Metals & Manufacturing Outlook for March 2018

From Price Hikes to Price Spikes: U.S. Manufacturers and Consumers Will Pay Dearly for Unnecessary Tariffs PAGE 18

GLOBAL PMI OUTLOOK PAGE 12

ENERGY OUTLOOK PAGE 13

EUROZONE OUTLOOK PAGE 15

February

ISM PMI:

60.8%

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IN THIS ISSUE PUBLISHERS STATEMENT - p.2 Publisher – Lewis A. Weiss Editor-In-Chief – Tim Grady Design – Rovere Media Contributing Writers: Royce Lowe, UK and EU International Correspondent 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 advertise@mfgtalkradio.com Current Circulation - 45,200 Editorial Office Manufacturing Broadcasting Corp.

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Metals & Manufacturing Outlook is a registered trademark of MBC. © 2018 MBC.

MANUFACTURING OUTLOOK - p.3 INTRODUCING WOMEN AND MANUFACTURING - p.6 NORTH AMERICAN OUTLOOK - p. 7 METALS OUTLOOK - p.9 AUTOMOTIVE OUTLOOK - p.10 AEROSPACE OUTLOOK - p.11 GLOBAL PMI OUTLOOK - p.12

by NORBERT ORE ISSUES OUTLOOK - p.13

by ROYCE LOWE ENERGY OUTLOOK - p.14 EUROZONE OUTLOOK - p.15 ASIA OUTLOOK - 16 SOUTH AMERICA OUTLOOK - 17 FROM PRICE HIKES TO PRICE SPIKES - p.18

by TIM GRADY FEBRUARY ISM PMI REPORT - p.20

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Metals & Manufacturing Outlook

PUBLISHERS STATEMENT

BY LEWIS A. WEISS As 2018 rolls along, the key indicators continue to be strong, particularly the Purchasing Manager’s Indices across the various regional, national and international markets they cover. Our contributing writer, Norbert Ore, who is also a senior correspondent on Manufacturing Talk Radio, follows 18 international surveys, as well as the regional and national ISM reports, and adds his comments in Metals & Manufacturing Outlook as well as a segment on Manufacturing Talk Radio. Again, the indicators are all positive.

There is a fly in the ointment, however – Tariffs. Being old enough to look back over history, as well as read about the impact of tariffs well before my time, it is clear that tariffs have never worked to bolster any economy, anywhere. Protectionism is a failed policy and has been flawed since it first crossed someone’s brain. The only obvious outcome of tariffs is a trade war, and I don’t much care what kind of war the war is, in war, everybody loses something.

Thus, I have to point out as folly the present adminstration’s protectionist policy, beginning with steel and aluminum. So far, without much clarity as to who is in the crosshairs of the tariffs, it appears to be little more than a thumb in the eye of China, and while China could have been guilty of steel dumping in the recent past, U.S. imports from China are less than 3% of total U.S. imports of steel. Mexico, Canada and Japan have all asked for exemptions, and some U.S. | March 2018

companies can ask for exemptions but good luck with those applications.

Like any government documentation, the applications are so onerous and burdensome that many middle market and virtually all small enterprises will not have the human resources to fill them out for submission.

Bottom line for the SME’s – they will take the tariff hit directly on their nose. End result – raw material input costs will rise and be offset by people being let go. Those who fail to learn from history are doomed to repeat it, so we will now enter a cycle of “It’s déjà vu all over again” (as Yogi Berra, famed New York Yankees catcher would say).

So, for all the good things the Trump administration seems to have done for business in the areas of taxes and regulatory reform, it will offset to some as yet unseen degree with tariffs. The steel and aluminum producers don’t need tariffs – they need new plants and new technology. If anyone proved that, it is Nucor, the most recent steel producer in the U.S. and now the largest.

What is the impact of manufacturing? Not good. First, since no one knows what overseas steel or aluminum producers will be hit with tariffs, no one can determine if their supply line will get hit with 25% or 10% (respectively) in cost increases.

Second, since manufacturing has to look out 6 to 12 months to plan production, they have to build in the tariff cost now, whether or not they actually take the hit.

So, prices on parts and finished goods will rise.

But there is another issue – our U.S. steel companies raising their prices. Huh? If they couldn’t compete with foreign steel being imported, and needed a 25% tariff of foreign steel, why are they now jacking up their prices – almost 25% ?!? Wait – Trump supposedly levelled the playing field, and then Nucor, Timken and Latrobe began raising their prices, taking the disparity right back to where it was? How does that work? Stay tuned as we work through this kettle of fish.

Next in line is the consumer.

In case you are wondering, everything the government does will impact We, the People. Same for Big Steel. If manufacturers have to raise prices to counter higher costs, those price increases will get passed on until they eventually reach the end consumer, whether that is an individual or a company. The automobile may become more expensive, washing machines have already been hit with a $100 tariff, an aircraft becomes more expensive to make, and so on.

Or, the manufacturer will choose some balance between raising prices and cutting jobs.

Does any of this sound good to you? Of course not. Whatever the administration believes the U.S. will ‘win’ with tariffs or a trade war, there will be loses – one of which could be the favorable winds in our economic sails. And if the Fed does its rate increases, well, this could go from rosy to remorseful in 2018.

Otherwise, enjoy this issue of Metals & Manufacturing Outlook.

Metals & Manufacturing Outlook

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MANUFACTURING OUTLOOK

BY ROYCE LOWE

Trump has surpassed himself. By opening the presidential mouth again and threatening tariffs on imported steel and aluminum, he has given domestic mills carte blanche to raise their prices, in what is already a healthy market, and thus put up the cost to the consumer of what is commonly made from steel and aluminum; such everyday objects as automobiles, aircraft, beer cans, pots and pans, houses, to say nothing of infrastructure.

Mr. Trump and his lackey Wilbur Ross know not at all what they do. Trade wars are good, says Trump. It is to be hoped that he might finally back down on something, particularly since a large number of politicians and business leaders have come out against the idea, and there is talk of retaliation, to which Trump replies he’ll put tariffs on imported cars. One of the media’s more

articulate journalists has used words such as impulse, chaos and unglued to describe the perpetrator of these threatened deeds. Toyota have something to say about this; see AUTOMOTIVE OUTLOOK. The figures being suggested at time of writing are 25 percent on steel products, 10 percent on aluminum. For a summary of current steel and aluminum situations, see METALS OUTLOOK.

Global manufacturing is continuing to look mostly healthy, and the U.S. PMI figure took a jump in February to record an over-sixty figure.

The BLS jobs report for February shows the addition of

313,000 non-farm payroll jobs, including 31,000 new jobs in manufacturing, of which 8,000 were added in Transportation Equipment; 6,000 in Fabricated Metal Products; 6,000 in Machinery and 4,000 in Primary Metals.

The ISM PMI figure for U.S. manufacturing jumped from 59.1 percent in January to 60.8 percent in February, representing the 18th consecutive month of growth in manufacturing. The overall economy grew for the 105th consecutive month. See NORTH AMERICAN OUTLOOK.

IHS Markit’s remarks on the U.S. refer to an acceleration in new orders growth with production expanding at a slower rate, and inflationary pressures intensifying | March 2018

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Metals & Manufacturing Outlook

– input and output price inflation reached multi-year highs. There was an increase in business confidence and this led to further job creation, with the rate of factory job creation strengthening to its third fastest since June 2015.

IHS Markit’s U.S. manufacturing PMI eased slightly from January’s 55.5 percent to 55.3 percent in February.

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 ‘second’ estimate for the annual rate of Real GDP growth in the fourth quarter of 2017, putting it at 2.5 percent. The figure for the third quarter of 2017 was 3.2 percent.

World crude steel production for the 66 reporting countries for the month of January was 139.439 Mt, up 0.8 percent y-o-y. Capacity utilization for the month was 70.9 percent, down 0.2 percent on January 2017 and up 0.7 percent on December 2017.

U.S. crude steel production for January 2018 was 6.822 Mt, down 2.2 percent y-o-y.

U.S. CAR SALES were off 2.4 percent y-o-y, same number of sales days, 24, as last year. | March 2018

Keep on truckin’.....if you can find the truckers. See ISSUES OUTLOOK

NAFTA and BREXIT..... go on and on, but there is some progress... see ISSUES OUTLOOK Primary Global Aluminum Production in January 2018 was reported at 5.557 million tonnes of which 3.187 million tonnes (57 percent) was produced in China; 455,000 tonnes in GCC; 369,000 tonnes in rest of Asia ; 321,000 tonnes in Western Europe, 322,000 tonnes in North America and 344,000 tonnes in Eastern and Central Europe.

Here are the latest figures for US new car and light truck sales for ‘the big eight’ for February 2018.

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. 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.

Manufacturing Laughs

| March 2018

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Metals & Manufacturing Outlook

Most people have heard that women are 51% of the U.S. population and only 27% of employees in manufacturing. But there is so much more to this story than a few statistics. To bring the story to life, the Manufacturing Broadcasting Corporation (MBC), broadcasters of Manufacturing Talk Radio has launched Women And Manufacturing, an exciting new show where accomplished women interview accomplished women who can share their experiences and encourage women to look across the broad landscape of manufacturing, from the loading dock doors to the C-Suite, and the expanse of jobs and careers in between, to learn more about this exciting sector of the U.S. economy and what it might hold for them.

Never before has the manufacturing industry been in such an accelerated state of change, from retirees leaving the workforce creating a serious skills gap and brain drain to the implementation of the technological innovations of modern manufacturing often referred to as Industry 4.0, or the 4th Industrial Revolution. The hosts of Women And Manufacturing, all successful women in their own right, will interview women who are in the midst of a successful career in the industry and their respective companies, providing the guests with an opportunity to give guidance, insight, and inspiration to women who may or may not have considered a career in the industry, from teenagers just beginning to think about their career path to women in the industry or in transition in their own professional lives.

The subject matter of the interviews will cover the spectrum of unique challenges any woman might face in the workplace or the industry from the success and accomplishments of women from the shop floor to the C-suite, from executive management to labor unions, and from educational to governmental institutions.

Each will share their thoughts in congenial, collegiate conversations with one of 6 hosts who will alternate each week. Hosts will also tease out insights through guest introspection, along with suggestions and recommendations from guests to listeners about navigating the manufacturing and corporate world.

Tune in to each episode to hear the accomplished women share their experiences with this generation and the next generation of women who will make and remake manufacturing for the generations who follow in this noble profession which contributes to the greater good of all, improving products, making things better and safer, and fulfilling lives – not just making a living.

All of us involved with Women And Manufacturing appreciate your listenership and look forward to your feedback as this incredibly exciting show develops.

Visit WOMENANDMFG.COM for more information. | March 2018

Metals & Manufacturing Outlook

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NORTH AMERICAN OUTLOOK

BY ROYCE LOWE

The Latest Manufacturing Reports from the United States, Canada and Mexico The Institute of Supply Management PMI figure took a healthy jump from 59.1 percent in January to 60.8 percent in February, representing the eighteenth consecutive month of growth in manufacturing. There was growth in the overall economy for the 105th consecutive month.

Of the 18 manufacturing industries, 15 reported growth in February, in the following order: Printing & Related Support Activities; Primary Metals; Machinery; Computer & Electronic Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; Transportation Equipment; Textile Mills; Miscellaneous Manufacturing; Paper Products; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products.

Two industries reported contraction during the period: Apparel, Leather & Allied Products; and Furniture & Related Products.

Comments from the manufacturing industries continue in a very positive mode, with a Transportation Equipment representative complaining of a tight labor market; a Food, Beverage and Tobacco Products representative stating quite plainly, ‘There’s no labor available.’

A Fabricated Metal Products spokesperson said, ‘The steel market’s doing well, everybody is out of what I need.’ The weakening U.S. dollar versus the Yuan is aggravating the cost of electronic products.

It is interesting that ‘skilled labor’ has joined the list of commodities in short supply.

Following is a summary of the five major indexes, each weighted at 20 percent in calculation of the PMI number for February; January’s readings are in parentheses: New orders Production Employment

64.2 62.0 59.7

(65.4) (64.5) (54.2)

Supplier Deliveries 61.1 Inventories 56.7

(59.1) (52.3)

The following five components are not instrumental in the PMI calculation, but are an important part of the manufacturing industry: Customer Inventories (too low) 43.7 (45.6) Prices 74.2 (72.7) Backlog of orders 59.8 ( 56.2) New export orders 62.8 (59.8) Imports 60.5 (58.4)

Commodities Up in Price Aluminum (16); Caustic Soda (8); Copper (4); Corrugate (17); Crude Oil (2); Diesel; Freight; Nickel (2); Memory; Packaging Materials; PET Bottles; Phosphoric Acid; Pigments; Polyethylene (2); Polyurethane (2); PVC Resin; Resin Based Products; Steel — Cold Rolled (2); Steel — Fabricated & Machined Parts; Steel — SBQ & Alloy Bars; Steel — Scrap (3); Steel — Galvanized (2); Steel — Hot | March 2018

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Metals & Manufacturing Outlook

Rolled (15); Steel — Stainless (3); Sulfuric Acid (2); Titanium Dioxide (5); and Vitamins (2).

Commodities Down in Price None Commodities in short supply Capacitors (8); Freight; Resistors (4); Skilled Labor; and Titanium Dioxide (4).

Note: The number of consecutive months the commodity is listed is indicated after each item.

The complete ISM Report on Business may be found at the end of this MMO report.

CANADA again showed strong increases in production, new orders and employment in February, with the manufacturing PMI easing slightly from January’s 55.9 to

| March 2018

55.6. Input buying was up at its strongest since May 2011, and there was again lengthening of supplier delivery times.

The month saw the fastest rise in export sales since November 2014, particularly to the U.S. All regions experienced manufacturing growth in February, led by Alberta and B.C. Quebec’s rise in export sales was its fastest for around four years. Employment was strongest in Alberta, B.C. and Ontario.

There was pressure on supply chains due to stronger demand for raw materials and transportation capacity.

Canada produced 1.140 Mt of crude steel in January, unchanged y-o-y.

Canadian auto sales were again on

the up, with sales of 126,046 units representing a 2.1 percent y-o-y increase. The increase to date for the two months this year is 3.9 percent. Light trucks represent 71.4 percent of sales for February.

MEXICO saw softer increases in production, new orders and employment in February, with the PMI easing from January’s 52.6 to 51.6 in February.

There was increased purchasing activity in February. Work on backlogs prompted increased employment, and backlogs to decline for the first time in four months.

Most growth was at the domestic level, with export work softening

Mexico produced 1.620 Mt of crude steel in January, down 3.5 percent y-o-y.

Metals & Manufacturing Outlook

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METALS OUTLOOK

BY ROYCE LOWE

Hot-rolled and cold-rolled steel prices in the U.S. were moving towards $800 and $900 per ton respectively, with rebar around $620/630 per ton. European hotrolled coil is pricing around €570 per tonne, or equivalent to around $630 per ton.

European steel prices rise as foreign competition wanes.

Germany, Italy, France, Spain and Belgium find business good, with steel moving smoothly through the mills and service centers to manufacturers. Mill overbookings and delivery delays are reported.

Major steel companies around the globe are seeing better than normal results, with India’s Tata Steel reporting a more than fivefold jump in third quarter earnings, which will help its plans to double production capacity in India and bid for ‘troubled’ mills under a government-aided program. India’s JSW Steel Ltd. reported record earnings for the quarter. Other mills around the globe are seeing profits rise as cuts in China’s capacity – ostensibly for antipollution reasons – cut its exports and pushed up prices. The global steel industry is awaiting the end of these recent production cutbacks and there will be, according to the world’s largest miner, BHP Billiton Ltd., a return to pre-winter production by June of this year.

Further plant closures are awaited in China.

Arcelor-Mittal, the world’s largest steel company, saw its highest

profits since 2011; South Korea’s Posco saw income jump 60%.

In emerging markets, both Brazil and Russia are looking for increased consumption and higher prices.

Non-ferrous metal prices see aluminum at around $1.00 per pound, up from $0.88 a year ago; copper at around $3.20 per pound, up from $ 2.70 a year ago; nickel around $6.20 per pound, up from $4.00 in July 2017; zinc at around $1.60 per pound, up from $1.10 in July 2017 and lead at around $1.17 per pound, up from 0.93 in July 2017.

Canada wants to be ‘left out’ of the threatened U.S. tariffs.

Canada accounts for about half the U.S.’s 5 million tonne aluminum deficit and domestic smelters could not fill the void. In fact Canada produces some 80 percent of North America’s primary aluminum and the U.S. is presently producing some 60,000 tonnes per month, hardly enough to feed its requirements. Hence the imports of aluminum, some of which are done for reasons of quality as well as quantity.

Canada’s beef on aluminum is backed up by Alcoa Corp. and the Rio Tinto Group.

The supposed aim of these tariffs is to boost U.S. output to at least 80 percent of capacity by cutting steel imports by 13.3 million tonnes; aluminum imports by some 600,000 tonnes.

U.S. annual steel consumption is in the order of 85 million tonnes, that of aluminum some 6 million tonnes. Some 40 percent of steel goes to construction, some 26 percent to automotive. The quality requirements of most pipeline steels have historically been beyond the scope of U.S. mills, resulting in an 80 percent or so import requirement for this application.

ParkOhio acquired Canton Drop Forge (CDF) of Canton, Ohio.

CDF, a drop-forging company that has been in business for 115 years, specializes in aerospace forgings, locomotive forgings and forgings for the transportation industry. According to ParkOhio, the addition of CDF to its current Forged and Machined Products Group will enhance the company’s international aerospace profile.

American Axle & Manufacturing Inc. (AAM) and Drexler Automotive GmbH entered into an agreement to expand their relationship and bring high-performance differentials and differential technologies from the premium market to the general market of passenger cars, light trucks, crossovers and SUVS. The expanded relationship immediately integrates electromechanical limited slip differentials (eLSDs) into the AAM TracRite family of differential products. These systems greatly improve vehicle handling and traction for all-wheel drive or rear-wheel drive vehicles.

| March 2018

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Metals & Manufacturing Outlook

AUTOMOTIVE OUTLOOK

BY ROYCE LOWE

In the wake of the president’s threatened tariff imposition on steel and aluminum imports, automotive companies, who tried to persuade Trump not to do this, are warning that already declining sales will be aggravated by the tariff move. A trade group representing GM and Toyota, plus parts suppliers such as Bosch and Magna, tried to warn the Trump administration of unintended consequences before he said he planned to order tariffs. Five of the six biggest car manufacturers sold fewer cars in February than a year ago, Toyota being the noteworthy exception.

The average car contains $830 in steel, $400 in aluminum. That’s a lot of metal. Ford’s raw material costs, already projected to rise by $1billion this year, would jump by a further $300 million with tariffs; GM would see a further $200 million added to their already $800 million increase. | March 2018

One estimate puts the increased cost of an automobile, with tariffs, at $200.

Meanwhile car-industry job cuts are coming in the UK at both Vauxhall Motors – ex GM, now part of France’s PSA - and Jaguar Land Rover, owned by Tata.

Manufacturing Laughs

Metals & Manufacturing Outlook

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AEROSPACE OUTLOOK

BY ROYCE LOWE

The U.S. Navy needs more Boeing F/A-18E/F fighters - the model that Obama was to phase out - to fill a shortage until more Lockheed-Martin aircraft become available from the trouble-plagued F35 program.

Trump has made a deal with BOEING whereby the aircraft manufacturer will supply two 747s for $ 3.9 billion, thus supposedly saving the taxpayer $1.4 billion.

Airbus and Pratt and Whitney are cooperating closely in an effort to resume normal operations and aircraft deliveries.

AIRBUS meanwhile has paid a $99 million fine following a situation where former space and

defense executives were guilty of a ‘negligent breach of supervisory duties’ by failing to implement internal controls. This is the end of a five-year bribery investigation

by German prosecutors in connection with Eurofighter jets sold to Austria in 2003.

Manufacturing Laughs

Almost one third of AIRBUS’s Pratt and Whitney – powered A320neo aircraft are affected by a new engine problem that has forced Airbus to halt deliveries of the popular narrow-body jet. This model is very important to Airbus, and at 50 deliveries per month is the fastest seller in commercial aviation history, forcing Boeing to update its 737.

Fortunately, Airbus can turn to the engine built by CFM, a joint venture between GE Co. and France’s Safran SA. | March 2018

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Metals & Manufacturing Outlook

GLOBAL PMI OUTLOOK

BY NORBERT ORE Many analysts point out that there is a disconnect between the hard and soft data. The hard data says things are good, but not great.

Yet, the soft data says these are among the best of times. Hard data lags, while soft data leads. It is the nature of diffusion indexes to measure activity whereas the hard data measures units produced.

The signals are that manufacturing globally is growing aggressively – led by Computers & Electronics, Machinery, and Primary Metals.

For example, the ISM Milwaukee PMI, a good measure of durable goods industries, hit 75.2 (+11.8 percent) in February! The global services sector continues to expand, but is outpaced by manufacturing at present.

Eurozone: The EZ PMI (58.6, -1.0) continues to enjoy broad-based

| March 2018

expansion in all sectors of manufacturing. The combined PMI remains among the highest reported in the past 18 years. The EZ’s manufacturing expansion continues to be led

by Netherlands (63.4, +0.9), Germany (60.6, -0.5), and Austria (59.2, -2.1). As a measure of the strength of the expansion in the EZ, each of the eight countries posted a PMI of 55.9 percent or higher in February, and they registered above the breakeven mark of 50 for the ninth consecutive month.

United Kingdom: The UK/CIPS PMI (55.2, -0.1) continues to indicate a broad expansion of the UK manufacturing sector postBrexit. In February, the rate of growth experienced a miniscule decline, and remains in a range that promotes solid economic growth.

China: China’s Official Report, the CFLP PMI (50.3, -1.0), reported an index below the 51-mark following 16 months of posting above 51. The Caixin China General Manufacturing PMI (51.6, +0.1) provides a similar rate of expansion averaging 51.0 for the same period.

India: India’s PMI (52.1, -0.3) slowed modestly while posting its seventh consecutive month of growth, but stayed above its 2017 average of 51.4 percent.

Overall, the economy is growing and the stage is set for continuing expansion.

North America: Canada (55.6, -0.4) expanded for the 24th consecutive month with exports rising at the fastest level in three years. Mexico’s (51.6, -1.0) rate of expansion decelerated somewhat, however, it did stay above its 12-month average of 51.6.

Metals & Manufacturing Outlook

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ISSUES OUTLOOK

BY ROYCE LOWE

Keep on Truckin’, that is if you can find the truckers. Tyson Foods Inc. looks for a hike in its freight bill of $200 million this year, while Kellogg Co’s logistics costs will jump almost 10 percent.

Drivers are scarce and it’s hitting the bottom line. Surging demand has pushed up costs for longdistance routes by up to 30 percent compared with a year ago.

The industry was short a quarterof-a-million drivers at the end of 2017.

On the NAFTA front, word is that talks are going well with Mexico, but that there are harsh words for Canada from Robert Lighthizer, the U.S. Trade Representative, but he is downplaying the likelihood of a U.S. withdrawal. It’s being described as a ‘spat.’ U.S. Republican Rep. Pete Sessions of Texas assured Canada that the U.S. was not interested in an unfair trade deal that would put Canada in second place.

As regards Brexit....there was a rather excellent cartoon in a recent British publication, ‘Private Eye,’ that shows a whiteboard full of the most difficult algebraic equations, and one member of the adult audience asking of the lecturer, ‘Sorry, could you run through our Brexit strategy again..?’

But the Prime Minister, Theresa May, recently made a speech wherein she laid out a sort of British compromise on trade, single markets, customs unions etc. for the EU to digest. And so

we wait once more......

The implications of any deal that involves tariffs or paperwork on goods moving between the UK and Europe might be illustrated by the journey of a Mini crankshaft... which is made in France; sent to Birmingham in the UK for machining to final shape; then on to Austria to be inserted into the engine on an assembly line; and lastly the engine sent back to Oxford in the UK to be fitted into the Mini on the production line.

Manufacturing Laughs

The CEO of MAGNA, North America’s largest automotive parts manufacturer, who last month was telling the U.S. they were taking the wrong tack, now declares he is feeling more positive about the negotiations.

Meanwhile Trump said Canada treated the U.S. ‘very unfairly’ on lumber. | March 2018

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Metals & Manufacturing Outlook

ENERGY OUTLOOK

BY ROYCE LOWE

GE Renewable Resources will spend up to $ 400 million over the next few years to build an offshore wind turbine almost 100 meters (330 ft) taller than the Washington Monument; 853 feet tall, with blades, manufactured

by LM Wind Power, longer than a soccer field.

One 12-MW turbine will generate as much as 67 gigawatt hours per year, sufficient to power 5,000 households.

The costs of producing offshore wind farms have fallen dramatically in recent years, obviating the need for subsidies.

In 2017, German and Dutch electricity regulators approved bids for the first offshore wind farms that depend entirely on market prices rather than government support and subsidies.

| March 2018

Manufacturing Laughs

Metals & Manufacturing Outlook

GLOBAL OUTLOOK

BY ROYCE LOWE

EUROZONE IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) eased again, from January’s 59.6 reading to 58.6 in February. There was a broad-based expansion seen across all nations and subsectors in February.

Selling price inflation went to an 82-month high despite a slower increase in input costs. Growth was seen across consumer, intermediate and investment goods industries – strongest in investment goods – with rates of increase easing across all three sectors.

Employment was up in all eight nations covered, with specially marked gains in the Netherlands, Germany and Austria. Greece’s employment was up at a seriesrecord pace.

Factories saw their best growth spell for 18 years.

Crude steel production in Germany in January was at 3.700 Mt, up 1.5 percent y-o-y; in Italy 2.018 Mt, up 5.3 percent y-o-y; in France 1.371 Mt, up 3.0 percent y-o-y and in Spain 1.167 Mt, down 1.0 percent y-o-y.

15

down 3.9 percent y-o-y; Ukraine’s was 2.100 Mt, down 0.1 percent y-o-y.

Car sales in Western Europe were up by 3.5 percent in February, with Germany up 7.4 percent, France up 4.3 percent, and Spain up 13 percent. Italian sales were down 1.4 percent, those in the UK down 2.8 percent.

IHS Markit’s PMI for the UK eased down from January’s 55.3 to 55.2 in February, an eight-month low, as slower production growth offset stronger new order gains.

Production growth was slower in all three major sectors, despite improving demand and job creation. Price pressures remain high but have moderated since January.

There is good domestic demand, and new export orders show gains for the 22nd consecutive month in February.

UK manufacturers are still positive about the future, with 56 percent forecasting production to be higher in one year’s time, just 6 percent expecting a decline.

The UK produced 0.589 Mt of crude steel in January, down 13.0 percent y-o-y.

Russia’s crude steel production for January was at 5.700 Mt,

| March 2018

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Metals & Manufacturing Outlook

GLOBAL OUTLOOK

BY ROYCE LOWE

ASIA

There was continuing improvement in February in CHINA’s manufacturing sector, with the seasonally-adjusted PMI, including Chinese new year, easing up slightly from January’s 51.5 to 51.6.

Prodution growth softened from January, but total new orders expanded at a slightly faster pace. Supplier deliveries are slowing.

Business sentiment is very positive in February

Manufacturing Laughs

CHINA produced 67.000 Mt of crude steel in January, down 0.9 percent y-o-y; Japan 9.030 Mt, up 0.3 percent y-o-y; India 9.028 Mt, up 2.5 percent y-o-y and South Korea 6.125 Mt, up 2.7 percent y-o-y. Taiwan produced 1.960 Mt in January, up 3.8 percent y-o-y.

China saw a y-o-y increase of 11 percent in new vehicle sales in January, with sales at 2.4 million units.

In February, JAPANESE manufacturers saw a solid improvement in manufacturing,

with the PMI for the month easing from January’s 54.8 to 54.1.

New orders were up, there was a solid increase in production and an 11-year high in the rate of job creation.

There were difficulties procuring raw materials, due to shortages and delivery delays, backlogs were up and inventories were used to fill orders. Input costs rose sharply and selling prices accordingly. China and the U.S. proved to be good export outlets.

There is optimism re production in the Japanese manufacturing economy, stemming from a stronger Japanese economy, Olympic Games-related demand and new clients.

INDIA’s business conditions improved further in February, with increases in production and new orders, but both at slightly slower growth rates. The PMI in February was off slightly from January’s 52.4 to 52.1.

Cost inflation was up at the fastest for a year, with manufacturers raising their selling prices accordingly. There were reports of higher prices for steel, chemicals and fuel. There was a modest improvement in employment in February. | March 2018

Metals & Manufacturing Outlook

17

GLOBAL OUTLOOK

BY ROYCE LOWE

SOUTH AMERICA

by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation BRAZIL saw a rebound in of Purchasing and Supply manufacturing in February, amidst Management) – eased back very the fastest jobs growth since slightly from January’s 54.4.

2011, with the PMI moving from reading to 54.2 in February. This January’s 51.2 to 53.2 in February. is still one of the best readings This improvement was coincident since early 2011. with one of the strongest There was expansion across improvements in operating conditions seen over the past five the consumer, intermediate and investment sectors. There was years. a slightly lower growth rate in There was a strong rise in February in the U.S., the euro manufacturing production and in area (strongest overall), Japan new orders, with selling prices up and the UK; there was growth at the fastest since June 2016. improvement in China, Brazil, There was an improved demand Australia and Vietnam. for domestic orders, but this was accompanied by a moderate drop Global manufacturing production in export sales. Higher steel prices and new orders continued a sold rise, albeit the slowest in 4 are proving to be somewhat of a months. International trade flows burden. improved and there were further Brazil’s crude steel production new export orders. for the month of January was 2.866 Mt, an increase y-o-y of 1.3 Business optimism was at its highest level in three years. percent.

The JP MORGAN GLOBAL MANUFACTURING PMI – a composite index produced

The ongoing upturn in new business led to further higher backlogs with resulting increased employment.

Jan.

Feb.

Global PMI

54.4

54.2

Production

55.7

54.8

New orders

55.5

55.1

New exports

54.1

53.3

Employment

53.0

53.0

Input prices

61.4

60.7

Output prices

54.1

53.9

‘Future Output’

64.4

64.7

ISO9001:2008 and AS9100C

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Metals & Manufacturing Outlook

FROM PRICE HIKES TO PRICE SPIKES: U.S. MANUFACTURERS AND CONSUMERS WILL PAY DEARLY FOR UNNECESSARY TARIFFS

BY TIM GRADY, EXECUTIVE PRODUCER, MANUFACTURING TALK RADIO On the first of each month, Manufacturing Talk Radio show hosts Lew Weiss and Tim Grady interview the Institute for Supply Management Committee Chairs for the Manufacturing Report on Business®, Tim Fiore, and the Non-Manufacturing Report on Business®, Anthony Nieves.

Both reports, which can be found at the radio website, www.mfgtalkradio.com, show a 24-month trend of price hikes across all sectors, although much of the increases in 2016 and into 2017 were not passed on by manufacturers. While passing on price increases began to change in the latter half of 2017, nowhere has it become more aggressive than in the steel industry, especially with the advent of the tariffs.

U.S. steel producers were increasing prices steadily in 2017, with as much as a 20% increase by some producers during the year. Even as they complained that foreign steel suppliers were dumping steel on the U.S. | March 2018

market at prices below U.S. steel producers manufacturing costs, domestic suppliers raised prices and nudged the Trump administration to impose tariffs on overseas suppliers, particularly on China, South Korea, Russia, Turkey and Vietnam.

One would think that the tariffs should level the playing field, bringing foreign steel prices closer

to parity with U.S. domestic steel producers, but something else has happened. U.S. steel prices have spiked in 2018. Since January 1, prices on some commonly used steel forms, such as sheet and plate, have jumped 22%. For example, hot-rolled coiled steel prices are at $770 a ton, up 32% since October, with spot prices above $800 a ton.

Please note that China is 10th in steel exports to the U.S., although much of the tariff justification has been based on China

Metals & Manufacturing Outlook More domestic price spikes are in the works, with some of the major producers quietly raising prices as the tariffs increase the cost of some foreign producers.

Canada and Mexico have asked for exemptions, and if a favorable NAFTA agreement is hammered out, they may get the exemption. Japan has asked for an exemption, as well. But the target of the tariffs appears to be producers in Asia.

China is one name that is bandied around although steel imports from China dropped substantially in 2017 from previous years and now account for less than 3% of steel imports. And while South Korea, Turkey, Russia and Vietnam are countries in the news, Brazil is not, even though the U.S. imports 13.2% of its steel from Brazil.

But the larger question revolves around the recent price increases from domestic U.S. producers like Nucor, Timken, ArcelorMittal (the world’s leading integrated steel and mining company with substantial production facilities in the U.S.), and AK Steel, which will likely be followed by the secondtier producers. If steel dumping was so crippling to them, why are they now able to raise prices in excess of 25%, adding both 2017 and 2018 price increases together – so far? The answer lies in the past, and the future.

Back to the Future “Those who cannot remember the past are condemned to repeat it.” – George Santayana, philosopher, essayist, poet and novelist, 1863 – 1952.

When President Bush put 30% tariffs on steel sheet and 15% on steel bars and rods, domestic manufacturers cancelled foreign

steel orders and rushed to buy domestic steel. This caused a demand-side problem for U.S. producers, who immediately fell behind in production and within months were rationing deliveries.

Prices spiked by 60% within 4 months simply because U.S. producers could get it. U.S. production capacity utilization jumped from 70% to nearly 100%. Cost increases were passed on to consumers and businesses, who had to balance their own cash inflows/outflows equation. Consumers cut back on spending, and manufacturers ended up slashing an estimated 200,000 jobs resulting in over $2 billion in lost wages to be able

to absorb the steel price spikes.

And GDP grew at a tepid 1.4%, an insufficient number for U.S. manufacturers to invest capital in plants or new equipment.

So, what is the likely outcome of these price hikes? Like Yogi Berra, famed catcher for the New York Yankees baseball club said, “It’s déjà vu all over again.” It appears likely that the tariffs, regardless of their intended merit, will cause prices to rise far more rapidly in the current economic cycle, may trigger inflation that will cause the Fed to more aggressively raise rates, tamp out borrowing for capital investment, cause job losses, and may not translate into

19

the rebuilding of the U.S. steel industry for the national defense as Trump intends. In fact, today, as U.S. producers look forward to increased cash flow and profitability, some are firing up old blast furnaces rather than breaking ground for new modern mills. Tariffs may well choke off the current economic cycle much earlier than 2020 where it was expected to play itself out.

And, yes, the tariffs might be the lynch pin that costs Trump his reelection if the economy is in the tank in 2019 – when people vote!

Politics aside, manufacturers will quickly see rising costs for steel and aluminum, and much higher than they may have thought. With 20% from 2017 and more than 20% so far this year on some steel, they will have no choice but to buy at higher prices and pass that cost on in the price of their own products. It didn’t have to be this bad, but it is now unavoidable.

Steel and aluminum prices in 2018 may unsettle an economic cycle with unpredictable spikes in steel and aluminum prices that may not abate for a few years, and manufacturers will have to deal with those cost increases for the foreseeable future.

And what makes it all unnecessary is that U.S. steel producers should be investing in modern mills with new material handling technology, competing with the rest of the world on the global playing field while still protecting our national defense interests. Tariffs are not, and never have been, the solution. | March 2018

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Metals & Manufacturing Outlook

THE INSTITUTE FOR SUPPLY MANAGEMENT’S MANUFACTURING REPORT ON ® BUSINESS

BREAKING NEWS

ISM PMI at 60.8% ISM PMI for the past 5 years

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PMI® at 60.8% New Orders, Production, and Employment Growing Supplier D eliveries Slowing at Faster Rate; Backlog Growing R a w M a t e r i a l s I n v e n t o r i e s G r o w i n g ; C u s t o m e r s ’ I n v e n t o r i e s To o L o w Prices Increasing at Faster Rate; Exports and Imports Growing ( Te m p e , A r i z o n a ) — Economic activity in the m a n u f a c t u r i n g s e c t o r expanded in February, and the o v e r a l l e c o n o my grew for the 106th consecutive month, say the nation’s supply executives in the latest M a n u f a c t u r i n g I S M ®® R e p o r t O n B u s i n e s s ®®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: “The February PMI® registered 60.8 percent, an increase of 1.7 percentage points from the January reading of 59.1 percent. The New Orders Index registered 64.2 percent, a decrease of 1.2 percentage points from the January reading of 65.4 percent. The Production Index registered 62 percent, a 2.5 percentage point decrease compared to the January reading of 64.5 percent. The Employment Index registered 59.7 percent, an increase of 5.5 percentage points from the January reading of 54.2 percent. The Supplier Deliveries Index registered 61.1 percent, a 2 percentage point increase from the January reading of 59.1 percent. The Inventories Index registered 56.7 percent, an increase of 4.4 percentage points from the January reading of 52.3 percent. The Prices Index registered 74.2 percent in February, a 1.5 percentage point increase from the January reading of 72.7 percent, indicating higher raw materials prices for the 24th consecutive month. Comments from the panel reflect expanding business conditions, with new orders and production maintaining high levels of expansion; employment expanding at a faster rate to support production; order backlogs expanding at a faster rate; and export orders and imports continuing to grow faster in February. Supplier deliveries continued to slow (improving) at a faster rate.

Price increases occurred across most industry sectors. The Customers’ Inventories Index indicates levels remain too low. Capital expenditure lead times improved by five days while production material supplier lead times extended four days during the month of February.”

Of the 18 manufacturing industries, 15 reported growth in February, in the following order: Printing & Related Support Activities; Primary Metals; Machinery; Computer & Electronic Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; Transportation Equipment; 2 of 18

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Note: The number of consecutive months the commodity is listed is indicated after each item.

M A N U FA C T U R I N G I N D EX SUMMARIES

PMI®

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Manufacturing expanded in February as the PMI® registered 60.8 percent, an increase of 1.7 percentage points from the January reading of 59.1 percent. “This indicates growth in manufacturing for the 18th consecutive month at strong levels led by continued expansion in new orders, production activity, employment and inventories, with suppliers continuing to struggle delivering to demand. The PMI® at 60.8 percent is the highest level of expansion seen since May 2004, when it reached 61.4 percent,” says Fiore. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI® above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the February PMI® indicates growth for the 106th consecutive month in the overall economy and the 18th straight month of growth in the manufacturing sector. “The past relationship between the PMI® and the overall economy indicates that the average PMI® for February (60.8 percent) corresponds to a 5.4 percent increase in real gross domestic product (GDP) on an annualized basis.”

THE LAST 12 MONTHS

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P M I ®®

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Metals & Manufacturing Outlook 23

Month

P M I ®®

Feb 2018

60.8

Aug 2017

59.3

Jan 2018

59.1

Jul 2017

56.5

De c 2 0 1 7

59.3

Jun 2017

56.7

Nov 2017

58.2

May 2017

55.5

Oct 2017

58.5

Apr 2017

55.3

Sep 2017

60.2

Mar 2017

56.6

Average for 12 months - 58.0 High - 60.8 Low - 55.3

NEW ORD ERS

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ISM®’s New Orders Index registered 64.2 percent in February, which is a decrease of 1.2 percentage points when compared to the 65.4 percent reported for January, indicating growth in new orders for the 26th consecutive month. “New Orders expansion continues at a strong pace, off slightly from January’s expansion, with 10 straight months at 60 percent or above,” says Fiore. A New Orders Index above 52.4 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Fifteen of 18 industries reported growth in new orders in February, listed in the following order: Textile Mills; Paper Products; Printing & Related Support Activities; Primary Metals; Chemical Products; Computer & Electronic Products; Fabricated Metal Products; Transportation Equipment; Nonmetallic Mineral Products; Machinery; Plastics & Rubber Products; Miscellaneous Manufacturing; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products. The only industry | March 2018 4 of 18

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reporting a decrease in new orders in February compared to January is Apparel, Leather & Allied Products.

New Orders

% Higher

% Same

% Lower

Net

Index

Feb 2018

40.6

50.9

8.5

+32.1

64.2

Jan 2018

35.2

54.3

10.5

+24.7

65.4

De c 2 0 1 7

35.3

56.5

8.1

+27.2

67.4

Nov 2017

30.0

60.9

9.1

+20.9

63.9

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PROD UCTION

ISM®’s Production Index registered 62 percent in February, which is a decrease of 2.5 percentage points when compared to the 64.5 percent reported for January, indicating growth in production for the 18th consecutive month. “Production expansion continues, in spite of labor, capacity constraints and supplier delivery difficulties. Raw material inventories increased during the period. Production could not keep pace with new order input and customer inventory needs, resulting in higher backlogs,” says Fiore. An index above 51.5 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

The 14 industries reporting growth in production during the month of February — listed in order — are: Printing & Related Support Activities; Primary Metals; Paper Products; Petroleum & Coal Products; Plastics & Rubber Products; Machinery; Transportation Equipment; Chemical Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Fabricated Metal Products; and Food, Beverage & Tobacco Products. The two industries reporting a decrease in production in February compared to January are: Apparel, Leather & Allied Products; and Furniture & Related Products.

Production

% Higher

% Same

% Lower

Net

Index

Feb 2018

35.5

54.9

9.6

+25.9

62.0

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Production

% Higher

% Same

% Lower

Net

Index

Jan 2018

32.8

56.2

11.0

+21.8

64.5

De c 2 0 1 7

30.8

60.7

8.5

+22.3

65.2

Nov 2017

32.2

61.0

6.8

+25.4

64.3

25

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EMPLOYMENT

ISM®’s Employment Index registered 59.7 percent in February, an increase of 5.5 percentage points when compared to the January reading of 54.2 percent. This indicates growth in employment in February for the 17th consecutive month. “Employment expansion remains strong, with panel member companies increasing head count during February to support growth in production activity,” says Fiore. An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, the 11 reporting employment growth in January — listed in order — are: Printing & Related Support Activities; Petroleum & Coal Products; Primary Metals; Machinery; Computer & Electronic Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Transportation Equipment. Seven industries reported no change in employment in February compared to January. No industry reported a decrease in employment in February.

Employment

% Higher

% Same

% Lower

Net

Index

Feb 2018

28.4

61.8

9.8

+18.7

59.7

Jan 2018

17.6

70.6

11.8

+5.8

54.2

De c 2 0 1 7

20.3

71.6

8.2

+12.1

58.1

Nov 2017

22.9

70.0

7.0

+15.9

59.2 | March 2018

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SUPPLIER D ELIVERIES

The delivery performance of suppliers to manufacturing organizations was slower in February, as the Supplier Deliveries Index registered 61.1 percent. This is 2 percentage points higher than the 59.1 percent reported for January. “This is the 17th straight month of slowing supplier deliveries and is likely the single biggest constraint to production growth at this time. During the period, additional gains were made to inventories in spite of these ongoing supply chain issues,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

The 12 industries reporting slower supplier deliveries in February — listed in order — are: Nonmetallic Mineral Products; Machinery; Printing & Related Support Activities; Fabricated Metal Products; Computer & Electronic Products; Plastics & Rubber Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Chemical Products; Primary Metals; Transportation Equipment; and Miscellaneous Manufacturing. The two industries reporting faster deliveries in February compared to January are: Electrical Equipment, Appliances & Components; and Paper Products.

Supplier D eliveries

% Slower

% Same

% Faster

Net

Index

Feb 2018

26.2

70.4

3.4

+22.8

61.1

Jan 2018

23.5

71.3

5.2

+18.3

59.1

De c 2 0 1 7

19.0

74.6

6.3

+12.7

57.2

Nov 2017

21.0

68.5

10.5

+10.5

56.6

I N V E N TO R I E S *

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The Inventories Index registered 56.7 percent in February, which is an increase of 4.4 percentage points when compared to the 52.3 percent reported for January, indicating raw materials inventories grew in February. “Suppliers made progress in responding to production demand increases, with the Inventories Index achieving the highest level since March 2010, when the index registered 56.8 percent. Inventory growth is a direct result of increased production demand supporting new order inputs,” says Fiore. An Inventories | March 2018

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Metals & Manufacturing Outlook 27

Index greater than 43 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The 12 industries reporting higher inventories in February — listed in order — are: Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Primary Metals; Plastics & Rubber Products; Fabricated Metal Products; Nonmetallic Mineral Products; Chemical Products; Machinery; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Transportation Equipment. The only industry reporting lower inventories in February is Paper Products.

Inventories

% Higher

% Same

% Lower

Net

Index

Feb 2018

23.8

66.0

10.3

+13.5

56.7

Jan 2018

24.4

55.7

19.9

+4.5

52.3

De c 2 0 1 7

18.0

60.9

21.1

-3.0

48.5

Nov 2017

16.0

62.1

21.9

-5.8

47.1

C U S TO M E R S ' I N V E N TO R I E S *

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ISM®’s Customers’ Inventories Index registered 43.7 percent in February, which is 1.9 percentage points lower than the 45.6 percent reported for January, indicating that customers’ inventory levels were still considered too low in February. “Customers’ inventory levels remain too low for the 17th consecutive month,” says Fiore.

The only manufacturing industry reporting customers’ inventories as too high during the month of February is Furniture & Related Products. The 10 industries reporting customers’ inventories as too low during February — listed in order — are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Paper Products; Chemical Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Transportation Equipment; Machinery; and Computer & Electronic Products.

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Metals & Manufacturing Outlook

Customers' Inventories

% Reporting

% To o High

% About Right

% To o Low

Net

Index

Feb 2018

50

5.1

77.3

17.7

-12.6

43.7

Jan 2018

58

9.4

72.5

18.1

-8.7

45.6

De c 2 0 1 7

54

6.8

72.3

20.9

-14.1

42.9

Nov 2017

57

8.4

73.5

18.1

-9.7

45.1

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PRICES*

The ISM® Prices Index registered 74.2 percent in February, an increase of 1.5 percentage points from the January level of 72.7 percent, indicating an increase in raw materials prices for the 24th consecutive month. In February, 51 percent of respondents reported paying higher prices, 2.7 percent reported paying lower prices, and 46.4 percent of supply executives reported paying the same prices as in January. The Prices Index is at its highest level since May 2011, when it registered 77.9 percent. “The Business Survey Committee noted price increases continue in metals (all steels, steel scrap, steel components, aluminum and copper), various intermediate chemicals, corrugate, crude oil, plastic resins and parts made from plastics. Shortages continue in the electronics area, labor and freight was noted as being short for the first time,” says Fiore. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Seventeen industries reported paying increased prices for raw materials in February, in the following order: Apparel, Leather & Allied Products; Textile Mills; Petroleum & Coal Products; Machinery; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Paper Products; Plastics & Rubber Products; Chemical Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Transportation Equipment; Primary Metals; Miscellaneous Manufacturing; Furniture & Related Products; and Computer & Electronic Products. No industry reported a decrease in prices in February compared to January.

Prices

% Higher

% Same

% Lower

Net

Index

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Metals & Manufacturing Outlook

Prices

% Higher

% Same

% Lower

Net

Index

Feb 2018

51.0

46.4

2.7

+48.3

74.2

Jan 2018

46.6

52.1

1.3

+45.3

72.7

De c 2 0 1 7

40.4

55.8

3.9

+36.5

68.3

Nov 2017

35.3

58.9

5.8

+29.5

64.8

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BACKLOG OF ORD ERS*

ISM®’s Backlog of Orders Index registered 59.8 percent in February, an increase of 3.6 percentage points when compared to the 56.2 percent reported for January, indicating growth in order backlogs for the 13th consecutive month. “Backlog expansion continued during the period, with the index achieving its highest level since April 2011, when it registered 59.2 percent. Strong backlog, low customer inventory levels and continued strong new order expansion indicates confidence the production requirements will remain strong through the quarter and into the second quarter,” says Fiore.

The 12 industries reporting growth in order backlogs in February — listed in order — are: Textile Mills; Nonmetallic Mineral Products; Printing & Related Support Activities; Primary Metals; Plastics & Rubber Products; Paper Products; Petroleum & Coal Products; Computer & Electronic Products; Chemical Products; Transportation Equipment; Fabricated Metal Products; and Machinery. The three industries reporting a decrease in order backlogs during February are: Apparel, Leather & Allied Products; Furniture & Related Products; and Food, Beverage & Tobacco Products.

Backlog of Orders*

% Reporting

% Higher

% Same

% Lower

Net

Index

Feb 2018

88

31.8

56.0

12.2

+19.6

59.8

Jan 2018

89

27.8

56.8

15.4

+12.5

56.2

De c 2 0 1 7

89

25.6

58.6

15.9

+9.7

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Backlog of Orders*

% Reporting

% Higher

% Same

% Lower

Net

Index

Nov 2017

92

23.7

61.2

15.1

+8.6

54.3

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N E W E X P O RT O R D ERS*

ISM®’s New Export Orders Index registered 62.8 percent in February, an increase of 3 percentage points when compared to the 59.8 percent reported for January, indicating growth in new export orders for the 24th consecutive month. Exports achieved their highest expansion since April 2011, when the index reached 63.8 percent. “All six big industry sectors, accounting for 71 percent of manufacturing GDP, continued to expand export activity during the period,” says Fiore.

The 11 industries reporting growth in new export orders in January — listed in order — are: Wood Products; Nonmetallic Mineral Products; Petroleum & Coal Products; Chemical Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Computer & Electronic Products; Machinery; Transportation Equipment; Fabricated Metal Products; and Paper Products. The only industry reporting a decrease in new export orders in February is Apparel, Leather & Allied Products. Six industries reported no change in export orders in February compared to January.

New Export Orders*

% Reporting

% Higher

% Same

% Lower

Net

Index

Feb 2018

79

27.9

69.8

2.3

+25.6

62.8

Jan 2018

79

20.7

78.2

1.1

+19.6

59.8

De c 2 0 1 7

78

18.4

78.5

3.1

+15.3

57.6

Nov 2017

80

14.7

83.2

2.1

+12.6

56.3

I M P O RT S *

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ISM®’s Imports Index registered 60.5 percent in February, an increase of 2.1 percentage points when compared to the 58.4 percent reported for January, indicating that imports grew in February for the 13th consecutive month. Import expansion reached its highest level since February 2007, when the index reached 61.1 percent. “Imports continued to expand at noticeably greater rates during the period in order to support production demand,” says Fiore.

The 14 industries reporting growth in imports during the month of February — listed in order — are: Textile Mills; Printing & Related Support Activities; Nonmetallic Mineral Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Primary Metals; Furniture & Related Products; Petroleum & Coal Products; Machinery; Chemical Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Computer & Electronic Products. The only industry that reported a decrease in imports during February compared to January is Apparel, Leather & Allied Products.

Imports

% Reporting

% Higher

% Same

% Lower

Net

Index

Feb 2018

82

24.5

71.9

3.5

+21.0

60.5

Jan 2018

81

22.5

71.6

5.8

+16.7

58.4

De c 2 0 1 7

83

19.3

74.4

6.3

+13.0

56.5

Nov 2017

82

13.9

80.9

5.2

+8.6

54.3

*The Inventories, Customers' Inventories, Prices, Backlog of Orders, New Export Orders and Imports Indexes do not meet the accepted criteria for seasonal adjustments.

BUYING POLICY

! Top

Average commitment lead time for Capital Expenditures decreased in February by 5 days from 150 days to 145 days. Average lead time for Production Materials increased by 4 days from 60 days to 64 days. Average lead time for Maintenance, Repair and Operating (MRO) Supplies decreased by 1 day to 33 days. “Capital expenditure lead time decreased 5 days during this period, settling at more historical levels, but at the high end of the range.

Production material lead times increased 4 days, confirming continued supplier delivery difficulties and reflecting increased longer-term materials demand,” says Fiore.

12 of 18

| March 2018 3/21/18, 4:36 PM

ISM - ISM Report - February 2018 Manufacturing ISM® Report On...

32 Metals & Manufacturing Outlook

https://www.instituteforsupplymanagement.org/ISMReport/MfgROB...

Percent Reporting

Capital Expenditures

HandtoMouth

6 Months

1 Ye a r +

30 Da y s

60 Da y s

90 Da y s

Av e r a g e Da y s

Feb 2018

21

6

11

17

23

22

145

Jan 2018

18

6

11

18

25

22

150

De c 2 0 1 7

19

9

11

17

25

19

139

Nov 2017

19

7

10

18

28

18

140

Av e r a g e Da y s

Production Materials

HandtoMouth

30 Da y s

60 Da y s

90 Da y s

6 Months

1 Ye a r +

Feb 2018

12

37

27

14

7

3

64

Jan 2018

11

40

25

16

6

2

60

De c 2 0 1 7

12

38

25

19

4

2

59

Nov 2017

11

37

26

19

6

1

59

Av e r a g e Da y s

MRO Supplies

HandtoMouth

30 Da y s

60 Da y s

90 Da y s

6 Months

1 Ye a r +

Feb 2018

33

42

17

6

2

0

33

Jan 2018

33

42

15

8

2

0

34

De c 2 0 1 7

33

41

15

8

3

0

36

| March 2018 13 of 18

3/21/18, 4:36 PM

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