SPECIAL SECTION:
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SHOULD A SME BECOME AN EXPORTER? PAGE 40
DECISION POINTS PAGE 42
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CONTENTS
TABLE OF CONTENTS
06
19 GLOBAL PMI OUTLOOK by Norbert Ore
MANUFACTURING OUTLOOK
20
08
A look at Europe
A global look at manufacturing
NORTH AMERICAN OUTLOOK Manufacturing in the US, Canada and Mexico
10 METALS OUTLOOK The cost, making and treating of metals
12 AEROSPACE OUTLOOK Trouble for Rolls Royce
14 AUTOMOTIVE OUTLOOK EV’s everywhere
16 ISSUES OUTLOOK GM and the EV mandate
17 ENERGY OUTLOOK Tesla and Panasonic
18 GLOBAL OUTLOOK The Global MFG PMI
EURO OUTLOOK
21 ASIA OUTLOOK China sees little change
22 SOUTH AMERICA OUTLOOK Brazil in the spotlight
23 - 37 2019 END-USER OUTLOOK
A special section from our friends at Modern Metals Magazine
38 THE CREDIT MANAGER’S OUTLOOK by Chris Kuehl
40 SHOULD A SME BECOME AN EXPORTER?
by Jim Flaherty
42 DECISION POINTS
by Andrea Olson
44 THE ISM REPORT The Manufacturing ROB
PUBLISHERS STATEMENT
PUBLISHER’S STATEMENT Publisher LEWIS A WEISS Editor in Chief TIM GRADY Creative Director CRAIG ROVERE Contributing Writers ROYCE LOWE TIM GRADY NORBERT ORE ANDREA OLSON CHRIS KUEHL JIM FLAHERTY Production Manager LINDA HOPLER Current Circulation 45,200 Advertising ADVERTISE@MFGTALKRADIO.COM Editorial Office MANUFACTURING BROADCASTING CORPORATION 75 LANE ROAD FAIRFIELD, NJ 07004 (973) 808-8300
Open call for Contributing Writers for new and existing content. Let’s start a conversation – Contact us at editorialdept@mmoezine.com or visit mfgtalkradio.com/writer for more information. © 2018 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.
Let me start with this: we would like to thank the management and staff of Modern Metals magazine for allowing us to reprint their 2019 End-User Outlook as a special section in Metals & Manufacturing Outlook. We greatly respect their efforts and quality of work, and appreciate being able to extend the reach and impact of their content within our publication. We know you will find this special section of great interest and usefulness as you read through it. There are some fascinating trends happening in manufacturing that you can learn more about in this issue of Metals & Manufacturing Outlook. The first is a general consensus that the economies in Europe and Asia are wavering, slipping from strength to weakness but still expanding. Be sure to study the Scattergram in our Global Outlook section and the write-up about it by Norbert Ore. Manufacturing does not like uncertainty and we are beginning to see some of the effects show up in numbers, like the Institute for Supply Management’s Manufacturing Report on Business® where New Orders, Production and Employment lost some momentum even in the face of a jobs report for October of 250,000 people added to the employment rolls. It is quite likely that the MidTerm elections were causing manufacturers to pull back a bit as their customers also hold on to purchase orders until they see which way politics may play out for the next two years. Now that those are behind us, we have a split Congress that could become lost in investigations and accusations, losing sight of making steady progress on legislation so that manufacturing understands the path ahead. Right now, manufacturing in the U.S. is the strongest globally, and if that wavers because of tax law changes or a resurgence in regulations that chill manufacturing or consumer confidence, then all the rosy talk of 2019 will become a faded flower, followed by a debate of how long the coming recession will last. The Fed wants the current 2.25% rate to be north of 3%, but interest rate hikes in December may start to tip the balance and begin a slippery slope downward ride in 2019. Keep an eye on the New Orders and Employment numbers in the coming months shown in the ISM’s Manufacturing Report on Business® included in the back of each issue of Metals & Manufacturing Outlook. While the ISM number is still well into the 50’s, this economic expansion is also testing the limits of continuous improvement, sitting at 114 months long (June 2009 – October 2018) with the longest previous positive cycle from March of 1991 to March of 2001 for 120 months. While we try to avoid politics within these pages, the one thing that could chop off this economic cycle is Washington D.C. eating itself alive instead of doing the people’s business – which now seems unavoidable. The 1st quarter of each year in 2014, 2016 and 2017 have proven to be soft, generally with GDP in the low 2’s or high 1’s. So, while the ISM number has been well above 50 for over 30 months, it could be tripped up fairly easily. When manufacturing falls, it usually happens quickly, dragging the non-manufacturing sector down with it. And depending on how tied in other economies are to the U.S., it could drag down other countries GDP, which is how the Great Recession began. That is not to say that we are headed for a terrible drop like 2007-2008, but the bloom may be coming off this rose. Stay on top of the situation with each issue of Metals & Manufacturing Outlook as you read your way through our November ezine. Lewis A Weiss, Publisher Contact laweiss@gmail.com for comments, suggestions and ideas. Metals & Manufacturing Outlook / November 2018
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MANUFACTURING OUTLOOK
NOVEMBER 2018
MANUFACTURING OUTLOOK THE GLOBAL PMI CONTINUES ITS DOWNWARD TREND, AND ITALY FALLS INTO CONTRACTION. EUROPE AND THE UK ARE HEADING DOW, WHILE CHINA IS BALANCING ON THE BRINK. THE U.S., PARTICULARLY, AND JAPAN ARE THE TWO GLOBAL BRIGHT SPOTS.
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Metals & Manufacturing Outlook / November 2018
MANUFACTURING OUTLOOK by ROYCE LOWE The ISM PMI figure for U.S. manufacturing eased back to 57.7 percent in October from September’s 59.8 percent, representing the 26th consecutive month of growth in manufacturing. The overall economy grew for the 114th consecutive month. IHS Markit’s remarks on the U.S. put the PMI at 55.7 percent in October, very slightly up from September’s 55.6. IHS Markit reports new order growth up to a five-month high, exports up slightly and the rate of job creation up to a 10-month high, due to increased production requirements and efforts to clear backlogs. The rate of input price inflation quickened at a marked pace, largely due to tariffs, with output inflation well below input. The BLS jobs report for October shows the addition of 250,000 non-farm payroll jobs – against Wall St. analysts’ prediction of 195,000 jobs. The unemployment rate stayed at 3.7 percent. This was the 97th consecutive month of job growth in the U.S. There were gains in Leisure and Hospitality, 42,000; Healthcare, 36,000; Professional and Business services, 35,000 and Manufacturing, 32,000, 10,000 of which were in the durable goods sector. Construction gained 30,000 jobs and Transportation and Warehousing 25,000 jobs.
This data above is not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The consumer price increases represent y-o-y changes. The unemployment figures, %, are for the month as noted.
The Bureau of Economic Analysis recently released its ‘advance’ estimate for the annual rate of Real GDP growth in the third quarter of 2018, putting it at 3.5 percent. The figure for the second quarter of 2018 was 4.2 percent.
September 2018 was reported at 5.301 million tons, with production in China at 3.010 million tons, representing 57 percent of world total. Production was 437,000 tons in GCC; 364,000 tons in the rest of Asia; 312,000 tons in Western Europe; 310,000 tons in North America, and 332,000 tons in Eastern and Central Europe.
STEEL PRODUCTION IS STILL INCREASING. World crude steel production for the 64 reporting countries for the month of September, which represent 99 percent of world crude steel production, continues to rise and was 151,711MT, up 4.4 percent y-o-y. U.S. crude steel production for September 2018 was 7.251MT, up 9.0 percent y-o-y.
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.
Primary Global Aluminum Production in Metals & Manufacturing Outlook / November 2018
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NORTH AMERICAN OUTLOOK
NOVEMBER 2018
NORTH AMERICAN OUTLOOK by ROYCE LOWE
THE COMPLETE ISM REPORT ON BUSINESS MAY BE FOUND AT THE END OF THIS eZINE.
The Institute of Supply Management PMI figure eased back from 59.8 in September to 57.7 in October. Of the 18 manufacturing industries, 13 reported growth in October, in the following order: Textile Mills; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Furniture & Related Products; Miscellaneous Manufacturing; Machinery; Transportation Equipment; Printing & Related Products; Chemical Products and Paper Products. The four industries reporting contraction in October are Wood Products; Primary Metals; Nonmetallic Mineral Products and Fabricated Metal Products. Comments from the manufacturing sector are mostly very positive, but there are concerns regarding tariffs, supplier lead times and transportation costs. In some cases, there is a hint that demand is slowing somewhat.
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Metals & Manufacturing Outlook / November 2018
CANADA’s manufacturing sector showed its weakest improvement in new orders and production for almost two years in October. Strong job creation continued, however, and there was a sharp increase in input costs. There was a sustained upturn in overall business conditions in October, but the rate of improvement slowed for the fourth consecutive month. The PMI in October, at 53.9, was down from September’s 56.8. Job creation was maintained in October as manufacturers developed long-term business expansion plans and made associated efforts to boost operating capacity. Intense supply-chain pressures continued in October. Transportation shortages across North America and associated increased costs, coupled with tariffs, resulted in higher input prices. Alberta and B.C. showed the strongest manufacturing growth, whereas Ontario showed a slight increase, Quebec a slight decrease. Canada produced 1.120 MT of crude steel in September, down 2.0 percent y-o-y. Canadian light
NORTH AMERICAN OUTLOOK vehicle sales continued to fall in October, at a y-o-y rate of 1.9 percent. This was the eighth straight month of decline, though not nearly as drastic as September’s 7.4 percent drop. Sales were down to 161,125 cars and light trucks. Car sales were down 6.9 percent, light trucks virtually unchanged. MEXICO’s manufacturing sector showed a weaker expansion in October, as the PMI figure eased from September’s 51.7 to 50.7 in October. Mexico produced 1.600 MT of crude steel in September, up 0.5 percent y-o-y. The USMCA deal is still incomplete with the status of the Section 232 steel and aluminum tariffs unresolved, and President Trump recently commenting that the final deal does not have to include Canada. Whatever the agreement currently holds is still up for negotiation, yet the pundits and critics are out in force before the ink is dry, making claims about the agreement’s impact, most of which often proves to be wrong in retrospect. Criticizing the U.S. president has become the national pastime rather than discussing the merits of anything the present administration does in intelligent depth. It is clear that NAFTA was outdated, needed to be renegotiated, and should have been 5 or 10 or 15 years ago. Until the new deal is done, all the commentary is curious, but mostly likely off-base.
ISO9100:2015 and AS9100D
Metals & Manufacturing Outlook / November 2018
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METALS OUTLOOK
NOVEMBER 2018
METALS OUTLOOK THE COST, MAKING, TREATING AND APPLICATIONS OF METALS by ROYCE LOWE
Companies that buy steel employ 46 times more workers across the U.S. than those that produce steel.
The World Steel Association (worldsteel) recently published its Short Range Outlook (SRO) for steel demand for finished steel for the years 2018 and 2019, projecting that global steel demand will reach 1,657.9 MT in 2018, up 3.9 percent on 2017, and by 1.4 percent in 2019, to reach 1,681.2 MT. • Chinese steel demand may decelerate towards the end of 2018 into 2019 due to ‘economic rebalancing’ and tougher environmental regulations. The Chinese economy is softening, and prices for stainless and nickel are following suit. • Steel demand in the U.S. grew strongly in 2018 due to strong consumer spending and fiscal stimulus, but growth in construction moderated. Auto manufacturing and construction activity are expected to see modest growth in 2019, and manufacturing is expected to perform well. • Steel demand in the EU is expected to slow in 2019, due in part to global trade tensions. • Japan is performing well and will profit from record-high corporate earnings in the run up to the Tokyo Olympics.
•T he EU-28 demand for 2018 is forecast at 166.6MT, up 2.2 percent y-o-y; its 2019 at 169.4 MT, up 1.7 percent y-o-y.
• India is looking to greater steel demand, supported by improving investment and infrastructure programs, whereas steel demand in developing Asia, excluding China, is expected to increase by 5.9 and 6.8 percent in 2018 and 2018 respectively.
•A sia’s (and Oceania’s) demand for 2018 is forecast at 1,117.8 MT, up 5 percent y-o-y; its 2019 at 1,131.9 MT, up 1.3 percent y-o-y.
• North America’s 2018 demand is forecast at 143.2 MT, up 1.7 percent y-o-y; its 2019 at 144.7 MT, up 1.0 percent y-o-y.
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Metals & Manufacturing Outlook / November 2018
Latest U.S. hot-rolled and cold-rolled coil prices show around $830 per ton for hot-rolled, around $923 per ton for cold-rolled, an easing from early October. Mills seem on the verge of sticking to these prices, even raising them slightly. End users are holding back from ordering too quickly.
METALS OUTLOOK
On the metal forging side, a 60,000 ton press, designed by the SMS Group for Weber Metals in California, was recently inaugurated. This was the culmination of a four-year, $180 million project. The press is ten storeys high, and only a third of this is visible above ground. It will be used to produce oversized parts in aluminum and titanium alloys for commercial and defense aviation and aerospace manufacturing, plus other industrial markets. The first part produced on the press was a main landing gear beam for a Boeing 737 MAX aircraft.
Non-ferrous metal prices are on a downward trend, with aluminum at 0.88 USD/lb early November, from 0.98 USD/lb early October; copper at 2.85 USD/lb early November, from 2.85 early October via 2.75 USD/lb late October; nickel 5.65 USD/lb early October to 5.40 USD/lb early November, via 5.20 USD/lb late October; and zinc 1.21 USD/lb early October to 1.18 early November, having peaked at 1.45 USD/lb early June 2018. ArcelorMittal has finalized a deal to acquire Ilva, Italy’s largest steelmaker, and will call it ArcelorMittal Italia. The mill will have a crude steel capacity of 8 million tons. Metals & Manufacturing Outlook / November 2018
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AEROSPACE OUTLOOK
Troubled Skies: The Airbus A330 and it’s Rolls Royce Trent 7000 engine
NOVEMBER 2018
AEROSPACE OUTLOOK by ROYCE LOWE
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Metals & Manufacturing Outlook / November 2018
AEROSPACE OUTLOOK Rolls-Royce Holdings Plc, producer of engines for both Boeing Co. and Airbus SE, is undergoing production problems with two of its engines that are critical to the performance and year-end sales results of the world’s two major aircraft manufacturers. On the one hand, there are problems with the Trent 7000 engine, designed to power Airbus’s new A330 neo jet, just as the European planemaker rushes to meet this year’s delivery targets. Only 10 Trent engines will have been delivered by late October, due to technical and operational problems, falling far short of the 30 engines promised to Airbus so it can supply 15 of the wide-body planes to airlines by year-end. Rolls-Royce detailed its problems in a letter to its employees. Rolls-Royce is already struggling with design faults on the engine’s sister model, the Trent 1000, which powers Boeing Co’s 787 Dreamliner. The A330 neo is supposed to make its debut in the coming weeks, about a year behind its initial schedule.
Rolls-Royce knows it is in trouble, and is working with its customers in efforts to manage the situation. Along with this, Airbus is being bailed out by a Bombardier jet acquired this year, to meet its 2018 delivery target of 800 planes. Eighteen Bombardier A220s, previously called the C series, will make up 2018’s total. Boeing meanwhile has its own problems. The company contracted to build the largest rocket in NASA’s history, which is estimated to cost $8.9 billion, twice the initial budget. Construction is also two years behind budget, a gap that might get wider, according to NASA’s inspector general. This all means that NASA is likely to miss the launch window of December 2019 to June 2020 for the planned exploration mission-1, the first flight of the Space launch System and Orion Spacecraft. This was far from the best month for the world’s aerospace industry, not forgetting the recent crash of a Boeing 737 in Indonesia.
Metals & Manufacturing Outlook / November 2018
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AUTOMOTIVE OUTLOOK
NOVEMBER 2018
AUTOMOTIVE OUTLOOK by ROYCE LOWE
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Metals & Manufacturing Outlook / November 2018
AUTOMOTIVE OUTLOOK sales, with 86,226 deliveries since 2012. Ford Fusion, Ford C-Max and BMW X% make up the balance of the PHEV models.
We can’t travel far these days without seeing some evidence of the presence of plug-in electric vehicles, be they battery electric vehicles (BEVs) or plug-in hybrid electric vehicles (PHEVs). It seems they’re here to stay, to grow in numbers, in spite of the present U.S. administrations’s attempts to slow the conversion from gas to electric. They’ve only really been around for a decade. Sales to the end of September this year were at 956,348 plugins, and if all goes the way it’s looking it probably will, the month of November will see the sale of the millionth plug-in electric vehicle in the U.S. Not fantastic by any means, but it may be taken as a start on the way to cleaning up the atmosphere. BEVs make up more than half the 2008 to 2018 figure, with almost half the BEV total being Tesla,
BEV sales in the U.S. are up 55 percent in 2018, with Tesla accounting for almost 70 percent of the 114,000 sold. Tesla uses a strategic mix of mild steel through AHSS (advanced high-strength steels) for its body and frame parts, according to the load-bearing and impact resistance required. Where possible, aluminum is used, obviously for its light weight. It is considered that the second million EVs will be sold much quicker than the first. One cannot talk about EVs without talking about Tesla, nor can one talk about EVs without talking about Norway, where of the 10,620 cars registered in the country in September, some 45 percent were all electric and the number goes to 60 percent when plug-in hybrids are included. The country just measured its lowest ever level of carbon dioxide emissions. Norway is a small country with about 5.5 million people. It is also quite a rich country. So one might think it’s easy for them to do this. But they are setting an example, and are aiming for all new cars to be all electric by 2025. Norway has set the bar high and it’s up to the rest of the world to at least aim to reach it.
Manufacturing Laughs whose Model S large sedan, Model X CUV and the new midsize Model 3 sedan have all done well for the company. The Model S, launched in 2012, is the best-selling BEV, with 133,322 sold, followed closely by Nissan’s LEAF with 125,513 sold and Tesla’s Model 3 with 50,130 sold. The Model 3 is scheduled to become the biggest selling BEV in the not too distant future. The Chevy Volt is by far the leader in the plug-in hybrid category, selling 147,081 units since it first went on sale in the U.S. in late 2010. The plugin Toyota Prius hybrid is number 2 in total PHEV Metals & Manufacturing Outlook / November 2018
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ISSUES OUTLOOK
NOVEMBER 2018
ISSUES OUTLOOK by ROYCE LOWE
GM is calling for an electric car mandate and says a nationwide program could put 7 million long-range electric cars on the road and bring down carbon dioxide emissions by 375 million tons by 2030. The Trump administration wants to stop California’s requirement for automakers to see more electric cars in that state each year. GM, America’s biggest automaker, wants to spread the rule nationwide. The company’s planned proposal sees federal regulations embracing a nationwide electric-car sales program starting in 2021, patterned on California’s so-called zero emission vehicle sales mandate that requires manufacturers to sell more EVs each year. The plan clearly illustrates auto-industry opposition to the Trump administration’s proposal to cap federal fuel-economy requirements in 2020 and take away California’s power to set its own vehicle efficiency standards and its zero-emission vehicle mandate. Honda also took exception to aspects of the Trump proposal. Mark Reuss, GM’s executive vice president of global product development, is convinced the industry can do better. The EPA and the National Highway Traffic Safety Administration (NHTSA) made a recent recommendation to keep fuel economy requirements at 37 mpg from 2020 through 2026, instead of raising it to roughly 47 mpg by 2025 under rules by the Obama administration. The two agencies also want to revoke California’s authority to adopt vehicle efficiency rules of its own, including its electric car mandate. California and 18 other states plan to attack the EPA and NHTSA proposal as unlawful. Honda said that pursuing the administration’s preferred option would bring years of uncertainty for the auto industry while state and federal regulators battle in court. This issue is (obviously) far from settled, and one of the criticisms being thrown at GM is that it has so much already invested in EVs that any backward step might be a financial disaster for it and other auto manufacturers, Honda included.
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Metals & Manufacturing Outlook / November 2018
ENERGY OUTLOOK
NOVEMBER 2018
ENERGY OUTLOOK by ROYCE LOWE
Panasonic produces cells which Tesla uses to make battery packs for its EVs. The combined capacity of the (11+2) will be 35 gigawatt hours. When Tesla really went to town on Model 3 production, Panasonic dispatched over 300 people to Nevada to make sure it can keep up. Tsuga says that
Tesla’s massive Gigafactory in Nevada
Panasonic Corp. has 11 production lines at the Gigafactory in Nevada it operates with Tesla, with two more to be installed by year-end. The company is on the verge of making a profit at the giant U.S. factory, finally yielding returns for a Japanese company shelling out billions to make power cells for Tesla. Panasonic does make money on the batteries it produces in Japan for the Tesla Models S and X, and is now increasing output at the two-yearold Gigafactory in Nevada, which is dedicated to batteries for the Model 3, but still losing money. Kazuhiro Tsuga, President of Panasonic, said Panasonic’s investment in the Gigafactory will be $1.8 billion once the expansion is finished. His bet on Tesla caused some concern for investors, in light of the delayed Model 3 production and Musk’s recent strange behaviour, but Tesla’s recent profit announcement gave way to some optimism.
Panasonic can finally make as many batteries as Tesla makes cars, and that this is a great relief in view of the hell that both companies went through in September. Quite an admission for an inscrutable Oriental. So what is all this energy that Panasonic and Tesla are producing between them? Gigawatt hours, (GWh), a unit of energy representing one billion watt hours, equivalent to one million kilowatt hours: one gigawatt is enough energy for about 700,000 homes. The average cost of electricity in the U.S. is 12c/kWh, so the average person driving the average EV 15,000 miles per year pays about $540 per year to charge it. The average electricity consumption for a U.S. residential customer in 2016 was 10,766 kWh, an average of 897 kWh per month. At 12 cents per kilowatt hour, the average monthly cost of electricity would be $105.48. Look at your own monthly electric bill kWh’s, multiply it by .12 and see what your bill would be. Metals & Manufacturing Outlook / November 2018
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GLOBAL OUTLOOK
NOVEMBER 2018
GLOBAL OUTLOOK
by ROYCE LOWE 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) – dropped to its lowest level, 52.1, in almost two years in October, from 52.2 in September - as growth rates faltered in production and new orders. The PMI reading for consumer goods was at a four-month high, but intermediate and investment goods showed their lowest PMI in around two years. Good results from the U.S. and Japan overcame those for the Euro area and the UK. Global manufacturing production rose at the slowest pace in 28 months in October, and global employment rose at the quickest pace in six
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Metals & Manufacturing Outlook / November 2018
months, due to job creation in the U.S., the Euro area and Japan. There were employment cuts in China.
Manufacturing Laughs
GLOBAL PMI OUTLOOK
GLOBAL OUTLOOK
GLOBAL PMI OUTLOOK by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL SURVEYS, STRATEGAS RESEARCH PARTNERS In building construction, “topping out” is traditionally held when the last beam is placed atop a structure during its construction. It signals a milestone, not completion. Many of the indexes we follow, particularly in manufacturing, are “topping out” as they are signaling more moderate growth ahead. Overall, the 18 surveys that we closely follow indicated marginal growth in October. While the major economies’ PMIs are still expanding, a growing headwind for manufacturers is new export orders which decelerated in the EZ, the U.K., U.S., China, Taiwan, and South Korea. Further evidence of softening is found in the JP Morgan Chase Manufacturing PMI® (52.1, -0.1) which peaked at 54.5 in December 2017. In the near term, we see this “topping out” as instrumental in driving tariff disputes to a conclusion.
China: China’s Official Report, the CFLP PMI (50.2, -0.6), and the Caixin Manufacturing PMI (50.1, +0.1) showed little change in October with both surveys continuing near the mid-point readings that began in early 2016. India: India’s PMI (53.1, +1.0) accelerated, posting its 15th consecutive month of growth. Growth is consistent and it appears the expansion can continue comparatively. South Korea: Output and employment gains helped drive the PMI (51.0, -0.3) above the 50mark for a second month following six months of contraction. Cost pressures were noted as particularly troubling. Business confidence remains historically low. Taiwan: Taiwan’s CIER-SMIT PMI (51.8, -2.1) stayed in expansionary territory for the 32nd consecutive month, but four of the six sub-sectors declined in October. Most notably, the New Orders Index (51.2, -4.0) recorded its lowest reading since February 2017. North America: Canada’s PMI (53.9, -0.9) expanded for the 32nd consecutive month, but did fall below the YTD average (55.8). Mexico’s PMI (50.7, -1.0) expanded for the 12th consecutive month, but did stay below the YTD average (51.6).
Eurozone: The Eurozone PMI (52.0, -1.2) hit a 26-month low in October as the PMI weakened for the third consecutive month. The Netherlands, Ireland, Austria, Greece, and Germany (which collectively averaged 54.3) bolstered the PMI while Spain, France, and Italy (50.7) dulled it. Export declines in Austria, France, Germany, and Italy also dampened headline activity. United Kingdom: The UK/CIPS PMI (51.1, -2.5) fell to its lowest read since July 2016 (the month following the EU referendum). The PMI is averaging 53.8 YTD. BREXIT uncertainty is taking its toll.
Metals & Manufacturing Outlook / November 2018
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EUROZONE
GLOBAL OUTLOOK
EUROZONE
by ROYCE LOWE IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) eased further in October, from September’s 53.2 to 52.0 in October. Exports dropped for the first time in almost fiveand-a-half years, and trade concerns pushed confidence to its lowest level since late 2012. Intermediate goods showed the worst performance, with production, new orders and employment all down. Consumer goods registered solid increases in new orders and production. The slight fall in new orders was the first recorded since November 2014 and was clearly linked to the weakening global trade cycle, and highlighted by a decline in new export orders for the first time since mid-2013. Employment growth was sustained in October, but continued to slow to the lowest recorded since December 2016. Input price pressure intensified on the back of energy, fuel, food and metals price increases. • Crude steel production in Germany in September was at 3.775 MT, up 7.5 percent y-o-y; • Italy 2.176 MT, down 0.8 percent y-o-y; • France 1.341 MT, up 1.4 percent y-o-y • Spain 1.267 MT, up 5.1 percent y-o-y. • The UK produced 0.630 MT of crude steel in September, up 0.1percent y-o-y. • Russia’s crude steel production for September was at 5.910 MT, down 1.3 percent y-o-y; • Ukraine’s was 1.787 MT, down 7.6 percent y-o-y.
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Metals & Manufacturing Outlook / November 2018
Passenger car sales in Western Europe fell again in October, perhaps in part because the side effects of the Worldwide Harmonized Light Vehicle Test (WLTP), mandatory on September 1, have not completely disappeared. Western European car sales were down 7.3 percent in October, with total sales down 7.4 percent in Germany, 2.9 percent in the UK, 1.5 percent in France, 7.4 percent in Italy and 6.6 percent in Spain. IHS Markit’s PMI for the UK was down in October to 51.1 - a 27-month low - from September’s 53.6 figure. Production growth weakened and manufacturing new orders and employment declined for the first time since mid-2016, partly driven by global trade tensions and Brexit uncertainties. There was lower export demand and softer domestic demand growth, mainly centered on the consumer goods sector. Intermediate and investment sectors showed a very slight expansion.
ASIA OUTLOOK
GLOBAL OUTLOOK
ASIA OUTLOOK
by ROYCE LOWE CHINA saw little change in operating conditions in October, with total new business increasing only slightly and export sales dropping for the seventh consecutive month There was a further small drop in employment and a very slight increase in buying activity. The PMI for October was at 50.1, very slightly up from September’s 50.0. There is still general optimism that production will increase over the next twelve months. CHINA produced 80.845 MT of crude steel in September, up 7.5 percent y-o-y; Japan 8.418 MT, down 2.4 percent y-o-y; India 8.520 MT, up 2.1 percent y-o-y and South Korea 5.853 MT, down 3.4 percent y-o-y. Taiwan produced 1.925 MT in September, up 6.5 percent. Chinese total vehicle sales for September were down for a third consecutive month, 11.6 percent y-o-y, to 2.39 million. Total vehicle sales for the first nine months were up 1.5 percent at 20.49 million.
to the greatest extent for ten years. There were increased backlogs in spite of increased employment. INDIA’s operating conditions picked up in October, and the PMI rose to 53.1 from September’s 51.7, as production and employment were up on the back of a stronger increase in new orders – mostly domestic - the quickest in 4 months. Job creation was at a 10-month high. Business confidence in India is high for higher production over the course of the next year.
Manufacturing Laughs
October saw new orders, production and employment all showing stronger rates of growth increase in JAPAN, with new export sales back in growth territory following recent stagnation. The PMI saw a slight increase from September’s 52.5 to 52.9 in October. There was a more pronounced rate of input cost inflation and firms increased output prices
Metals & Manufacturing Outlook / November 2018
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SOUTH AMERICA
GLOBAL OUTLOOK
SOUTH AMERICA
by ROYCE LOWE BRAZIL saw itself in production expansion mode as new orders increased further, along with production, for the fourth consecutive month. Employment is back in growth territory. October’s PMI increased slightly to 51.1 from September’s 50.9. There is sustained business optimism, even as the economy struggles through subdued domestic consumption, heavy inflation and a recent change in government. Brazil’s crude steel production for the month of September was 3.032 MT, an increase y-o-y of 2.5 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) – dropped to its lowest level, 52.1, in almost two years in October, from 52.2 in September - as growth rates faltered in production and new orders. The PMI reading for consumer goods was at a four-month high, but intermediate and investment goods showed their lowest PMI in around two years. Good results from the U.S. and Japan overcame those for the euro area and the UK. Global manufacturing production rose at the slowest pace in 28 months in October, and global employment rose at the quickest pace in six months, due to job creation in the U.S., the euro area and Japan: there were employment cuts in China.
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Manufacturing Laughs
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THE FOLLOWING ARTICLES ARE PART OF OUR SPECIAL MODERN METALS “2019 END-USER OUTLOOK” AND WERE ORIGINALLY PUBLISHED BY OUR FRIENDS AT MODERN METALS MAGAZINE
MODERNMETALS.COM Metals & Manufacturing Outlook / November 2018
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2019 END-USER OUTLOOK
originally published in Modern Metals Throughout the supply chains for airplanes and automobiles, bulldozers and combines, cell phone towers and boom cranes, raw material inflation is an issue in 2018. That is likely to continue well into 2019 because there is a time lag between when a metals producer announces a price increase and when a farm machinery dealer in Nebraska can realize a higher retail selling price. Have the increases, much of it as a result of and reaction to tariffs imposed on steel and aluminum products, dampened demand for these materials? Our sources have indicated that the answer, broadly, is no. Companies are much more flexible in reacting to market fluctuations than in the past; instantaneous information sharing helps. They adjust as needed.
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As readers will find out over the next few pages, there is little in the way of pessimism among North American manufacturing sectors. Trends such as reshoring production capacity, capital investment, automation, smart technologies and scaling up new product launches are creating space for economic growth. These factors favor generous spending on tools, machinery and metals. GM will build more pickup trucks during 2019, and its truck plants are operating two shifts at more than 100 percent of capacity as it launches new platforms. Hyundai Motor Co. says it continues to increase the proportion of advanced high-strength steels used in the chassis of new platforms, and it plans to apply more lightweight materials, including aluminum.
SPECIAL MODERN METALS MAGAZINE SECTION Nissan North America is putting $170 million into two Southern assembly plants to support production of the 2019 Altima.
are reaching into 2019. The company forecast construction equipment sales in North America would rise by at least 10 percent.
Military might Defense contractors have been launching facilities investments and capacity ramp-ups in an effort to modernize the armed forces. Ryan McCarthy, undersecretary for the U.S. Army, said during a September trade conference, “We’ve put our money where our mouth is to finance our modernization efforts.” Zacks Equity Research points to geopolitical tensions as a key contributor to demand growth for U.S. defense contractors. Rep. Mac Thornberry, R-Texas, said the fiscal 2019 defense authorization “takes actions directly related to the aggressive behavior of Russia and China.” In August, President Donald Trump signed the 2019 defense bill. The House authorized $717 billion in total spending.
Manitowoc Co. Inc. noted that its customers see more project work in the pipeline, particularly in commercial construction and energy. Farm machinery maker Agco Corp. plans a 6 percent increase in output through year end. Rig count in the U.S. was up 7 percent in the U.S. and 22 percent in Canada in September, compared with a year earlier, but an independent analysis finds that energy consumption has not kept pace with healthy GDP growth.
Infrastructure One industry trade group forecasts that fifthgeneration wireless technology (5G) will drive $275 million in new investments and help create $500 billion in added growth in the United States. Another trade association reports, “The market is already shifting in the direction of higher investment in equipment, as evidenced by wireless carriers investing in more towers and higher-end antennas.” All the national wireless operators are making significant investments simultaneously, American Tower Corp.’s chairman says. “This activity is being driven by the seemingly insatiable demand ... for mobile data and with the wide array of potential nextgeneration applications as part of the upcoming deployment of 5G.” Commercial construction spending grew 3.5 percent through the first seven months of 2018, versus the same 2017 period, Census data show. Analysts at the American Iron and Steel Institute expect steel demand from the sector to continue rising during 2019. According to the American Institute of Architects, spending on commercial buildings will rise 6.7 percent in 2018. Yet prices for goods and services used in construction climbed 6.2 percent over the past year, reports the Associated General Contractors of America.
Nonetheless, demand for oil and gas continues to rise, including demand for downstream refining and processing capacity. HarbisonWalker International finds that demand for refractories in the refining industry is growing. “Refineries in North America are producing at record levels, exceeding their nameplate capacity in many cases,” says one expert. “Based on the shortterm outlook for crude prices, we can expect that refineries will continue to do well.” Flying high Boeing and Airbus landed record sales commitments at the 2018 Farnborough International Airshow this summer. Boeing tallied 528 new orders valued at $98.4 billion. Airbus won 431 new orders. Airbus has set a goal to deliver 60 A320 jets per month by mid-2019. According to one analyst, tariffs on imported steel and aluminum will “barely budge the price of a Boeing Co. jetliner or fighter plane. Aluminum makes up 80 percent of the weight of older-model planes such as the 737 and 777 but only about 12 percent of the cost.”
Moving machinery Shipments and new orders for off-road equipment have grown in the high single digits this year, while heavy truck sales have also been very strong. By the end of July, Volvo AB basically sold everything from its heavy truck production schedule, and new orders for certain models Metals & Manufacturing Outlook / November 2018
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AEROSPACE
by LYNN STANLEY Ideal weather conditions produced a bumper corn crop in Ohio this harvest. But the Buckeye State’s farmers aren’t the only ones experiencing high yields. Boeing and Airbus landed record sales commitments at the 2018 Farnborough International Airshow this summer. Titanium— sourced for the hot sections of aircraft engines—is also looking at a bullish market. Boeing tallied 528 orders valued at $98.4 billion. Airbus won 431 new orders. Boeing raised its 20-year global outlook for passenger aircraft to almost 43,000 new airplanes, valued at $6.3 trillion through 2038. More than 50 freighter orders taken at Farnborough illustrated the strength of the cargo market as well. Following Farnborough, Airbus increased its total for the year to 752 aircraft. The orders comprise:
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120 A220s; 481 A320 Family; 56 A330 Family, 75 A350 Family and 20 A380s. In a second-quarter earnings call, Boeing Executive Dennis A. Muilenburg told shareholders, “Commercial airplanes generated revenue of $14.5 billion, reflecting 194 deliveries, with operating margins of 11.4 percent. Continued healthy sales activity contributed to 239 net new airplane orders worth $16 billion during the quarter, including 91 wide-body orders, adding to our robust backlog that stands at nearly 5,900 airplanes and is worth $416 billion. Year-to-date, we have captured over 900 net new orders and commitments.” Airbus, meanwhile, has been plagued by Pratt & Whitney and General Electric’s struggle to keep up with engine delivery demands. The France-based company plans to deliver as many as 120 A350s in 2018 when production reaches 10 aircraft per month, and has set a goal to deliver 60 A320 jets per month by mid-2019. Airbus is considering
SPECIAL MODERN METALS MAGAZINE SECTION a ramp-up in production of its A350s to 13 per month in 2018 as well. Increased production for the A350 XWB combined with a higher A320 production rate could help Airbus gain on Boeing’s deliveries lead and surpass its rival by 2019 or 2020 according to Forecast International Inc., a market research firm. Import duties The ways in which tariffs will affect the aerospace industry depend upon who you ask. According to one analyst, tariffs on imported steel and aluminum will “barely budge the price of a Boeing Co. jetliner or fighter plane. Aluminum makes up 80 percent of the weight of older-model planes such as the 737 and 777 but only about 12 percent of the cost.” Kevin Michaels, an aerospace manufacturing expert at consulting firm AeroDynamic Advisory, estimates, “A 25 percent tariff on relatively pricey steel would cost U.S. aerospace companies less than $100 million, roughly on par with the overall impact on aluminum. That means the two tariffs would add $150 million to $200 million in cost, or at most about 0.2 percent of $100 billion worth of business jets, jetliners and military aircraft U.S. companies make each year.” On the demand side of the equation, Chris Olin, senior research analyst and vice president of Longbow Research in Cleveland, predicts a bullish market for titanium. The firm forecasts Western titanium market demand at about 245 million pounds in 2018, up 6 to 7 percent over 2017. “We do not see a peak in the global industrial
titanium sector before 2021-2022, assuming the OEMs hit the long-term delivery targets and the macro environment stays relatively healthy,” Olin said. Industry volume growth is back to its strongest levels since 2011. Olin told visitors at the Titanium 2017 conference that the most consistent feedback his firm was receiving was that “the forgers are busy. Inventories are better balanced.” Olin acknowledged that global trade discussions and talk about tariffs could slow demand. Separately, rising airfares may impede passenger traffic growth, at least in the short term. Steel remains the material of choice for components and structures like landing gear where highstrength properties and part life are crucial. Aluminum is reserved for the fuselage, wings and supporting structures. Udo Burggraf, business development manageraerospace at Concept Laser GmbH, a unit of General Electric, expects additive manufacturing will have a disruptive effect on the aerospace market. According to Burggraf, GE’s use of additive on its LEAP, Advanced CT7 and Advanced Turboprop engines has generated $5 billion in internal cost savings with more efficient systems and the ability to produce bigger parts from better materials. The producers of aluminum, steel, superalloys and other materials that don’t readily convert to AM technology are certainly taking note of the trend with their own research and development efforts.
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AUTO
by CORINNA PETRY General Motors Co. told shareholders that it will build more pickup trucks during 2019, and that its truck plants are operating two shifts at more than 100 percent of capacity as it launches new platforms. GM has pulled together outside investors to launch its all-electric future. Together with Honda Motor Corp., GM is developing next-generation battery technology for their respective EV models. As part of the deal, GM will supply battery cells and modules to Honda, creating scale and manufacturing efficiencies, said Chairman and CEO Mary Barra on July 25. The Detroit-based carmaker did experience raw material price pressures during the first half, which it attributed to tariffs on foreign steel and aluminum. “Our biggest unmitigated exposure is really steel and aluminum, when you look at all of the commodities. And frankly, the biggest driver of that is steel,” CFO Charles K. Stevens said. The company has tried to offset about $1 billion of additional costs with savings elsewhere, and asked suppliers to eat some of the tariff pie. The company also raised retail prices on its products. Richard Palmer, CFO at Fiat Chrysler
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Automobiles NV, admitted to cost pressures during the second quarter. “We have fixedpriced contracts for most of our steel buy through 2018.” However, “as the discussions around tariffs, duties get clarified, we have built into our plan for 2019 a reasonable level of commodity price increase; we will see an increase in 2019, especially for steel.” The duties themselves aren’t the key issue, he says, but “how those duties affect price. We buy most of our steel in the local jurisdictions where we produce.” Even in NAFTA, where Chrysler buys steel in the U.S., exports it to Mexico or Canada, then imports an assembled vehicle, the company has “the opportunity to use duty drawback to eliminate the impact. So [we are] not overly concerned today, but we need to keep an eye on commodity prices as we move into 2019.” Electric vehicles Both GM and Ford Motor Co., Dearborn, Michigan, were asked about fuel economy standards, because the Trump administration announced a rollback of Obama-era targets to reduce CO2 emissions. “What we ultimately would like is one national [environmental] program,” said Barra, and not for the company to have to meet individual
SPECIAL MODERN METALS MAGAZINE SECTION state mandates. “We are going to remain committed to improving fuel economy, reducing emissions and working toward an all-electric future, but it is in everybody’s best interest to have one national set of requirements that comprehends the new technologies that we’re putting in place. One national standard is very important.” Ford CEO James P. Hackett said his company will “stand by our global commitment to the Paris Accord II degree stabilization glide path. We’re on track to add hybrid electrics to our high-volume profitable vehicles like the F-150. Our battery electric vehicle rollout starts in 2020 with a performance utility and we’ll have 16 BEVs in our portfolio by 2022.” Hyundai Motor Co., in an Aug. 3 presentation to investors, says it continues to increase the proportion of advanced high- strength steels used in the chassis of new platforms, the goal being to reduce curb weight and meet fuel standards. To date, the range of AHSS as a percentage of total content has grown from 33 to 52 percent in 2014 to 48 to 62 percent this year. The company plans to apply more lightweight materials, including aluminum.
Hyundai will also increase its “green car” lineup to 31 models by 2020 and 38 models by 2025. Nissan North America plans to invest $170 million in its Smyrna, Tennessee, and Canton, Mississippi, assembly plants to support production of the 2019 Altima. UHY LLP, a CPA and advisory firm, reports in its latest quarterly forecast that investments are pouring into North American automotive assets, and that total production capacity will have increased by 13 percent between 2017 and 2025. The firm tracks 22 redesigns and 16 new entries for model launches next year, following the development of 16 and eight models, respectively, during 2018. 2020 will see 26 redesigns and 18 new entries for North American assembly lines. However, a good portion of the incremental production output will likely be for export markets, because with a projected slowdown in U.S. demand for new passenger vehicles, “we anticipate capacity utilization to drop to 80 percent in 2019 and remain around that level through 2025,” UHY forecast.
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HEAVY EQUIPMENT
by CORINNA PETRY Retail sales of farm tractors in the U.S. and Canada through the first eight months of 2018 jumped 7.9 percent to nearly 181,100 units, while self-propelling combine sales growth was in the double digits: 13.9 percent year over year. Through July, America’s year-to-date new orders for mining, oilfield and gas field machinery rose 4.4 percent to almost $10.2 billion, the U.S. Census Bureau indicated in its Durable Goods report. “Our order rates and the backlog remain strong. For certain applications, particularly in oil and gas and mining, we are taking orders for delivery well into 2019,” Caterpillar Inc. CEO Jim Umpleby told investors July 30. In North America and China, construction equipment demand is strong, CFO Joe Creed added. At Volvo AB, Gothenberg, Sweden, President
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and CEO Martin Lundstedt reported that the construction machinery market shows solid development across several regions. For Volvo heavy trucks in North America, order intake rose 64 percent during the first half and deliveries grew 32 percent. “We are more or less sold out for 2018 and the buildup is reaching into our 2019 order book for certain applications,” Lundstedt said. Volvo’s North American construction equipment sales are expected to rise by at least 10 percent. “The recovery of the crane market is gaining traction, driven by encouraging signs of growth in many of our key geographic markets,” says Barry L. Pennypacker, president and CEO of Manitowoc Co. Inc., Milwaukee, which builds heavy mobile cranes and stationary tower cranes. “Customers see more project work in the pipeline. We
SPECIAL MODERN METALS MAGAZINE SECTION
continue to see growth in the U.S., particularly in commercial construction and energy, and are beginning to see a healthy demand profile to serve the Gulf Coast region for upstream and downstream oil and gas.”
enhances global competitiveness and helps U.S. manufacturers grow U.S. jobs and exports. Based on the current situation, we’ve assumed incremental tariff-related costs of $100 million to $200 million for the rest of the year.”
Manitowoc is supporting “our supply chain partners to ensure timely delivery of our components, combined with alternative sourcing strategies. In some cases, we’ve even provided our own in-house labor to fabricate or weld the finished components to keep our production lines flowing,” Pennypacker said.
Cat’s CFO, Creed, noted that first-half material costs rose about 1 percent, “driven largely by higher steel costs, an increase we anticipated because of higher commodity prices.” Volvo’s Lundstedt acknowledged there are margin pressures related to tariffs, “but we have been working [to move] that downstream in the delivery chain.”
“Crawler cranes in the U.S. are picking up. There is an increase in utilization and an increase in our backlog as a result of that. Boom trucks in the U.S. are extremely good, continue to rise—a direct result of some of the things that are happening in the oil and gas business.” Farm machinery maker Agco Corp., Duluth, Georgia, plans to increase output by 6 percent through year end, according to Chairman, President and CEO Martin H. Richenhagen. “In North America, row-crop farmers are beginning to replace their equipment after years of weaker demand. Our projection for North American tractor sales is to be up modestly compared to 2017, with larger equipment driving the increase.” Offsetting costs Caterpillar’s Umpleby told investors that the company, alongside other heavy machinery manufacturers, has urged government officials “to take actions to remove uncertainty. Caterpillar has long advocated for free trade because it
Jan Gurander, Volvo deputy CEO and CFO, explained, “We managed to [negotiate] that a bit [via] commercial negotiations with our suppliers. A lot of hard work is being done internally to offset cost increases from raw material, tariffs and so on. But then we have to work with [selling] price realization [on finished products] as well. We cannot be squeezed between that.” At Agco, Richenhagen told shareholders that both tariffs and the farm aid package the Trump administration proposed to compensate for higher costs have been topics of intense discussion among equipment dealers. “Regarding tariffs, I think the farm aid program provides some offset to that as well as some recovery in the prices that we’ve seen,” he said. “But our customers certainly would rather see free trade than farm aid. And so it’s not a solution, but it does alleviate some of the near-term concerns they had.”
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DEFENSE
by LYNN STANLEY It’s not hard to interpret “military radio chatter” these days. Since January, contractors have been putting feet to their plans to invest in their facilities and ramp up manufacturing capacity. In September, U.S. Air Force Secretary Heather
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Wilson told attendees at the 2nd annual Defense News Conference, “We must build a more lethal, ready Air Force that can operate seamlessly across all domains with joint and allied partners.” At the same event, Ryan McCarthy, undersecretary for the U.S. Army, allowed that “it’s an exciting time
SPECIAL MODERN METALS MAGAZINE SECTION to be in the Army right now. Our readiness has improved with 25 brigades at the C1 and C2 levels,” or mission phase. “We had two at that posture two years ago. We’ve put our money where our mouth is to finance our modernization efforts.” On the supplier side, a look at some highlights supports the readiness theme. Lockheed Martin recently secured a second hypersonic weapons contract for $480 million. The defense contractor was also awarded $14 million to analyze the F-35 air system’s ability to meet future operational requirements, investigate cost and weight reduction measures and perform modeling and simulation activities. Lockheed, Raytheon Co., and Northrop Grumman together won a $4.1 billion ballistic missile defense contract. Operation build-up “Our U.S.-based programs continue to perform well with Abrams [tank] volumes up and nice growth in the ordnance and munitions portfolio,” General Dynamics Corp. Executive Phebe Novakovic said during the second-quarter earnings call. “The Army continues to exploit the versatility of the Stryker with a $260 million contract to upgrade the electronics, power and communications on the [armored] vehicle. This contract is part of the Army’s plan to similarly upgrade all of their nine Stryker Brigades.” General Dynamics also received a $440 million order to upgrade Abrams tanks to the Version 3.0 configuration, which is designed to provide improved power, survivability and lethality. Other notable contracts include The Boeing Co.’s $2.86 billion award this month for lot 4 production of KC-46 aircraft and Lockheed Martin’s $51 million award for a Joint Air-to-Surface Standoff Missile Extreme Range program. MarketsandMarkets’ research report estimates the aerospace and defense 3D printing market will grow at a compound annual growth rate of 23.2 percent over the next five years, reaching $4.76 billion by 2023. Market growth is attributed to reduced maintenance and production costs of additive manufactured (AM) components, as well as high reliability and performance levels. According to the research, aerospace and defense companies have already begun transitioning to AM techniques. Boeing announced a plan to develop cheaper satellites using 3D printing and contracted
Oxford Performance Materials to deliver 600 3D printed parts for the company’s Starliner space taxi project. Command decision Other airframe builders like Bombardier and Airbus have also invested in metal 3D printing for research and development projects as well as flight-ready aircraft parts. The consultancy firm Deloitte affirms the global aerospace and defense industry will gain strength in 2018 with revenues expected to increase 4.1 percent, compared with a 2.1 percent bump in 2017. Zacks Equity Research at Nasdaq.com points to geopolitical tensions as a key contributor to demand growth for U.S. defense contractors. Innovative technologies in warfare and a growing need for cost-efficient production are also driving revenue growth. In August, President Donald Trump signed the 2019 defense bill. The House passed the 2019 National Defense Authorization Act (NDAA) the same month, authorizing $717 billion in total spending, making is the largest budget allotted to defense in U.S. history, according to Zacks. The NDAA provides $616.9 million for the Pentagon’s base budget, $69 billion for overseas contingency operations and $21.9 billion for the Department of Energy’s nuclear weapons program. In addition to initiating the rebuilding process for the U.S. military, the law sets aside a 2.6 percent pay raise for troops, the largest increase in nearly a decade. Other authorized buys list Navy vessels—two Virginia-class submarines; three Arleigh Burkeclass guided-missile destroyers; three Littoral Combat Ships; two oilers; one expeditionary sea base; and one towing, salvage and rescue ship. The Navy is negotiating a contract with General Dynamics Electric Boat for the Block-V Virginiaclass submarine. The contract should include price options that would add two submarines to the Pentagon’s planned purchase of 10 subs. The bill also authorizes $3.2 billion for development and design work of the Columbia-class submarine. Rep. Mac Thornberry, R-Texas, said the defense authorization “takes actions directly related to the aggressive behavior of Russia and China.”
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ENERGY
by GRETCHEN SALOIS Overall American economic growth increased 2.3 percent growth in 2017 compared to 1.5 percent growth in 2016; second quarter 2018 GDP grew 4.2 percent. Energy consumption has not followed suit. “U.S. total energy consumption dipped 0.2 percent to 97.2 quadrillion BTU [last year]. Energy productivity, which is the amount of GDP produced by a unit of energy, climbed 2.5 percent in 2017 as economic growth continued its long-term trend of decoupling from energy use,” according to the Business Council for Sustainable Energy’s 2018 Factbook. “Since 2008, energy usage has shrunk 1.7 percent even as GDP has accelerated by 15.3 percent,” the report states. That sentiment was echoed in BP’s June 2018 Statistical Review of World Energy. CEO Bob Dudley noted that before 2017, “there had been three successive years of little or no growth in carbon emissions from energy consumption [due to faster]
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gains in energy efficiency muting growth in energy demand.” The smaller footprint was due in part by renewables growth and a decline in global coal consumption. This progress partially reversed last year after a 1.6 percent rise in carbon emissions, according to BP. Natural gas accounted for the largest increment in energy consumption followed by renewables and then oil. Of note, natural gas consumption ascended by 3 percent—the fastest since 2010. China alone accounted for 3 percent of overall energy consumption growth in 2017 at nearly three times the rate compared to past years (compared to 1 percent in 2016). Oil production went from 12,366 thousands of barrels in 2016 to 12,057 in 2017, a 5.6 percent growth rate. Demand grew by 1.7 million barrels per day (Mb/d), similar to 2016.
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Oil demand driven by importers show “some signs in the product mix that the boost from low oil prices may be beginning to wane,” the statistical review indicates. BP’s report also found that OPEC’s actions to reduce production continue to affect oil prices but “rapid response of U.S. tight oil reinforces the limits on OPEC’s power. If OPEC tries to resist more permanent or structural changes in the market, there is an increasing risk that these actions will quickly be canceled out by the responsiveness of U.S. tight oil.” Total fossil fuels production in May 2018 measured 6.19 quadrillion BTU compared to 5.62 quadrillion BTU in 2017, according to the U.S. Energy Information Administration (EIA). Downstream effects Demand for oil and gas continues to rise, including demand for downstream refining and processing capacity. HarbisonWalker International, which produces monolithic refractories, finds that demand for refractories in the refining industry is growing. Its South Point, Ohio, plant is one example of capital investment in new or expanded capacity. “Refineries in North America are producing at record levels, exceeding their nameplate capacity in many cases,” says Stephen Karns, application specialist II at HWI. “It is reasonable to acknowledge that current U.S. policies have
resulted in increased current and planned manufacturing activity across main of the industries we serve in North America. “Based on the short-term outlook for crude prices, we can expect that refineries will continue to do well,” Karns continues. “During these scenarios, customers tend to put off maintenance as long as they can to take advantage of market conditions. When the situation changes, however, we typically see a surge in refractory repairs and replacement needs.” Alternative energy Renewable resources and electricity continue to replace coal and nuclear with cheaper gas and renewable resources, “assuming there is no lasting federal policy intervention to prevent their retirement,” according to Bloomberg NEF’s “Annual Long-Term Economic Analysis of the World’s Power Sector Out to 2050.” Variables from trade cases to tax policies have created an overall uncertainty in the market for clean technologies, according to the Business Council for Sustainable Energy. Despite federal-level actions, the report also notes that corporations are “playing a stronger role in the energy transformation, increasingly demanding cleaner energy and seeking to capture gains from energy efficiency. In the U.S., corporate clean energy deal volumes for off-site power purchase agreements (PPA) rose to 2.9 gigawatts in 2017.
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TELECOM
by CORINNA PETRY There will be 31 billion connected devices by 2023, predicts the CTIA, a Washington, D.C.based organization that represents the wireless communications industry. CTIA research also forecasts that 5G (fifth-generation wireless technology) will drive $275 million in new investments, help to create $500 billion in new growth—and 3 million jobs—in the United States. The Telecommunications Industry Association, Arlington, Virginia, is calling for more cell phone towers to meet the demand for broader and denser spectrum as 5G rolls out. “The market is already shifting in the direction of higher investment in equipment, as evidenced by wireless carriers investing in more towers and higher-end antennas. And if they are not building them, they are leasing them as rapid expansion of new markets continue to drive more of the latter,” the trade group said in a statement. Qualcomm Inc., a San Diego-based semiconductor and telecommunications equipment manufacturer,
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is among the market leaders that indicate that developments such as autonomous vehicles and the Internet of Things, including industrial applications, will also lead to a rise in demand for wireless apparatus. CEO Steven M. Mollenkopf told Qualcomm shareholders that in key industries like automotive, “our pipeline of awarded design wins has expanded dramatically this year” as the industry gears up for 5G-enabled cars in 2021. “Our industrial IoT product revenues are also growing rapidly and we anticipate our addressable opportunity in the industrial IoT space to grow at a compound annual rate of 20 percent over the next few years.” Crown Castle International Corp., Houston, builds wireless infrastructure and has more than 40,000 towers and 60,000 route miles of dense highcapacity fiber in the top U.S. markets. CEO Jay Brown says momentum continues to build across both towers and fiber, and the company’s backlog of new business is growing. “On the tower side of the business, our customers
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are improving and intensifying their network by adding more equipment,” Brown recently told shareholders, adding, “We believe we’re in the very early innings of a huge opportunity with fiber, which has become critical for wireless and wired networks.” Long term, he predicts the wireless carriers will invest in small-cell fiber technology “in a meaningful way,” first in the top 25 to 30 metropolitan areas, and eventually to the top 100 most populous regions. Creating capacity will be paramount. “We’re putting up 10,000 to 15,000 small cells per year—about where our backlog would dictate.” American Tower Corp., Boston, which manages real estate assets where telecomm infrastructure is located, finds that U.S. mobile data usage continues to expand at 30 to 40 percent per year. “All the national wireless operators are making significant investments simultaneously,” Chairman, President and CEO James D. Taiclet Jr. says. “This activity is being driven by the seemingly insatiable demand of U.S. consumers for mobile data and with the wide array of potential next-generation applications as part of the upcoming deployment of 5G.” It’s a global trend. “Mobile service has become an absolute necessity for billions of people around the world. Smartphones are getting cheaper, carrier
networks are getting better, and there is significant pent-up consumer demand for mobile content.” Taiclet also cited demand for IoT applications. “We are partnering with future tenants that may emerge in the IoT space and other industries looking to take advantage of 5G mobile technology both in the U.S. and internationally.” Strong levels of U.S. organic growth are sustainable over a multiyear period, Taiclet predicts. “All four carriers [AT&T, Verizon, T-Mobile, Sprint] are active right now. We expect them to continue that for not just months or quarters, but years, especially given that our research is showing the average smartphone user in the United States is using 10 gigabytes a month, double what it was a couple years ago.” America is facing an economic and technological challenge to meet consumers’ increasing demand for mobile data while keeping up with the network’s capacity to deliver it, according to Jonathan Adelstein, president and CEO of the Wireless Infrastructure Association, Arlington, Virginia. “This explosive growth in data demand is both encouraging and sobering at the same time. This wireless data crunch underscores the need for policymakers and [our] industry to work together on policies that address the challenges of meeting the growing demand for mobile data by efficiently deploying wireless infrastructure.” Metals & Manufacturing Outlook / November 2018
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CREDIT MANAGERS’ OUTLOOK
CREDIT MANAGERS’ OUTLOOK by CHRIS KUEHL Granted, the job of the economist is to find the dark cloud behind every silver lining, but there have been some signals to suggest the good times may be starting to come to an end. “There has been a several-month-long deterioration of the housing sector with significant decline in everything from starts to permits. The tax cuts are now far enough in the past to have lost their influence as well,” said NACM Economist Chris Kuehl, Ph.D. “The industrial sector is still growing, but at a far slower pace. Now, it seems the Credit Managers’ Index (CMI) has joined the parade of party poopers with a decline that is not insignificant—both in the favorable and unfavorable categories.” The overall score fell from 56.4 to 54.5, as low as it has been since April. This is not an emergency situation to be sure as these numbers are still solidly in the mid-50s, but it isn’t the trend hoped for at this point in the year. The index of favorable factors remained comfortably in the 60s with a reading of 61.6, but that contrasts with the 65.2 notched in September. This is also the lowest point seen since April of this year. The index of unfavorable factors slipped below 50 and now sits in contraction territory (anything below 50) for the first time since April. At 49.7, it is not far off the expansion pace, but a dip like this is not welcomed. The details in both the favorable and unfavorable sectors are instructive. The sales reading fell hard—from 68.8 to 62.7. This reading has not been this low since December of last year (even April was
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only down to 65.8). The new credit applications reading stayed about where it had been the month before as it slipped from 61.9 to 61.7. The data for dollar collections dropped into the 50s (62.8 to 57.5) for the first time since April when it fell to 46.7. The amount of credit extended also fell quite a bit from 67.1 to 64.5, a low point that goes back to January of this year. The unfavorable factors dropped from 50.6 into contraction to 49.7. Kuehl noted this is concerning as it suggests there are some companies in trouble as they head for one of the more robust times of the year. The rejections of credit applications stayed very close to what it had been the month before—moving from 51.8 to 51.4. This coordinates well with the stability in the applications for new credit. The reading for accounts placed for collection slipped back into the contraction zone with a reading of 48.8 after getting as high as 50.2 last month. The latest reading is about where it has been for the last three months. The disputes reading actually improved a little from 47.6 to 48.9. The dollar amount beyond terms fell fairly dramatically from 49.9 to 47.7. This is one of the readings that need to be watched as it can be the first step toward bigger issues. The dollar amount of customer deductions improved a little from 48.6 to 49.5, while the filings for bankruptcies fell by quite a bit. That causes more concern as this factor has traditionally been more stable than this. It had been at 55.6 and now stands at 52.1, the lowest point since 2016. “Up to this point, the various challenges companies have faced have not been as serious as all this; now that may be changing,” Kuehl said. “This would mean many companies are
CREDIT MANAGERS’ OUTLOOK not very resilient and will need some good luck to survive any kind of a slowdown by the economy as a whole.” Kuehl sums up the situation as follows: “There has been a pattern as far as slowdowns are concerned. The first phase is that some of the motivation for a growing economy begins to erode. That appears to be what has been seen with the weaker favorable factors and trouble for the unfavorables as well. The next step is the unfavorable readings begin to falter, suggesting companies are starting to face a real crisis from which they may not be able to easily recover. The sense right now is that some of the artificial stimulation has been wearing off, causing some sectors to falter.” Manufacturing Sector At the start of the year, Kuehl said the best news was coming from the manufacturing sector for a variety of reasons. The tax cuts at the beginning of the year actually did more good for the smaller manufacturers than they did for the larger companies. This led to some aggressive spending for a while. Much of that spending has now tapered off. There was also some expectation of relief from some of the global competition U.S. makers have been facing, but that has proven to be ephemeral to this point. The consumer has started to get engaged as the holidays come closer; however, the manufacturer has been watching improvements in everything from durable goods to general factory goods. The decline as of late may not be a permanent thing, but some of the factors that pushed the economy earlier in the year have been fading. The overall manufacturing score slipped from 56.4 to 54.4—a number that has not been this low since the April slump. The favorable factors stayed in the 60s with a reading of 61.5 after hitting 64.4 in September. The unfavorable factors slipped into the contraction zone with a reading of 49.6 as compared to 51.1 the month before. These numbers closely paralleled the readings for the overall CMI. The differences are found in the details. The sales data slipped quite a bit from 68.2 to 62.3, which was unexpected given the drop in both durable goods orders as well as factory orders.
The new credit applications reading moved only slightly (61.8 to 61.5), while the all-important dollar collections numbers remained very close to what they had been, but slid further down into the 50s—going from 59 to 58.5. Again, this is certainly no sign of a crisis by any stretch, but it is a trend worth watching. The amount of credit extended dipped a bit from 68.5 to 63.7, suggesting some additional caution on the part of those issuing credit. The rejections of credit applications number slipped, but not by a lot (53.1 to 51.9), good news given new applications has been steady enough. The accounts placed for collection sagged into contraction territory with a reading of 49.1 after last month’s 51.2. This is definitely not a category anybody wants to see worsen. The reading is the worst since October of last year (although it had dropped to 49 twice this year—August and April). The disputes category remained in contraction territory, but it didn’t get any worse as it remained where it was last month at 48.7. This category has been under 50 for the last few years and shows no signs of improving much. The dollar amount beyond terms is often an indicator when it comes to dollar collections as it is the first sign of impending trouble. It fell this month from 50.2 to 49.1 and is back in contraction territory where it has been most of the last year. The dollar amount of customer deductions improved just a little, but stayed in contraction territory anyway (47.4 to 48). Finally, there is the category of filings for bankruptcies. There was a big drop from 56 to 50.9. “This is a worry as bankruptcies have been seen as the course of last resort,” said Kuehl. “Throughout the last year, these had not been accelerating, but now they are. This reading is by far the worst seen in several years.” “In general, the news for the manufacturing sector has been decent, but the troubles predicted earlier in the year are starting to manifest,” Kuehl explained. “It is hard to pin down exactly what the issue is as manufacturing covers a pretty wide variety of industries, but the boost from the tax cut has faded. Now the worry is over an impending trade war with China as well as arguments over tariffs with once-close trading partners in Europe as well as Canada.” Source: National Association of Credit Management Metals & Manufacturing Outlook / November 2018
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SHOULD A SME BECOME AN EXPORTER
SHOULD A SME BECOME AN EXPORTER? by JIM FLAHERTY As Americans, we enjoy the luxury of a vast and diverse nation and don’t have to go far to see and do the things we enjoy, and our businesses are healthy and diverse as well. That’s probably behind why it may not be intuitive to think beyond our borders, especially for a human resource constrained SME manufacturer. Things can get quite busy even without exporting. However, remember that more that 80% of the world’s population, AKA wonderful consumers, are outside the USA. If you have a good and/or unique product that has enjoyed success at home, there’s no reason it cannot enjoy success abroad. There are so many countries with growth rates higher than the USA, one might say such markets are even more attractive.
40
Metals & Manufacturing Outlook / November 2018
My company has a unique product – a machine that produces oxygen of commercial scale quantities. No not those oxygen concentrators that are used for home health care. We make monster units weighing as much as 50,000 pounds used by major process industries such as oil refineries and gold mines. So our market potential quantities are at best a few per year per country, not hundreds. In the USA, our largest competitors are multi-billiondollar corporations; and Adsorptech is simply three engineers and a dream. The USA business model for oxygen procurement is the major corporations sell the oxygen (AKA the milk) while Adsorptech sells the machine (AKA the cow). Therefore, USA businesses are unfamiliar and uncomfortable with buying their own cow. However overseas industrial oxygen consumers are quite comfortable owning their own cow. So Adsorptech’s low hanging fruit sales most likely would be outside the USA.
SHOULD A SME BECOME AN EXPORTER
On a personal note, it is actually fun meeting new people and cultures. Many people do like us (Americans) and value the superior quality with a competitive price point the USA offers. And most importantly, exporting is far from impossible and not scary. Adsorptech decided to export just a few years ago. We attended many events conducted by universities, agencies and the like. We met a plethora of “Acronyms” professing to help us. Oh, but very few actually delivered. Thankfully, there are a few really good teams that nourished Adsorptech to export success. Whenever talking to a service provider, the first question asked is “Where does Adsorptech want to go”. Duh! As a newbie exporter, I thought they would help me figure that out – I did not know. Most of the acronyms gave me their web address to do my own research. I tried and got scared and overwhelmed by the amount of information out there and no clear simple way to sort out the junk that did not apply to me. I was timewise already under water.
Manufacturing Laughs
Well thank goodness for access to the former Lt. Governor Guadagno’s cell phone and the NJ Business Action Center (NJBAC). Within a half hour of actually speaking to her DIRECTLY (!), a member of the NJBAC called. We next met, and a market survey was conducted by them to help facilitate a starting point. We were then introduced to the US Commercial Services (USCS) team. They too provided significant help both in terms of educating Adsorptech and providing in and out of country resources for Adsorptech to progress the effort without blindly running in wrong directions. Next the NJ District export council (NJDEC www. njdec.org), a group of veteran export business people, provided tangible free and real-world experiences of considerable value. And finally Export Jersey (www.export jersey.com) keeps us up to speed on what’s happening with export related activities thereby providing continuous improved awareness. Exporting has provided some “cool experiences” – imagine entering an Israeli fish farm in the middle of the desert. And what’s not especially cool about tripling revenue in a few short (& exciting) years. My recommendation is to consider exporting your product. Whether it is jars of pickles or complex industrial machinery, there are welcoming buyers outside the U.S., the ExIm Bank ready to help with financing the transaction, and great resources in every state to help guide you, taking the angst out of exporting. If three engineers with a dream can do it, it is likely your SME can do it, too. Jim Flaherty is President & CEO of AdsorpTech (www. adsorptech.com), an engineering firm located in Hampton, NJ. AdsorpTech decided to export their product to maneuver around a very competitive market in the U.S. Jim can be reached at james. flaherty@adsorptech.com.
Metals & Manufacturing Outlook / November 2018
41
DECISION POINTS
DECISION POINTS by ANDREA OLSON
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Metals & Manufacturing Outlook / November 2018
DECISION POINTS Along your life and career journey, there comes a series of decision points. Many of those are within your control, but others come about almost unforeseen, and can catch us off guard. What separates those that succeed is the ability to view those decision points as an opportunity, rather than an obstacle. This month’s Women And Manufacturing Podcasts covered a wide array of decision points, and how handle them, whether it’s the discussion with Andrea Olson and her guest, Cris Young about the impact of the digital transformation on the manufacturing industry, to Pamela Kan discussing her decision in leading her family’s manufacturing legacy. Desiree Grace and Andrea Olson also discussed how to decide when it’s time to leave your organization for the betterment of your family and career. As manufacturers, we try to focus on keeping processes and operations consistent. It’s the nature of the business. However, as we strive to maintain consistency, we reach decision points in our business that can disrupt that comfort. Those decision points can often make or break the success of an organization - for example, whether to shift to a new ERP platform, or taking on the task of entering a new market, or deciding whether to develop a new product. Even though these decisions can be difficult, there’s often times a compelling argument for change. While change can be hard, costly, slow, and temporarily impeding, it is essential to embrace for any growing company. Change is essential, and the smartest leaders understand that while challenging, it is critical. As you examine the health of your department or organization, when was the last time you reached a decision point on change? How often did you avoid that change, simply to alleviate a hassle or to sidestep a nagging issue?
Institute of Quality Assurance has an even broader definition, where it is a gradual, never-ending change, focused on increasing the effectiveness and efficiency of an organization to fulfill its objectives. In essence, every opportunity to make positive change or an improvement is a decision point. A decision of whether you will move forward with change or maintain the status quo. While change might be a risk, it is also a learning opportunity. Consistency is comfortable. Consistency is familiar. Yet, change can be comfortable and familiar as well, if it becomes part of your organization’s culture. As a leader, at each decision point you face and weigh the risk of change, what questions are you asking to verify your decision? Are you educating yourself to better understand the impact of change, and the risks if you don’t? It’s the old adage of “you’ll reap what you sow” - if you’re not leading change in your organization, your organization won’t follow. Being a leader means making hard decisions, and indecision is decision in and of itself. While manufacturing has been an industry resistant to change for many decades, we need to examine change and these decision points as opportunities for growth. Technology, culture, and the industry as a whole are changing all around us, and much faster than in decades past. It’s important that when we reach that decision point, we take the smartest action for growth, and not simply the path of least resistance. Andrea Olson is the CEO and Founder of / Prag’madik /
Manufacturing Laughs
Most manufacturers are familiar with the term “continuous improvement”, which is an ongoing effort to improve products, services, or processes. These efforts typically seek incremental improvement over time, or a breakthrough improvement all at once. Edwards Deming, a pioneer in the field, saw it as part of the system, whereby feedback from the process and customer were evaluated against organizational goals. The Metals & Manufacturing Outlook / November 2018
43
ISM REPORT OUTLOOK
THE INSTITUTE FOR SUPPLY MANAGEMENT’S MANUFACTURING REPORT ON ® BUSINESS BREAKING NEWS
ISM PMI at 57.7% ISM PMI for the past 5 years
2014
44
2015
Metals & Manufacturing Outlook / November 2018
2016
2017
2018
ISM REPORT OUTLOOK
ISM® REPORT ON BUSINESS®
MANUFACTURING E
conomic activity in the manufacturing sector expanded in October, and the overall economy grew for the 114th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®. The October PMI® registered 57.7 percent. The New Orders Index registered 57.4 percent, a decrease of 4.4 percentage points from the September reading of 61.8 percent. The Production Index registered 59.9 percent, a 4 percentagepoint decrease compared to the September reading of 63.9 percent. The Employment Index registered 56.8 percent, a decrease of 2 percentage points from the September reading of 58.8 percent. The Inventories Index registered 50.7 percent, a
OCTOBER 2018 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® Manufacturing Business Survey Committee
decrease of 2.6 percentage points from the September reading of 53.3 percent. The Prices Index registered 71.6 percent, a 4.7-percentage point increase from the September reading of 66.9 percent, indicating higher raw materials prices for the 32nd consecutive month. Of the 18 manufacturing industries, 13 reported growth in October, in the following order: Textile Mills; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Furniture & Related Products; Miscellaneous Manufacturing; Machinery; Transportation Equipment; Printing & Related Support Activities; Chemical Products; and Paper Products.
PMI @ 57.7% ®
‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).
MANUFACTURING AT A GLANCE Index PMI® New Orders Production Employment Supplier Deliveries Inventories Customers’ Inventories Prices Backlog of Orders New Export Orders Imports
Oct Index 57.7 57.4 59.9 56.8 63.8 50.7 43.3 71.6 55.8 52.2 54.3
Sep Index 59.8 61.8 63.9 58.8 61.1 53.3 40.5 66.9 55.7 56.0 54.5
% Point Change -2.1 -4.4 -4.0 -2.0 +2.7 -2.6 +2.8 +4.7 +0.1 -3.8 -0.2
Direction Growing Growing Growing Growing Slowing Growing Too Low Increasing Growing Growing Growing
Rate of Change Slower Slower Slower Slower Faster Slower Slower Faster Faster Slower Slower
Trend* (months) 26 34 26 25 25 10 25 32 21 32 21
OVERALL ECONOMY
Growing
Slower
114
Manufacturing Sector
Growing
Slower
26
*Number of months moving in current direction. Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes.
PMI 2016
2017
2018
57.7%
50% = Manufacturing Economy Breakeven Line
PMI® Manufacturing expanded in October as the PMI® registered 57.7 percent, a decrease of 2.1 percentage points from the September reading of 59.8 percent. This indicates growth in manufacturing for the 26th consecutive month, led by moderately strong production output and continued supplier delivery performance issues. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
43.2% = Overall Economy Breakeven Line
COMMODITIES REPORTED Commodities Up in Price: Aluminum* (24); Aluminum-Based Products (6); Castings; Chemicals; Copper; Corrugate (25); Diesel; Electronic Components (3); Freight (9); Hydrochloric Acid (2); Metal-Based Products; Methanol; Natural Gas; Nylon (5); Oil-Based Products; Plastic Molded Items; Plastic Resins; Polyethylene Terephthalate (PET) Products; Resistors; Scrap Metal; Steel* (2); Steel — Stainless (7); Steel-Based Products (6); and Sulfuric Acid (2). Commodities Down in Price: Aluminum*; Caustic Soda; Steel* (2); Steel — Cold Rolled; and Steel — Hot Rolled (2). Commodities in Short Supply: Aluminum-Based Products; Capacitors (16); Electronic Components (6); Labor (3); Nylon (2); Printed Circuit Board Components; Resistors (12); and Steel-Based Products.
12
Note: The number of consecutive months the commodity is listed is indicated after each item. *Reported as both up and down in price.
NOVEMBER | DECEMBER 2018
Metals & Manufacturing Outlook / November 2018
45
ISM REPORT OUTLOOK
ISM Report On Business ®
®
manufacturing
October 2018 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee
New Orders (Manufacturing) 2016
2017
New Orders
2018
57.4% 52.4% = Census Bureau Mfg. Breakeven Line
ISM’s New Orders Index registered 57.4 percent. Eleven of 18 industries reported growth in new orders in October, in the following order: Plastics & Rubber Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Textile Mills; Printing & Related Support Activities; Machinery; Miscellaneous Manufacturing‡; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; and Chemical Products.
Production (Manufacturing) 2016
2017
Production
2018
59.9%
51.5% = Federal Reserve Board Industrial Production Breakeven Line
ISM’s Production Index registered 59.9 percent. The 13 industries reporting growth in production during the month of October — listed in order — are: Textile Mills; Plastics & Rubber Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing‡; Fabricated Metal Products; Machinery; Computer & Electronic Products; Transportation Equipment; Chemical Products; and Paper Products.
Employment (Manufacturing) 2016
2017
Employment
2018
56.8% 50.8% = B.L.S. Mfg. Employment Breakeven Line
Supplier Deliveries (Manufacturing) 53.1% 2016
2017
2018
63.8%
Inventories (Manufacturing) 2016
2017
2018
43% = B.E.A. Overall Mfg. Inventories Breakeven Line
Manufacturing (products such as medical equipment and
supplies, jewelry, sporting goods, toys and office supplies).
46
Supplier Deliveries The delivery performance of suppliers to manufacturing organizations slowed in October, as the Supplier Deliveries Index registered 63.8 percent. The 14 industries reporting slower supplier deliveries in October — listed in order — are: Apparel, Leather & Allied Products; Furniture & Related Products; Textile Mills; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Machinery; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Fabricated Metal Products; Paper Products; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; and Transportation Equipment.
53.1%
50.7%
‡Miscellaneous
ISM’s Employment Index registered 56.8 percent. Of the 18 manufacturing industries, the 11 reporting employment growth in October — listed in order — are: Miscellaneous Manufacturing‡; Furniture & Related Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Paper Products; Plastics & Rubber Products; Chemical Products; Primary Metals; Machinery; Fabricated Metal Products; and Transportation Equipment.
Metals & Manufacturing Outlook / November 2018
Inventories The Inventories Index registered 50.7 percent. The seven industries reporting higher inventories in October — listed in order — are: Wood Products; Textile Mills; Petroleum & Coal Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Transportation Equipment.
ISM REPORT OUTLOOK
ISM Report On Business ®
®
manufacturing
October 2018 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee
Customer Inventories (Manufacturing) 2016
2017
2018
43.3%
Customers’ Inventories ISM’s Customers’ Inventories Index registered 43.3 percent in October, which is 2.8 percentage points higher than the 40.5 percent reported for September, indicating that customers’ inventory levels were considered too low. The two manufacturing industries reporting customers’ inventories as too high during the month of October are: Nonmetallic Mineral Products; and Electrical Equipment, Appliances & Components.
Prices (Manufacturing) 2016
2017
2018
71.6%
52.4% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line
Backlog of Orders (Manufacturing) 2016
2017
2018
55.8%
Prices The ISM Prices Index registered 71.6 percent. Seventeen of the 18 industries reported paying increased prices for raw materials in October, in the following order: Textile Mills; Petroleum & Coal Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Paper Products; Printing & Related Support Activities; Plastics & Rubber Products; Apparel, Leather & Allied Products; Transportation Equipment; Primary Metals; Chemical Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Machinery; Miscellaneous Manufacturing‡; Fabricated Metal Products; and Nonmetallic Mineral Products.
Backlog of Orders ISM’s Backlog of Orders Index registered 55.8 percent. The 12 industries reporting growth in order backlogs in October — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Printing & Related Support Activities; Plastics & Rubber Products; Petroleum & Coal Products; Miscellaneous Manufacturing‡; Machinery; Transportation Equipment; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Chemical Products.
New Export Orders (Manufacturing) 2016
2017
2018
52.2%
New Export Orders ISM’s New Export Orders Index registered 52.2 percent. The eight industries reporting growth in new export orders in October — listed in order — are: Textile Mills; Miscellaneous Manufacturing‡; Chemical Products; Computer & Electronic Products; Transportation Equipment; Plastics & Rubber Products; Fabricated Metal Products; and Machinery.
Imports (Manufacturing) 2016
2017
2018
54.3%
‡Miscellaneous
Imports ISM’s Imports Index registered 54.3 percent. The 10 industries reporting growth in imports during the month of October — listed in order — are: Apparel, Leather & Allied Products; Textile Mills; Food, Beverage & Tobacco Products; Furniture & Related Products; Plastics & Rubber Products; Fabricated Metal Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Miscellaneous Manufacturing‡.
Manufacturing (products such as medical equipment and
supplies, jewelry, sporting goods, toys and office supplies).
Metals & Manufacturing Outlook / November 2018
47
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