and retention. The proposed 2018 Federal budget would eliminate the $124 million outlay for MEPs. Manufacturing USA, which focuses on a cross section of manufacturing innovation, would see a 70 percent cut to $15 million, and funding for the Workforce Innovation and Opportunity Act, which provides employment and training services for adults, dislocated workers and youth would lose 39 percent of its funding. The Robotic Industries Association (R.I.A.) says 9,773 robots, for approximately $516 million, were ordered from North American robotics companies during the first quarter of 2017, up 32 percent over the same period in 2016. Robot shipments for the first quarter of 2017 , up 24 percent in units, 5 percent in value, were at 8,824 robots for $494 million. Robots ordered by automotive component suppliers were up 53 percent, auto OEMs up 32 percent. The R.I.A. Estimates some 250,000 robots are in use in the U.S., the world’s third-highest behind Japan and China.
Manufacturing Laughs
| June 2017
Metals & Manufacturing Outlook
15
ENERGY OUTLOOK
BY ROYCE LOWE he Renewable Energy industry employed some 9.8 T million people worldwide in 2016, up 1.1 percent from 2015, led by the solar photovoltaic business,
according to the International Renewable Energy Agency’s (IRENA) annual report. Growth has slowed in the past two years, while the solar photovoltaic category and the wind industry have more than doubled their employee numbers since 2012. Jobs are forecast to grow in developing countries, especially Asia. Employment in renewables, excluding large hydro power, increased 2.8 percent last year to 8.3 million, with China, Brazil, the U.S., India, Japan and Germany the leaders. Asian countries took 62 percent of total jobs in 2016, versus 50 percent in 2015. Jobs could total 24 million by 2030. Coming through with a price better than anyone expected, Elon Musk started taking $1,000 deposits for his solar roof tiles. Roofing a 2,000 sq.ft home in N.Y. state with 40 percent coverage of active solar tiles and battery backup for night-time use would cost around $50,000 after federal tax credits and would generate some $64,000 in energy over 30 years. Production will start in California at Tesla’s Fremont solar plant, then move to a new facility in Buffalo, with additional investments from Tesla’s partner, Panasonic. Solar roof installation – including removal of existing roof, design, permits, installation and maintenance – managed by Tesla, will take about one week. From Norway comes news that fertlizer company Yara International has teamed up with industrial group Kongsberg to build the YARA BIRKELAND, the first autonomous and fully electric cargo ship – to save 40,000 truck journeys per year. The ship will haul fertilizers between three ports in Southern Norway. Its range will be 65 nautical miles, and it will carry 100 containers at 12-15 knots. The ship will initially be manned, remote operation will begin in 2019 and fully autonomous operation in 2020. There will be reduced Nox emissions and CO2 emissions will be reduced by 678 tons per year. Electricity to charge the ship’s batteries will come almost exclusively from hydro plants.
| June 2017
16
Metals & Manufacturing Outlook
GLOBAL OUTLOOK
BY ROYCE LOWE
Crude steel production in Germany in April was at 3.842Mt, up 8.1 percent y-o-y; in Italy 1.976Mt, down 6.0 percent y-o-y; in France 1.264Mt, up 30.8 percent y-o-y and in Spain 1.194Mt, down 2.8 percent y-o-y. Russia’s crude steel production for April was at 6.212Mt, up 4.3 percent y-o-y; Ukraine’s was 1.572Mt, down 28.6 percent y-o-y.
EUROZONE
HS Markit’s Eurozone IPurchasing Manufacturing Composite Managers’ Index (PMI) increased from April’s 56.7 to 57.0 in May. Manufacturing employment increased at a 20-year surveyrecord pace, and strong growth of production and new business supported the job creation. Manufacturing production increased at the fastest pace since April 2014, along with the strongest growth of new orders in 74 months.
Germany was number one, with the quickest gains in production, new orders and employment. Backlogs rose for the 25th consecutive month, supplier capacity is under strain and inflationary pressures are easing. Car sales in Europe in May were up in all countries, with Germany up 13 percent, albeit on two extra sales days, to 323,952 units; France up 8.9 percent to 191,419 vehicles; Italy up 8.2 percent to 204,113 units and Spain up 11 percent to its highest level in nine years at 126,411 units.
IHS Markit reports that production and new order growth remain solid in the UK’s manufacturing sector, with the rate of job creation at a 35-month high. At 56.7 the PMI for May was only slightly below April’s threeyear-high of 57.3. Operating conditions improved for the tenth consecutive month. There is continuing strength in the domestic market coupled with a solid increase in new export business that is due in part to weak sterling. All three goods categories, consumer, intermediate and investment, were strong. Some 56 percent of manufacturers are looking to production increases during the next twelve months, and many are raising capacity in response to increased backlogs. Business optimism is at a 20-month high. UK car registrations were down 8.5 percent y-o-y in May to 186,265 units, amid, it is thought, concern about the general election. At 81,489 units, diesel sales were 20 percent fewer than a year earlier while alternatively fuelled cars were up 46.7 percent to 8,258 units. The UK produced 0.712Mt of crude steel in April, up 2.6 percent y-o-y.
| June 2017
Metals & Manufacturing Outlook
GLOBAL OUTLOOK
BY ROYCE LOWE
ASIA
C
HINA saw operating conditions in its manufacturing sector deteriorate for the first time in almost a year in May. There was slower growth in both production and new orders with staffing cut at a quicker rate, in fact the quickest decline in workforce numbers since February 2016. Demand was down and there was a renewed fall in purchasing
Manufacturing Laughs
activity. Input costs fell for the first time since June 2016, and selling prices were lowered for the first time since February 2016. The PMI fell from April’s 50.3 to 49.6 in May. CHINA produced 72.777Mt of crude steel in April, up 4.9 percent y-o-y; Japan 8.752Mt, up 3.0 percent y-o-y; India 8.065Mt, up 4.8 percent y-o-y and South Korea 5.481Mt, down 2.9 percent y-o-y. Taiwan produced 1.840Mt in April, up 1.840 percent y-o-y.
17
Chinese vehicle sales fell in April at the steepest rate in almost two years, according to the Chinese Association of Automobile Manufacturers. Sales were down 2.2 percent y-o-y to 2.1 million units, but for the first four months sales were up 4 percent as against the 5 percent forecast for the year 2017 by C.A.A.M. China targets annual sales of 35 million vehicles by 2025, with new energy vehicles making up at least one fifth of that total. Growth continued in JAPAN’s manufacturing sector in May to its highest level since February. Both production and new orders were up at stronger rates and there was continuing optimism regarding future production. Input price inflation eased to a four-month low and employment increased to match up with increased production requirements. The PMI for May was at 53.1, up from April’s 52.7. The capital goods sector remains a key growth driver, registering the strongest rises in production, new orders and employment over the month. Japan sold an estimated 372,576 vehicles in May, for a 12.4 percent y-o-y increase. January through May sales are up 8.4 percent y-o-y at 2.3 million units. INDIAN manufacturing in May showed new orders and production were up, but that the rates of increase eased in both. The PMI for May eased back from April’s 52.5 to 51.6, a three-month low. Capital goods producers recorded a contraction in their order books, and new export orders were down slightly. There was a fall in employment in the intermediate goods category, and marginal growth noted in others. Price increases in chemicals, metals, paper and plastics were again noted. | June 2017
18
Metals & Manufacturing Outlook
GLOBAL OUTLOOK
BY ROYCE LOWE
SOUTH AMERICA
I
n BRAZIL, manufacturing production growth and new orders were up for the second consecutive month in May, to their highest in 51 months. Expansion in buying levels accelerated, and the PMI rose from April’s 50.1 to 52.0 in May. This was the second consecutive improvement in the health of the goods-producing sector, and new export orders, notably from Europe and South America, were up. Employment was down, but the rate of job shedding eased to its slowest in the past 27 months.
Companies expect investments, new customers and economic reforms to underpin production growth in the coming year, in spite of which the level of optimism fell to its lowest in 2017 so far. Brazil’s crude steel production for the month of April was 2.90Mt, an increase y-o-y of 25.9 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) – eased slightly
from April’s 52.8 reading to 52.6 in May. The PMI has been over 50 in each of the past 15 months. The rate of expansion fell to a sixmonth low in May. Among the largest nations in the survey, the U.S. fell to an eightmonth low and the China PMI slipped below the 50 mark for the first time in 11 months. The UK PMI fell slightly from April’s three-year high, and the rates of improvement strengthened in the euro area(six-year high) and Japan (three-month high). Worldwide manufacturing production increased for the 55th consecutive month in May. Similar rates of expansion of production were seen in the consumer, intermediate and investment goods categories. Investment goods saw the strongest increase in new orders, with the pace of expansion the second-fastest in almost three years. Consumer goods growth eased to an 11-month low. More orders, an optimistic outlook and rising backlogs led to further job creation in May, with employment rising for the ninth consecutive month and at an above-average pace.
| June 2017
Metals & Manufacturing Outlook
19
THE 10 HIDDEN THREATS TO MANUFACTURERS
BY ANDREA OLSON
“A
cross America, manufacturers’ optimism is soaring, in no small part because of President Trump’s laser-like focus on pursuing bold action, particularly on rethinking red tape to address regulatory reform, to accelerate a jobs surge in America,” said the National Association of Manufacturers’ President and CEO Jay Timmons in a recent interview. According to the NAM Q1 Outlook Survey, 93.3% of manufacturers have a “positive outlook” on their company going into 2017, compared to 77.8% back in December of 2016. While this optimism is positive on the surface, this macro-view hides the 10 real threats to the longterm growth and sustainment of
mid-market manufacturers: 1. The Fulfillment Threat The impact of online fulfillment channels like Amazon.com to traditional distribution, dealer, and eCommerce channels.
systems to predict customer behavior and market demands.
2. The UX Threat - The lack of optimization/responsiveness of customer communication processes and information transparency using digital platforms.
6. The Marketing Threat - The lack of strategically leveraging marketing investments for differentiation and customer retention.
3. The Culture Threat - The impact of internal cultures that resist change and focus on maintaining the status quo. 4. The Data Insight Threat The impact of information and communication automation
5. The Purchasing Threat The automation of computer-tocomputer purchasing processes, specifically with OEMs.
7. The Diversification Threat The lack of expansion of product offerings into new applications, markets and regions. 8. The Talent Threat - The lack of employee engagement, recruitment, and growth strategies. | June 2017
20
Metals & Manufacturing Outlook
9. The Advanced Technology Threat - The advancement of 3D printing, robotics, and additive manufacturing, both from a competitive and a disruptive perspective. 10. The Differentiation Threat - The lack of product, company, service and/or customer experience differentiation, especially in commoditized markets. These threats are opportunities for those who are proactive disruptors, and risks for those who find themselves being disrupted. What manufacturers are realizing is that data will be the new raw material. The company that can best harness
the power of data and monetize it through innovative solutions and new business models will capture the greatest share of market. As industries transform, the next generation of talent and customers expect their industry or company to evolve from being a producer of a product, to a provider of solutions. Those that are digitally enabled, leveraging technology, data and analytics, and embrace these threats as opportunities will emerge the winners. How many of these threats has your organization identified or addressed? Which of these threats do you feel will most strongly impact the growth of your company moving forward? We will break down each of these threats in a series of individual articles
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| June 2017
in the coming issues of Metals & Manufacturing Outlook. Have a threat that’s missing? Let us know and we’ll add it to the list. 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.
Metals & Manufacturing Outlook
21
CREDIT MANAGER’S INDEX
BY CHRIS KUEHL
The following information is condensed from the NACM.org Credit Manager’s Index report issued May 31, 2017. For the full report, please visit CMI Credit Managers’ Index under News at NACM.org.
swift changes or victories as far as the economy is concerned. Tax reform, infrastructure build, deregulation and all the rest will be slow to appear and it is not clear that business and consumer will have sufficient patience.”
I
The data this month is not exactly bad, but it has fallen off the pace that was set last month. The combined reading for the index as a whole fell to 53.6 and that is the lowest it has been since November of last year. To be sure, a number of 53.6 is not a crisis but just a month ago it was at 55.8. The index for the favorable factors fell as well but stayed in the 60 range (by the narrowest of margins). It went from 63.6 to 60.0. The index for the unfavorable factors went down to below the 50 range and that is a bigger concern. Last month the reading was 50.6 and now it stands at 49.3, and that is as low as it has been since August of last year. “The trouble that has
t was nice while it lasted. April was an upbeat one and it appeared that the issues that surfaced in March had faded away. On the other hand, maybe the data will turn more favorable again in June. Over the last four months, there has been something of a roller coaster as far as the indicators are concerned. This month the numbers are down, especially in the unfavorable categories. This behavior is pretty consistent with the other numbers that have been emerging as far as the economy itself. “The wild enthusiasm that was noted at the start of the year has faded as reality sets in,” said NACM Economist Chris Kuehl, Ph.D. “There will be few
been brewing has started to get palpably worse,” Kuehl said. The favorable subcategories all slipped a little and most fell out of the 60s this month. The sales category went from 63.8 to 60.6 and it has not been that low since January. The new credit applications number slipped out of the 60s by moving from 62.0 to 59.3. The dollar collections data also slipped into the 50s by moving from 61.2 to 56.7, and this reignites the concern from March when there was a similar decline in dollar collections. “There had been some hope that dollar collections were trending back up and that this was a signal that companies were starting to think expansion again,” Kuehl said. “Now we are not so sure. The amount of credit extended slid from 67.2 to 63.6 and that is certainly still in respectable territory.” The really bad news surfaced in the unfavorable categories. “The | June 2017
22
Metals & Manufacturing Outlook angst as well, as the Purchasing Managers’ Index has been down from previous heights and the latest durable goods numbers were a little off their recent peak.” The reversal that was felt in the overall index was likewise experienced in the manufacturing sector. This has been an up-anddown year for the majority of the manufacturers already as there have been all manner of encouragements alongside concerns. “It has been good news that the energy sector is attracting attention again, but not such good news as far as companies dependent on trade are concerned,” Kuehl said. “This is the sector that had been hoping to get better news from deregulation and the emphasis on infrastructure but that seems more remote than ever.”
rejections of credit applications actually rose a little from 52.1 to 52.4 and that would suggest one of two things,” Kuehl said. “Either the applicants that are trying for additional credit are in good shape or those that issue credit are being more generous.” The data for accounts placed for collection worsened a little from last month as the reading went from 49.0 to 48.5. This data has been sub-50 for a long time now and that is not a good trend overall. The disputes reading took a big hit as well, as it moved from 49.1 to 47.9. The dollar amount beyond terms reading collapsed The overall index remains in the from 51.0 to 45.9 and that is the expansion zone with a reading other concern from March that has of 53.9, but that is down from reappeared. “The combination of more slow pays and weaker dollar collection means that there are still considerable struggles in terms of paying and there is renewed worry that other negatives will start to accelerate,” Kuehl said. The dollar amount of customer deductions fell as well, going from 49.2 to 48.7, and there were negative readings in the filings for bankruptcies category as it went from 53.5 to 52.7.
56.2 and is the lowest level seen since December of last year. The favorable factor index slipped dramatically and left the 60s NACM CMI — 3 — May 2017 readings behind as it moved from 63.8 to 59.7. There was similar bad news in the unfavorable index numbers as they also slipped from 51.1 to 50.0, the same level reached in March of this year. The details are telling. The big drop as far as the favorable factors are concerned was in the sales category, with a severalpoint dip from 64.7 to 59.5. Things don’t get much better when looking at new credit applications, as these also slid from 61.4 to 58.6. Once again there was concern over dollar collections as these slid from 61.3 to 57.3. Only the category of amount of credit extended managed to stay in the 60s. It fell, but not as far as some of the others, as it went from 67.8 to 63.4. “All in all, the numbers suggest a real cooling of enthusiasm in the manufacturing sector and that has been reflected in the numbers from the Purchasing Managers’ Index,” Kuehl said.
Manufacturing Laughs
“The sense right now is that companies are less upbeat than they were earlier in the year,” Kuehl said. “The big growth opportunities have not materialized as yet, but there remains some hope they will. The other measures of the economy have been showing some of this | June 2017
Metals & Manufacturing Outlook
23
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| June 2017