Metals & Manufacturing Outlook for September 2019

Brought to you by

WHAT’S YOUR

TARIFF STRATEGY? PAGE 6

ARE YOU READY FOR MANUFACTURING 4.0?

PAGE 36

AUGUST ISM PMI: 49.1%

Released September 2nd -The Full Executive Summary Report On Business - Page 29

WHY OVER-PRODUCTIVITY IS COUNTERPRODUCTIVE FOR WOMEN IN BUSINESS PAGE 29

presents

2

Metals & Manufacturing Outlook / September 2019

SPECIALIZING IN LARGE & HEAVY WEIGHT FORGINGS

TOLL FREE: 800.600.9290 PHONE: 973.276.5000 INFO@STEELFORGE.COM

STEELFORGE.COM

TABLE OF CONTENTS

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 ROSEMARY COATES CRAIG ROVERE

5

23

PUBLISHER’S STATEMENT

ENERGY OUTLOOK

A word from our publisher

6

24

WHAT’S YOUR TARIFF STRATEGY?

GLOBAL PMI OUTLOOK

By Rosemary Coates

10 MANUFACTURING OUTLOOK A global look at manufacturing

Current Circulation 45,200 Advertising ADVERTISE@MFGTALKRADIO.COM Editorial Office JACKET MEDIA CO. 75 LANE ROAD FAIRFIELD, NJ 07004 (973) 808-8300

Text “RADIO” to 66866 for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast.

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. © 2019 Jacket Media Co. 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 Jacket Media Co.

by Norbert Ore

26 EURO OUTLOOK A look at Europe

12 THE CREDIT MANAGER’S OUTLOOK

by Dr. Chris Kuehl

Production Manager LINDA HOPLER

Energy and the environment

14

27 ASIA OUTLOOK China still in trouble

28

NORTH AMERICAN OUTLOOK

SOUTH AMERICA OUTLOOK

Manufacturing in the US, Canada & Mexico

Brazil in the spotlight

16

29

METALS OUTLOOK

WHY OVER-PRODUCTIVITY IS COUNTER-PRODUCTIVE FOR WOMEN IN BUSINESS

The cost, making and treating of metals

18

by Andrea (Belk) Olson, MSC

AEROSPACE OUTLOOK

32

The aerospace industry

20 AUTOMOTIVE OUTLOOK

ISM MANUFACTURING REPORT ON BUSINESS

Auto industry news

36

22

ARE YOU READY FOR MANUFACTURING 4.0?

ISSUES OUTLOOK Issues around the globe

Get ready for the next evolution in manufacturing - a special section from Leading2Lean

PUBLISHERS STATEMENT

PUBLISHER’S STATEMENT As the manufacturing industry now endures it 18th month of tariffs, I just have to comment on the global impact of the trade wars, especially with China.

First, tariffs have been tried by 5 U.S. presidents as either a protectionist tool or negotiating ploy. We do not yet know the outcome of the Trump administration efforts, but none of the previous efforts ended favorably for the U.S. In all cases, including the present trade war, a few industries benefit for a short time while others suffer, and then most industries suffer including the protected ones. So, all the tariff efforts have failed to produce the desired results of protecting an industry or propping up prices for the long term.

Second, the foreign competitor does not “pay” for our tariffs on their goods coming into our country. The importer, meaning a U.S. company, pays the tariff to U.S. Customs at the point of entry into the U.S. This represents an additional expense to the importer. In the early stages, the U.S. companies try to absorb the cost, but it is a direct hit on profits. Next, they increase prices on their products which are largely sold in the U.S. to other businesses or the consumer. This makes their goods more expensive here – in the USA. The foreign country does not pay – you do!

Third, business buyers and consumers, faced with higher prices, by less. What they have to buy at the higher price lessens their disposable income. The typical end result is that higher prices reduces demand – Marketing 101. Given this reduction in demand, the company begins to lay off workers and produces less goods – also Marketing 101. People with less disposable income, or without a job, obviously cut back, and a downward economic spiral begins that is tough to turn back to positive.

Fourth, The Trump administration was trying to address China’s IP theft, currency manipulation, restricted China market access, and human rights issues. The administration saw four nails and someone handed the president a 232 or 301 hammer. He promptly missed all four nails and hit the U.S. economy squarely on the thumb - four times. Businesses screamed ‘ouch’! Consumers screamed ‘ouch’! Our trading partners around the world screamed “ouch’! And the swinging continues, but China isn’t a culture that will choose to lose face, even if they were being a bad actor.

Fifth, the U.S. was getting screwed by China, and NAFTA should have been renegotiated years ago, but that doesn’t make everything a nail. And there doesn’t appear to be any thought of putting down the hammer and finding the Philips, standard or hex screw driver, which also happens to back out screws. If Trump can order companies out of China, he could have just as easily ordered companies to stop all IP transfers to China. Telling China to stop stealing our military secrets while we hack theirs is a hollow reed.

Human rights abuses is another He Said, She Said. How quickly China opens up their market to more U.S. goods is likely a long game outcome, and not a quick short game result.

Sixth, China doesn’t have to care. Since the end of World War II, China has been on a 100 year marathon to become the dominant global superpower militarily and economically. Read “The 100 Year Marathon”

by Michael Pillsbury. If it takes them 200 years, so what – they’ve been around for 5,000 years. They can wait us out – and it is likely they will beat us out. They are busy shaping the world their way with the Belt and Road initiative, 60+ trading partners, and while their economy has slowed, they had been shifting to a Chinese consumer-based economy from an export-driven economy since 2015 or earlier. We’re a big trading partner, but not the only game in town.

If the Trump administration gets a trade deal with China, and it may not get one anytime soon, it will have cost the U.S. billions of dollars sucked out of our economy and your pockets, and possibly have brought us, and maybe the rest of the world, a recession. We’ll see soon. Stay tuned to Manufacturing Talk Radio (mfgtalkradio.com) for updates and read through the pages of this issue of Metals & Manufacturing Outlook for what is just behind us, and what may be ahead.

Contact laweiss@mfgtalkradio.com or text “RADIO” to 66866 for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast.

Lewis A Weiss, Publisher Metals & Manufacturing Outlook / September 2019

5

COVER STORY

WHAT’S YOUR

TARIFF STRATEGY?

BY ROSEMARY COATES, EXECUTIVE DIRECTOR THE RESHORING INSTITUTE

Trade Wars: First it was Section 232 import tariffs on steel and aluminum, then Section 301 tariffs on Chinese imports, then China retaliated. Now increases to tariff rates and the potential for tariffs on imports from other countries is causing more turbulence in global trade. Buckle your seatbelts because the turbulence and uncertainty are about to get worse!

6

Metals & Manufacturing Outlook / September 2019

COVER STORY New and increased tariffs are scheduled for October, 2019. Global trade has been forever disrupted. Even with a potential change in the Oval Office next year, the landscape of global supply chains has been altered and will be completely different going forward. Companies are panicking and quickly developing sources and new manufacturing sites in alternate countries to China such as Vietnam, Thailand, and Indonesia. Mexico has become a “New China” for manufacturing. Our friendly trading relationships with the European Union and the UK are in treacherous waters. Export markets for U.S. manufacturers have disappeared.

There is no calmer air ahead. The turbulence is likely to last for the foreseeable future.

Country of Origin It’s important to understand that if your parts, subassemblies, or finished goods are imported from China, you cannot avoid paying the penalty tariffs when importing into the US. 301 Tariff tranches 1, 2 and 3 will increase to 30% beginning Oct 1 and Tranche 4 will start at 15%. If the Country of Origin (COO) is China, the penalty tariffs apply. Could these parts be sourced from another country not currently on the penalty tariff list? (Plan B).

So, what is your global trade and tariff strategy?

Whether or not these tariffs and new trade policies will be effective in addressing IP theft, currency manipulation, foreign market access, or human rights issues is anybody’s guess. In the meantime, what action should American manufacturing and supply chain professionals take now, to mitigate the effect on business? What is your company’s import tariff strategy?

In the past, global supply chains and global manufacturing have been left to the operations functions of a company, and strategy was left to the most senior executive. But now, everyone must become a strategist, determining sourcing alternatives, delivery times, appropriate inventory levels, alternate shipping routes, and rethinking import classifications. Stretching from daily operations to thinking about strategy may be a difficult, but necessary, leap for some people.

Different skills are now required and essential.

Plan A, Plan B, and Plan C The one thing that makes businesses more nervous than anything else is uncertainty. The turbulence introduced by global trade wars and what might happen next is causing business operational anxiety. What we recommend as a treatment is to develop several viable and well-thought out alternative plans so if Plan A or Plan B go awry, you could try Plan C. These various and multiple plans should include alternate sources of raw materials, alternate potential manufacturing locations, strategies for minimizing risk, and the development of new markets. Developing alternate strategies takes time and effort to work out the details.

Simply trans-shipping via another country will not change the Country of Origin or help you avoid paying the penalties. We’ve heard tales of Chinese manufacturers suggesting that trans-shipping via Vietnam or Singapore and declaring these places as the COO will avoid the 301 tariffs. But this is illegal under U.S. Customs Regulations (CFR 19) as the COO must be the place where the goods are manufactured or substantially transformed, not where they are trans-shipped.

What countries might be next for tariffs?

As Trump slapped penalty tariffs on China, production in Vietnam went into high gear. Apparel and footwear companies, electronics manufacturers, and solar panel producers had been producing some lines in Vietnam already, and quickly shifted more products to Vietnamese factories.

But Vietnam is not China. The population of Vietnam is 97 million compared with 1.4 billion people in China. There just aren’t that many workers in Vietnam by comparison. Engineers with manufacturing experience are rare. The infrastructure including roads, bridges, rail lines, airports and ocean ports in Vietnam is still being developed. Factories are still being built, and or are overwhelmed. Productivity rates are estimated to be 25-30% lower in Vietnam, and the quality of work isn’t as good as China. They are still learning. Vietnam has a long way to go.

Metals & Manufacturing Outlook / September 2019

7

COVER STORY alternative. But having too much inventory ties up working capital and may put a stranglehold on your company’s ability to operate. In industries with rapid product development such as electronics, parts also become quickly obsolete, so buying too far in advance can be a losing proposition with writeoffs.

Use of a Foreign Trade Zone Perhaps you are considering the use of a U.S. Foreign Trade Zone to substantially transform component parts into a new product and a new HTS number. Unfortunately, certain provisions in Section 301 require payment on the value of the Chinese component content regardless if you are now importing transformed finished goods from the FTZ. Even if you move goods from the Zone then to Mexico or Canada under NAFTA provisions, the 301 penalty tariffs still apply. With NAFTA negotiations currently stalled in Congress, the future of tri-lateral trade in North America is uncertain.

Most concerning of all, are the rumblings from Washington about targeting Vietnam for a new round of 301 penalty tariffs. The Vietnam trade boom is now causing more scrutiny from the Trump Administration and making American importers of these products concerned. If you think that moving production and sourcing to Vietnam is a good idea, you might need to rethink your decision. The infrastructure is underbuilt. Labor is now scarce and the learning curve for quality factory work is steep.

The possibility of trade wars with Vietnam is real.

But that’s not all. If you have contract manufacturers, suppliers, or customers in Mexico, India, South Korea, Vietnam, Australia or the EU, you should be concerned and be preparing a strategy for alternatives. (Plan C). The Trump administration has already been sabre rattling regarding Mexico import tariffs, India has been removed from the Generalized System of Preferences (GSP) import list, Vietnam is in the cross-hairs, and the EU has been threatened with tariffs on aircraft and French wines. Australia’s robust mining industry is rumored to have put that country on the list of considered tariff targets.

Buy more inventory Perhaps stockpiling inventory in advance of the tariffs going into effect is another strategic

8

Metals & Manufacturing Outlook / September 2019

Return manufacturing to the U.S. Returning or establishing manufacturing in the U.S. is our favorite strategy at the Reshoring Institute.

We help clients identify locations and determine the economic feasibility of manufacturing here. Over the long term, this is a great strategy, especially if your customers are in America. But it takes time to reestablish and find new suppliers in the U.S. Most new suppliers have to be qualified and certified to produce your parts, and this could take as long as 12-18 months. In the meantime, if you must import parts or kits from China to support production, you will still be stuck paying the penalty tariffs until you can source domestically.

Increasing the cost to your customers

In the end, consumers always pay the price for increasing tariffs as these costs are usually passed through to customers by importers. Economists tell us that sooner or later, consumers will balk at increased prices and stop or limit buying your

COVER STORY product. Most companies simply cannot or will not absorb the additional cost of goods sold burdened with 25%-30% tariffs, and instead will tack on the increased costs to the selling price of finished products. As long as all of your competitors are doing the same, this may be no problem for products you sell in the US. But if some competitors do sell for less, you may see an unfortunate drop in demand for your products, due to uncompetitive pricing.

This may be especially true if you are selling your U.S.- made products overseas. If China devalues its currency, it makes competing Chinese products look very inexpensive, and American products look much more expensive by comparison. In the world marketplace, lower-priced Chinese goods will capture the sale.

Exports Exports of American-made goods to other countries are also affected. Trade wars mean that countries will retaliate with their own import tariffs on American goods. Unfortunately, retaliatory tariffs are often meant to hurt economic sectors unrelated to U.S. tariff categories. For example, U.S. 301 tariffs may apply to electronic goods imported from China, but Chinese import tariffs apply to soybeans from Minnesota, or almonds from California, or autos from Detroit.

Plan your strategy and buckle your seatbelt Whatever your opinion about trade wars, it’s in your best interest to develop alternative strategies that will work for your company. Look for alternate

suppliers and start validating the quality of what they could produce for you. Evaluate new production sites, including the U.S., to determine a projected cost profile should you need to move someplace new.

Pay attention to US trade policy so you aren’t blindsided and need to make urgent decisions. Consider your export markets. It may make sense to stay in China for sales to the Chinese market and across Asia where the economic growth is double-digit.

Because of the uncertainty of the current U.S. global trade policies, the escalating trade wars, and the potential for changes in your company business strategy, being thoroughly prepared to respond is the best approach.

More turbulence is ahead, before we find calmer air.

Buckle your seatbelt.

About the author.

Ms. Coates is the President of Blue Silk Consulting, a Global Supply Chain consulting firm, and the Executive Director of the Reshoring Institute. She is a best-selling author of five books including Amazon Top Seller: “42 Rules for Sourcing and Manufacturing in China” and “Legal Blacksmith - How to Avoid and Defend Supply Chain Disputes.” Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters.

Metals & Manufacturing Outlook / September 2019

9

MANUFACTURING OUTLOOK

SEPTEMBER 2019

MANUFACTURING OUTLOOK THE PMI FIGURE FOR THE U.S. FOR THE MONTH OF AUGUST IN CONTRACTION. GLOBAL MANUFACTURING REMAINS STAGNANT, BUT CHINA CREEPS BACK UP A LITTLE. THE EUROZONE AND THE UK STILL STRUGGLING. GLOBAL TRADE AND TARIFFS ARE STILL IN A STATE OF FLUX. BRITAIN NEEDS A MIRACLE.

by ROYCE LOWE The Global Manufacturing PMI stays in the doldrums, but sees a very slight PMI increase. The ISM PMI figure for U.S. manufacturing found its way into contraction, at 49.1 percent in August from 51.2 percent in July, representing its first time in contraction for three years. The overall economy grew for the 124th consecutive month.

IHS Markit’s remarks on the U.S. noted a further slowdown in overall growth in August with the PMI,

10

Metals & Manufacturing Outlook / September 2019

at 50.3, very slightly down from July’s 50.4. This was its lowest level in almost ten years. There was a subdued increase in production, and tepid demand, coupled with a corresponding drop in export orders.

Business optimism was at a seven year low.

The BLS jobs report for August shows the addition of 130,000 non-farm payroll jobs, over 20,000 of which are reportedly to do with the upcoming census.

The unemployment rate stayed at 3.7 percent.

MANUFACTURING OUTLOOK Manufacturing was pretty much unchanged from July. Professional and Business services added 37,000 jobs, Health Care 24,000 jobs and Financial Activities 15,000 jobs. Mining lost 6,000 jobs.

U.S. LIGHT VEHICLE SALES……..Light vehicle sales were up 12.10 percent in August, but these figures do not include Detroit’s Big 3.

Employment was basically unchanged and spare capacity was used to clear backlogs.

The Bureau of Economic Analysis recently released its ‘second’ estimate for the annual rate of Real GDP growth in the second quarter of 2019, putting it at 2.0 percent. The figure for the first quarter of 2019 was 3.1 percent.

Demand was down, particularly in the automotive sector and export orders fell at the quickest rate since August 2009.

In short the situation represents the least marked improvement in the health of the U.S. manufacturing sector since the depths of the financial crisis in September 2009.

THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The consumer price increases represent year-over-year changes. The unemployment figures, %, are for the month as noted.

STEEL PRODUCTION STILL ON THE RISE. World crude steel production for the 64 reporting countries – which represent 99 percent of world crude steel production – for the month of July, at 156,697 MT , was up 1.7 percent year-over-year. China’s production was up 5.0 percent year-over-year.

But steel prices are struggling. U.S. crude steel production for July 2019 was 7.514 MT, up 1.8 percent year-over-year.

Primary Global Aluminum Production in July 2019 was reported at 5.405 million tons, with production in China, at 3.050 million tons, representing 56 percent of world total. Production was 477,000 tons in GCC; 372,000 tons in the rest of Asia; 286,000 tons in Western Europe; 322,000 tons in North America and 355,000 tons in Eastern and Central Europe.

Metals & Manufacturing Outlook / September 2019

11

CREDIT MANAGER’S OUTLOOK

CREDIT MANAGERS’ OUTLOOK

by DR. CHRISTOPHER KUEHL MANAGING DIRECTOR OF ARMADA CORPORATE INTELLIGENCE THIS REPORT REPRINTED COURTESY OF THE NATIONAL ASSOCIATION OF CREDIT MANAGERS (NACM.ORG) WHERE MORE IN-DEPTH INFORMATION CAN BE FOUND.

Combined Sectors Just when it seemed safe to settle into a good funk, the Credit Managers’ Index (CMI) tracked in a very positive direction. “The CMI was not the only indicator that experienced a reversal of fortune, but while that trend seemed to be on the upswing for some, there were those readings that showed further decline,” said NACM Economist Chris Kuehl, Ph.D. “The economy appears to be in a transition phase again. It is not entirely clear, however, what it is transitioning from or what it might be transitioning to.” He added that the latest durable goods data shows an improvement, but most of that is due to the changes in the more volatile aerospace sector. The data from Markit’s PMI (Purchasing Managers’ Index) was showing numbers that are in the contraction zone (a reading below 50). There has been better news as far as capital spending but bad news as far as capacity utilization. “In short, there is a little something for both the glass-half-full and the glass-half-empty crowds.”

The combined score for the CMI this month was a very solid 55.2. That puts the index right back where it was in June when it was at an even 55. It is not quite at the level reached in May when it hit 55.7, but it is far better than last month’s 53.4. The combined score for the favorable factors jumped back into the 60s with a reading of 61.8 compared to the 58.6 notched in July. Again, the readings are not as robust as in May when they hit 63.8, but the trend is pointing in a more positive direction.

The combined score for the unfavorable factors

12

Metals & Manufacturing Outlook / September 2019

also improved, but by the narrowest of margins. It was 50 the month prior when it appeared likely to fall into contraction territory, but this month the pattern reversed and it climbed up slightly to 50.9.

As usual, the details are the most informative.

There was a nice recovery in the sales data from 58.4 in July to 64.4 this month. This is not the highest point reached this year, but it is in the top five. In May, it was standing at 65.9, the secondhighest level reached in the last 12 months. The new credit applications number remained very close to what it had been the month prior, moving from 60.8 to 60.9. This is still a bit lower than the reading in the last several months and seems to indicate a little more caution manifesting. The dollar collections numbers improved quite a bit; always good news. Last month, the reading was 56.6—down from 60.3 in June, but this month the numbers are back to 60. The amount of credit extended also returned to the 60s with a reading of 61.7, just shy of the 62.5 number from June. Kuehl suggests that all in all, it appears July was something of an aberration, or simply a traditionally slower month.

The specifics of the unfavorable categories are informative as well. The data on rejections of credit applications remained very close to what it was in July at 52.6, but it dropped slightly to 52.1 this month. These are decent numbers, which is important given there was a decline in the new applications data. “It suggests that those asking for credit are getting it and this is taking

CREDIT MANAGERS’ OUTLOOK place even as credit managers are trying to get a little tighter with their decisions,” Kuehl said.

The accounts placed for collection remain in the contraction zone, but not as deep as before. The reading last month was 46.2, and now it stands at 48.6. This is not exactly good news, but the trend is more acceptable. Disputes, however, slid out of expansion territory into contraction by going from 50.5 to 49.4. The dollar amount beyond terms improved quite a lot, “a nice trend as the holiday spending season gets underway.” It was at 46.1 and buried pretty deeply in contraction, but it has re-entered the expansion category with a reading of 53.6. The amount of customer deductions slipped from 51.2 to an even 50, but at least it has not fallen into contraction. The filings for bankruptcies have become a bit of a concern, however. The reading this month is 51.6, the lowest it has been in well over three years. Kuehl explained there have been companies hanging on by a thread, and it now appears some can’t handle the economic reversals that have emerged in the last few years.

Manufacturing Sector

For this sector, Kuehl says that as concerns about the economy begin to mount, the focus of most of the concern has been manufacturing. There have been distinct indications that factors such as the on-again, off-again trade war has been having an impact as well as more long-term threats, such as labor shortages and declining demand in such key areas as agriculture and aerospace. Even with these challenges, there were some decent numbers in important sectors.

The combined index reading of 55.7 was back to the levels seen in May of this year (55.4) after being at 53.2 in July. The index of favorable factors jumped back into the 60s with a reading of 61.6 from 56.7 the month before. This category has been above 60 in all but four of the last 12 months. The unfavorable index extended further into expansion territory with a reading of 51.7 compared to last month’s 50.8. “All in all, it showed a better set of indicators than some of the other manufacturing indices,” he said.

The sales category surged to a level not seen in many months. It is sitting at 65.3, the highest point since September of last year. “This has been despite the travails of Boeing and the sharp drop in demand for farm equipment,” Kuehl noted.

“Even the dip in exports did not seem to affect the sector this month. It seems there has been a solid demand for vehicles and machinery—especially in the energy sector and in the general category of robotics.” The new credit applications remained almost exactly where they were last month (60.1 as compared to 60). The dollar collections data also improved significantly as it moved from 54.7 to 59.6. The amount of credit extended broke back into the 60s with a reading of 61.4 from 54.7 in July.

“The good news may have been flowing only from select sectors, but these have been strong enough to carry the whole sector,” he added.

The rejections of credit applications remained very close to what had been seen earlier—53 compared to 53.4 in July. “This is good given the activity in new applications,” Kuehl said. “It is not uncommon for companies to desperately seek credit when times are tough. That is why rejections move up.” The accounts placed for collection jumped out of the contraction zone with a reading of 50.6 compared to 46.7 in July; “that is very encouraging,” he added. The disputes category sank slightly (51 to 50.3), but it still remained in expansion territory. The dollar amount beyond terms moved into expansion territory with a reading of 55.9 compared to the 48 registered in July. The dollar amount of customer deductions slipped, however, as it went from 52.7 in July to contraction territory in August with a reading of 49.3. There are some early warning signs showing up in filings for bankruptcies with the drop from 53 to 51.4, the lowest reading seen in over three years. Kuehl explained there have been some manufacturing sectors that have taken real hits thus far this spring, and some are not going to survive.

Metals & Manufacturing Outlook / September 2019

13

NORTH AMERICAN OUTLOOK

SEPTEMBER 2019

NORTH AMERICAN OUTLOOK

by ROYCE LOWE

The Institute of Supply Management PMI figure fell from 51.2 in July to 49.1 in August.

New orders, production and employment are contracting; supplier deliveries are slowing at a slower rate and backlogs are contracting. Exports and imports are contracting.

Of the 18 manufacturing industries, nine reported growth in August, in the following order: Textile Mills; Furniture & Related Products; Food, Beverage & Tobacco Products; Wood Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Machinery; Miscellaneous Manufacturing; and Chemical Products. The seven industries reporting contraction in August — in the following order — are: Apparel, Leather & Allied Products; Fabricated Metal Products; Transportation Equipment; Primary Metals; Plastics & Rubber Products; Paper Products; and

14

Metals & Manufacturing Outlook / September 2019

Electrical Equipment, Appliances & Components.

Comments from the industry are on the gloomy side, with talk of trade wars, a possible recession, and a slowdown in business.

Commodities Up in Price Polypropylene; Scrap; and Steel— Hot Rolled*.

Commodities Down in Price Aluminum (5); Aluminum Products (2); Caustic Soda; Corrugated Boxes (3); Natural Gas; Crude Oil; Pulp; Steel (2); Steel— Hot Rolled*; Steel Products* (8) and Steel— Stainless.

Commodities in Short Supply Electronic Components; and Helium (2). The number of consecutive months the commodity is listed is indicated after each item. *Indicates both up and down in price.

NORTH AMERICAN OUTLOOK CANADIAN manufacturing conditions worsened in August, with the sharpest fall in new orders since December 2015. Production fell with the sustained fall in new orders. Business optimism was down to a three-and-a-half year low. There was renewed deterioration following July’s slight improvement, with the PMI in August falling to 49.1, from July’s 50.2. New orders fell for the sixth consecutive month, both domestic and export. U.S. - China trade tensions and accompanying reduced demand in the U.S. are not good for Canada.

Canada produced 1.120 MT of crude steel in July, up 2.9 percent year-over-year. Light vehicle sales in Canada in August were off a mere 0.1 percent, at 181,996 units, making 18 consecutive months that this index has fallen. Year-to-date sales, at 1,340,289 units are off 4.20 percent year-over-year.

MEXICO saw difficulties in August with its manufacturing PMI at the lowest level in the almost eight-and-a-half year survey history. The PMI fell from July’s 49.8 to 49.0 in August. There was weak demand and there were tough market conditions, particularly in the auto sector. New orders dropped in the domestic market, but export orders rose for the first time in three months.

Employment was down in August from June/July figures. Mexico produced 1.440 MT of crude steel in July, down 17.9 percent year-over-year.

ISO9100:2015 and AS9100D - Since 1994

Metals & Manufacturing Outlook / September 2019

15

METALS OUTLOOK

SEPTEMBER 2019

METALS OUTLOOK THE COST, MAKING, TREATING AND APPLICATIONS OF METALS

by ROYCE LOWE

16

Metals & Manufacturing Outlook / September 2019

METALS OUTLOOK Stainless steel was first recognized as a commercial proposition in 1913 by Harry Brearley, in Sheffield, England, after he’d noticed that certain gun barrels with about 13 percent chromium didn’t rust when left outside. What he’d in fact discovered was a steel that approximates to what we know today as type 420, a grade used to make table knives.

Commercial production didn’t start until after the first world war, by which time two gentlemen at Krupp in Germany, Doctors Strauss and Maurer, were busy discovering what we know as the 18-8 stainless steels. The Brits started production of these steels in 1923 under license from the Krupp patent.

Thus stainless steel was born, as was the long fight against the many corrosive media lurking around just waiting to eat up anything that looked like a piece of steel.

Today, much as we can’t imagine life without steel, neither can we imagine life without stainless steel. In fact, we take it for granted as we see it everywhere from the kitchen to the hospital to the Chrysler Building in New York, there since the 1930s, still shining strong. The Statue of Liberty, when in need of internal repair some decades ago, was brought back to life by stainless steel replacement parts.

Why, though, is stainless steel stainless? The corrosion resistance of the alloy is basically due to the presence of an extremely thin protective oxide film - the so-called passive film - that forms spontaneously on the steel surface when it is exposed to air or some other gas or liquid that can supply oxygen to the steel. The film is transparent, tightly adherent to the steel and so thin, probably less than 0.000001’’ thick, that it is absolutely invisible while in contact with the surface on which it has formed. The film is insoluble in water, in many other liquids, and is impermeable to these and to many gases, and so long as the film remains intact and tightly adherent to the steel surface, it is protected from corrosive attack. Even if the film is broken locally, serious corrosion will not result, providing oxygen is available to repair it.

If the ruptured film is prevented from repairing itself, corrosion of the steel will continue and will result in either pitting or a general attack of the steel surface. The protective film is effectively due to the presence of chromium in the steel,

and the protective value of the film will increase with its chromium content. If the steel contains significant amounts of other metals such as nickel or molybdenum, the oxides of these metals will also be present in the film and will improve its resistance to certain types of corrosive attack.

The alloy is a very valuable engineering tool in the fight against corrosion, but it is not a panacea.

It is extremely sensitive to variations in heat treatment and welding practices, and particularly to the chloride ion. Let bleach or heavily-salted water stand in your stainless steel sink for any length of time and you will see the beginning of pitting. Even though ongoing developments in the composition of stainless steels have resulted in much improved corrosion resistance, the alloy is not suitable for desalination, which is why titanium alloys must be used to get the salt out of sea water.

In spite of its limitations, the stainless steel group of alloys finds myriad applications in homes and hospitals and in architecture and chemical engineering. But it must be treated with respect, and any incorrect welding or heat treatment procedures can reduce a relatively expensive material to a perforated mess.

Stainless steel is like human beings: it needs oxygen to survive and it needs regular examination and maintenance. Before choosing a grade of stainless for a particular application, it is always advisable to check with the supplier of the grade, design of the part, and fabrication and heat treatment procedures. All this information is available and should be used.

Domestic H.R. steel coil was at around $570 per ton; C.R. coil around $745 per ton in early September. This is down from last month’s pricing, in spite of an awaited increase.

Copper was at $2.62 per lb in early September from $2.60 in early August, but down from $2.95 in mid-April; Aluminum was at $0.80 per lb early September, but down from $0.83 mid-July; Nickel was at $7.20 in early August, and $18.00 spikes in early September, but up from $5.80 early July; Zinc was at $1.04 early August, 1.06 early September.

Metals & Manufacturing Outlook / September 2019

17

AEROSPACE OUTLOOK

SEPTEMBER 2019

AEROSPACE OUTLOOK

by ROYCE LOWE

The President of Emirates airline, Tim Clark, has come out very critical of Airbus SE and Boeing Co., as well as their major engine suppliers, saying he’s no longer prepared to take delivery of aircraft that don’t meet specifications.

Clark, head of the world’s largest international carrier, has run out of patience with glitches that have held up new models or forced costly groundings for emergency repairs.

Clark was recently quoted: “When they’re ready to give us what they’re contracted to do then we will have an assessment of the number and type of

18

Metals & Manufacturing Outlook / September 2019

aircraft that are going to be used.” He is looking for a cast-iron guarantee of trouble-free performance on some 250 wide-body jets presently on order.

Both Airbus and Boeing have had performance problems, and Clark is also calling into doubt the reliability of the Rolls-Royce engines that power the planes, or that the engine-maker has resolved issues with a turbine it supplies for the Boeing 787 Dreamliner, of which Emirates has 40 on order.

The Airbus A380 superjumbo - at one point an integral part of Emirates’ business - is on its way out. In light of a deteriorating global economy, and an ongoing fleet review, Clark’s comments come as a warning to the two companies which enjoy a

AEROSPACE OUTLOOK duopoly in the market for the longest-range jets.

There’s just no place else to go.

But Clark’s comments, and warning, send out the message that the companies have no chance of gaining final agreement for a whole batch of contracts by the time of the November Dubai air show without a major shift in commitments. A $21 billion order for 30 A350-900s and 40 A330900neos announced earlier this year has not yet seen final signing.

Mr. Clark has perhaps ordered too many jets, and is nervous about the global economic climate, in which case they may reduce orders. In any event, the market is - will still be - there for many years to come, and both members of the duopoly will be fighting for it.

Mr. Clark’s comments will serve in part to improve the quality- and performance-consciousness of the two companies, which will in turn benefit airlines worldwide. When a discussion turns to quality, improved quality has to be the end result.

Boeing just can’t stay out of the news. Its latest concern is the tight labor market in the U.S. and a fear that employees of the 600 companies building components for the 737 Max might move on to other jobs. There are 400,000 parts in each 737 Max. Boeing are studying whether to pause 737 Max manufacture for a short, clearly defined period of time, according to “people familiar with the matter.” There is still no word on when the grounded 737 Maxes will be free to fly again.

PRO-ACTION EDUCATION NETWORKTM APPRENTICESHIP PROGRAM Apprenticeships offer many NJ workers the opportunity to receive an earn-whileyou-learn education. Relevant professional credentials support job performance and open the door to sustainable income.

• Pre-apprenticeship programs create future applicants for full-time, paid apprenticeship positions with NJ employers.

• Students in a pre-apprenticeship program learn skills needed for the occupation and have the opportunity to potentially bridge to a Registered Apprenticeship Program.

• Apprenticeship provides an additional option for NJ’s existing and future workforce in all industries. The Pro-Action model can be used for all industries.

CALL TODAY FOR MORE INFORMATION - 973-998-9801 WWW.NJMEP.ORG • INFO@NJMEP.ORG

Metals & Manufacturing Outlook / September 2019

19

AUTOMOTIVE OUTLOOK

SEPTEMBER 2019

AUTOMOTIVE OUTLOOK

by ROYCE LOWE

20

Metals & Manufacturing Outlook / September 2019

AUTOMOTIVE OUTLOOK Some 40 years ago General Motors employed 618,365 workers, including 511,000 hourly workers.

Today there are 46,000 union-represented workers at GM, 9,000 less than at Ford and 1,200 less than at Fiat Chrysler. It is the first time this has happened since the UAW started organizing Detroit’s auto workers some eight decades ago.

GM has recently increased its hiring of temporary workers, a not very popular move with the union.

The company is negotiating a new labor contract this year with UAW leaders who threaten all-gunsblazing after an embarrassing corruption scandal.

The FBI recently raided the home of the UAW chief and that of his predecessor in a widening probe into graft.

A tough fight is on the horizon, and could end in further drastic reorganization at GM. Rust, water, dents, poor paint, scratches and loose wires are just some of the complaints Tesla is getting from Europe, particularly Germany and Norway, Tesla’s biggest customer countries. They love the car, they really love the car, but are not at all enamoured with the service. Elton Musk has promised more service centers in Europe to take care of this and any future quality problems, but going up against Mercedes-Benz, BMW and Volkswagen in their own backyard requires something a little special, more than just promises.

It used to be that what was good for America was good for General Motors, and vice versa. But recent decades have seen the company downsize its domestic factory network and increase production in markets including China and Mexico.

GM was historically by far the largest, but they cut a lot of plants in the U.S. during bankruptcy and today GM has a quarter of the plants it had in the 1970s but produces more cars.

This year has seen the closure at Lordstown and a halt to transmission production in Warren, Michigan. This will be a focal point in negotiations for this year’s four-year contract. The union is also upset at GM’s moving of Chevrolet Blazer production to Mexico. The company is now Mexico’s top carmaker.

GM might well be called a victim of the 2009 financial crisis, when it had to file for bankruptcy, close 14 plants and shed thousands of jobs. Falling sales of sedans in the industry generally has led to more job losses. GM has invested $23 billion in the U.S. since it came out of bankruptcy, five times what it has invested in Mexico. Its U.S. workforce is three times that of its Mexican workforce.

Fiat Chrysler, meanwhile, has rebounded, and has more than double the number of workers Chrysler employed when it was sold to Fiat in 2009.

So whither GM? The labor negotiations will be tough, both Trump and Biden are mad at them (for plant closures) and through all this they have to go ahead and develop electric vehicles, something they absolutely wouldn’t dare do in Mexico. To add to all this are an automobile market and a global economy that are not nearly as healthy as they were just a year ago.

Metals & Manufacturing Outlook / September 2019

21

ISSUES OUTLOOK

SEPTEMBER 2019

ISSUES OUTLOOK

by ROYCE LOWE

It seems that White House Advisor Ivanka Trump has herself a new mandate; a worker-training initiative, where she invites companies - three hundred of them it’s said - to come to the White House to discuss how they will help her train 12 million people, future employees, even as her father adopts policies that labor unions say would weaken apprenticeships.

Here we go again, talking about apprenticeships. But this is a very important issue in U.S. manufacturing, as it is in most sectors of the economy. So why give this to the President’s daughter, and what can she do that hasn’t already been suggested, tried, worked through? We have from time to time reported on cases of individual firms, many subsidiaries of German companies, who have successfully started and worked through their own apprenticeship programs to their great benefit. Nothing to do with the government.

Now we have representatives of such companies as Apple Inc., Microsoft Corp., Walmart Inc., Lockheed Martin Corp, and Toyota Motor Corp being invited to the White House so they might sign a pledge to participate in this program, and if they’re really lucky they’ll get a visit from Ivanka, Mike Pence and cabinet members just to see how things are going.

There is no federal funding involved in this initiative, which has allowed Donald Trump to make it clear that he considers employee training the responsibility of the employers. Big deal, who else’s responsibility would it be? What is the point of all this?

The AFL-CIO thinks this is a license to lower the standards of apprenticeship programs across the country. Not sure why that would be, neither who would benefit from a reduction in the standards of any program of this kind.

It’s difficult to understand how companies could thrive without some intelligent form of training

22

Metals & Manufacturing Outlook / September 2019

program. Companies like Apple, Microsoft and Lockheed Martin could surely not. Toyota, when they started to build the Lexus in Kentucky, sent employees to Japan for training and brought people from Japan to train others in Kentucky.

We’ve said it before and we’ll say it again: there is no substitute for good, honest, on-the-job training. Even Trump and daughter should appreciate that.

There’s an interesting twist to all this, as reported, strangely enough, by the BBC. They recently wrote about companies in the U.S. being desperate to retain aging staff, and highlighted a Mr. Roger Klug, 70, who is in his 47th year at Alexandria Industries, an aluminum company in rural Minnesota. With the attendant labor and skills shortages in the area, management just didn’t want to see Mr. Klug go.

Since March 2018, U.S. monthly job vacancies have outnumbered unemployed job seekers. As the baby boomers reach retirement it seems there are not enough millennials in the pipeline ready to step in.

So Mr. Klug stays on. He negotiates two days a week and continuing health care benefits. He works and passes on his skills to the generation following him.

Good for Mr. Klug, good for his co-workers and particularly good for Alexandria industries.

There’s a lot to be said for older employees; they’re more reliable, no kids to take care of, no hectic social life, and always well stocked with valuable experience.

The U.S. Bureau of Labor Statistics (BLS) estimates that people 55 or older are expected to have the fastest growing labor participation rate over the next five years. Within this age group, those 65 and older are expected to see the fastest expansion. Maybe Ivanka should invite Mr. Klug to the White House.

ENERGY OUTLOOK

SEPTEMBER2019

ENERGY OUTLOOK

by ROYCE LOWE

China burns about half the world’s coal each year, but fortunately its appetite seems to be on the wane. Last year it burned about 4 billion tons, which is still below 2013’s peak of 4.24 billion tons. Coal’s share of China’s energy mix has fallen by about ten percent over the past decade to 59 percent.

According to the IEA, China has one third of the world’s wind turbines and one quarter of its solar panels. In the Paris agreement, China promised that its carbon dioxide emissions would stop growing by 2030.

Then there is India - coincident with China’s cleanup efforts - the world’s most enthusiastic builder of coal-fired plants. In its submissions for the Paris accord, India predicted a tripling of electricity demand between 2012 and 2030. Coal consumption increased by 9 percent in 2018.

India cannot afford to import cleaner but more expensive liquefied natural gas as Japan, South Korea and increasingly, China do. There is, however, a government bias, as the Indian government owns 70 percent of Coal India, the giant mining firm that produces most of the country’s coal.

Coal is still very much king in Asia. Asia needs more and more electricity, so for the near future, Asia needs coal.

Asia mines and burns three quarters of the world’s coal. Between 2006 and 2016 the continent’s consumption of coal grew 3.1 percent per year.

China is by far the world’s largest producer of coal, India the second biggest; hence the carbon emissions. Japan and South Korea are also big consumers; Australia and Indonesia big producers.

The International Energy Agency (IEA) states that Southeast Asia was the world’s only region in which coal’s share of power generation grew in 2018.

If, according to the Paris Climate Change Agreement, 1.5 degrees C of global warming is to be avoided, virtually all the planet’s coal-fired plants need to close by 2050, given the vast quantity of greenhouse gases produced by the mining, transporting and burning of coal. No new coal-fired plants should be built from 2020 on, says the UN Secretary-General. It is predicted that Asia’s last coal plant will close in 2079. Things must change in Asia.

Greener power sources are beginning to spread in India. Five years ago, then new prime minister Modi’s government announced a plan to quadruple India’s renewable-energy capacity to 175 gigawatts by 2022. Indian renewables now cost less than three rupees ($0.04) per KwH, below domestic coal at four rupees per KwH. Vietnam, Indonesia and the Philippines are all touting solar and wind power.

Some investors are growing leery of coal, with banks less ready to jump in. China, however, through its Belt and Road Initiative, will put billions into building coal-fired plants in Bangladesh, Indonesia, Pakistan and Vietnam, among other countries. So, although these countries announce their intention to push renewables, they still need increasing amounts of electricity, hence of coal. On China’s part, this is give with one hand, take with the other.

If the governments of China and India continue to pump money into coal via state-owned banks, the fate of the climate will be sealed, whatever other, cleaner forms of generation they encourage.

Where does the U.S. stand in all this? After peaking at just over 1.1 billion tons around 2007, U.S. coal consumption fell to around 700 million tons in 2018.

They left the Paris Accord, but many states are investing heavily in renewable energy.

So who can, will, ask China and India to stop putting all that money into coal?

Metals & Manufacturing Outlook / September 2019

23

GLOBAL PMI OUTLOOK

GLOBAL PMI OUTLOOK

expansion due to the inventory cycle that challenges supply chains to remain stocked, but not overstocked.

No doubt, uncertainty is rampant. Political and financial challenges are adding to existing supply chain concerns. The U.S. seems to be dealing with these challenges as well as (if not better than) many of our global customers and suppliers. The scatterplot below illustrates the weakness around the globe as 11 of 18 indexes are below the mid-point.

The ISM PMI posted a worrisome number on Tuesday (49.1). Over the past 12 months, the U.S. Mfg PMI has been trending down, averaging 54.4 with a high of 59.5 and a low of 49.1. Meanwhile, the NMI has been a stalwart, averaging 57.4 with a high of 60.8 and low of 53.7.

Eurozone: The Eurozone PMI (47.0 +0.5) was contractionary for the seventh consecutive month.

In August, EZ growth was in Greece (54.9, +0.3), the Netherlands (51.6, +0.9), and France (51.1, +1.4).

Germany (43.5, +0.3), Austria (47.9, +0.9), Ireland (48.6, -0.1), Italy (48.7, +0.2, and Spain (48.8, +0.6) failed to grow.

by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL SURVEYS, STRATEGAS RESEARCH PARTNERS

We are seeing a manufacturing slowdown amid an overall expansion. Non-manufacturing is the largest sector of the U.S. economy, economists focus on manufacturing because it tends to lead business cycles and has more variability. However, it is not uncommon to have a manufacturing correction during an

24

Metals & Manufacturing Outlook / September 2019

United Kingdom: The UK/CIPS PMI (47.4, -0.6) saw manufacturing fall further into negative territory as the index hit a seven-year low. The contraction was driven by both political & economic concerns and lack of market confidence – all of which hurt spending.

GLOBAL PMI OUTLOOK

China: China’s Official Report, the CFLP PMI (49.5, -0.2), and the Caixin Manufacturing PMI (50.4, +0.5) remained near the mid-point, failing to provide a true indication of the tariffs on China.

India: India’s PMI (51.4, -1.1) expansion continued for a 25th consecutive month! India’s Manufacturing PMI has averaged 52.5 for the past 25 months.

South Korea: The PMI (49.0, +1.7) remained in contractionary territory in August. The PMI posted a reading below 50 for a fourth consecutive month.

North America: Canada’s PMI (49.1, -1.0) has contracted four of the last five months. Mexico’s PMI

(49.0, -0.7) has averaged 50.2 year-to-date, indicating little change in the overall manufacturing sector.

In August, the U.S. manufacturing ISM PMI® (49.1, -2.1) contracted for the first time since August 2016.

It was only a year ago the PMI reached an impressive rate of growth at 60.8. Then the PMI began a slow deceleration, averaging one point per month prior to falling below the mid-point in August. The past relationship between the PMI® and the overall economy indicates that the PMI® for August (49.1) corresponds to a 1.8 percent increase in real gross domestic product (GDP) on an annualized basis according to the press release.

Metals & Manufacturing Outlook / September 2019

25

EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE

by ROYCE LOWE

IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) continued in contraction with the ongoing manufacturing slump.

August’s PMI was at 47.0, up slightly from July’s 46.5.

Production and new orders continue to drop as confidence hits its lowest since November 2012.

The downturn remains at the intermediate and investment goods sectors, with consumer goods continuing to expand at a solid rate.

Conditions in Germany continue to deteriorate significantly.

Export sales remain weak. Backlogs are being reduced with an attendant drop in employment.

Crude steel production in Germany in July was at 3.360 MT, down 1.0 percent year-over-year; in Italy 2.130 MT, down 1.2 percent year-over-year; in France 1.330 MT, down 0.6 percent year-over-year and in Spain 1.100 MT, up 15.7 percent year-over-year.

Passenger car registrations in Germany in August, at 313,748 units, were off 0.8 percent year-over-year but Y.T.D. was up 0.9 percent at 2,495,536 units.

French sales were off 14 percent year-over-year in August due to required upcoming WLTP (Worldwide harmonized Light vehicle Testing Procedure), to 129,259 units. There were 21 selling days in August as compared to 22 in 2018. Sales in Italy were off 3.5 percent year-over-year at 89,353 units, with Y.T.D. off 3.3 percent at 1,330,749 units. Spain was down 30.8 percent to 90,774 units.

Russia’s crude steel production for July was at 6.200 MT, down 1.5 percent year-over-year; Ukraine’s was 1.784 MT, down 1.7 percent year-over-year.

26

Metals & Manufacturing Outlook / September 2019

IHS Markit’s PMI for the UK was down from July’s 48.0 to 47.4 in August, its lowest since July 2012.

Production and new orders contracted at the fastest pace for over seven years, with business optimism falling to a series-record low.

All three categories, consumer, intermediate, and investment goods were adversely affected. Both domestic and export sales fell. There were reports that some EU-based clients were diverting supply chains from the UK due to Brexit.

Employment fell at one of its fastest rates over the past six-and-a-half years; business confidence is at its lowest in over seven years.

UK car registrations were off 1.6 percent year-overyear at 92,573 units.

The UK produced 0.645 MT of crude steel in July, down 6.1 percent year-over-year.

ASIA OUTLOOK

GLOBAL OUTLOOK

ASIA OUTLOOK

by ROYCE LOWE

CHINA saw its quickest increase in production for five months, with new orders stable despite a faster drop in export sales. Purchasing activity increased and stocks of finished goods increased for the first time this year.

Optimism regarding the twelve-month outlook softened due to concerns over future China-U.S. trade relations.

The PMI for August is at 50.4, up from July’s 49.9 CHINA produced 85,223 MT of crude steel in July, up 5.0 percent year-over-year; Japan 8.387 MT, down 0.4 percent year-over-year; India 9.215 MT, up 1.7 percent year-over-year and South Korea 6.041 MT, down 2.1 percent year-over-year. Taiwan produced 1.890 MT in July, down 4.4 percent.

China’s vehicle sales in the first seven months of the year, according to the Chinese Association of Automobile Manufacturers, were 14,132 million units, or a year-over-year decrease of 11.4 percent.

JAPAN saw sluggish demand in August, with production and new orders continuing to decline.

Firms cut selling prices in efforts to stimulate sales.

Business confidence continues to fall, but through all its woes, Japan’s employment continues to grow at a historically solid rate.

The PMI for August fell very slightly to 49.3 from July’s 49.4.

INDIA saw slower growth for new orders, employment and production. Input buying fell for the first time since May 2018.

Business confidence increased to a 16-month high.

The PMI retreated from July’s 52.5 to 51.4 in August.

Metals & Manufacturing Outlook / September 2019

27

SOUTH AMERICAN OUTLOOK

GLOBAL OUTLOOK

SOUTH AMERICA

by ROYCE LOWE

BRAZIL saw an improvement in August with good increases in new orders and production, which led to increases in input buying and employment. Sales expanded at the strongest pace in some 18 months. There was an increase in production for the ninth successive month, and at the quickest pace in a year.

The PMI in August at 52.5 was up from July’s 49.9, and business sentiment improved.

Brazil’s crude steel production for the month of July was 2.449 MT, a decrease year-over-year of 20.7 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) – improved very slightly from July’s 49.3 to 49.5 in August.

This represents the fourth month in contraction, with new orders contracting at the joint-fastest rate in almost seven years, led by the steepest reduction in international trade volumes since 2012. Production rose slightly in August, following back-to-back contractions in the previous two months. Employment was down for the fourth successive month in August.

Business optimism was at its lowest level since first tracked by the survey in July 2012.

28

Metals & Manufacturing Outlook / September 2019

WHY OVER-PRODUCTIVITY IS COUNTER PRODUCTIVE FOR WOMEN IN BUSINESS

WHY OVER-PRODUCTIVITY IS COUNTER-PRODUCTIVE FOR WOMEN IN BUSINESS AN INTROSPECTIVE BY ANDREA BELK OLSON

I was employed as one of the first female executives in a male-dominated industry. To say this was a challenge is an understatement. While I was very experienced in my role, was provided a great team of 40+ direct and indirect reports, had an ample budget, and latitude to design and implement a new vision, it was still an uphill battle.

The organization was fundamentally a “good ol’ boys” club, and I was neither old nor a boy. So I started like many women do, diving headfirst into being as productive as humanly possible. And it was exactly the opposite of what I needed to do to get ahead.

I tackled an inordinate amount of organizational challenges, from rearchitecting a global brand to implementing new digital platforms and processes, to employee engagement strategies.

On top of this, I joined multiple organizations, gained a series of certifications, and did countless customer visits across the globe. I became exhausted. Rarely was I even home. Yet with all of this investment, my organizational status didn’t change. Intent on “climbing the ladder”, I would propose to the CEO new strategic opportunities to grow the business, with a clear and detailed business plan, full of benchmarking and competitive data. My team was challenged but was given more latitude and independence than other departments (and most all still stay in frequent communication 15 years later). What was the problem?

In short, it was being over-productive. Many women in leadership and executive roles fall into this trap as well. While I was focused on Metals & Manufacturing Outlook / September 2019

29

WHY OVER-PRODUCTIVITY IS COUNTER PRODUCTIVE FOR WOMEN IN BUSINESS

that didn’t align fully with their department’s mission. In short, they were selective with their time and were confident and steadfast to those decisions.

productivity and accomplishing as much as possible to “prove my worth”, my male peers were taking a more strategic approach. It wasn’t that they produced less (though it might have felt that way at times), it was that they were selective about what they focused on. They didn’t try to change the world, they just tried to change one thing - and then moved onto the next. They identified specific areas where they would focus their time and ONLY spent their time there. It was clear - I was simply taking on too much.

This is a common trap, specifically for women, across all roles in business. I’ve spoken to countless women who are tired, burnt out and frustrated about all of the work and time they put in without promotions, raises, or sometimes even praise. But I contend we are putting this burden upon ourselves. Without taking a strategic approach to how we select the things we commit to and identify how they impact our larger goals, we end up doing too much with little return.

By examining the behavior and strategic approach of my male counterparts, 5 strategies that I was missing became clear throughout all of my overproductivity: 1. Strategic Use of Time - My peers didn’t fill up every minute of their day. They didn’t feel guilty when setting aside time to be uninterrupted.

They didn’t volunteer or take on commitments

30

Metals & Manufacturing Outlook / September 2019

2. Strategic Communication My male counterparts focused a strong amount of time on communication with each other and the CEO. Information was provided in small, digestible chunks, rather than lengthy multi-page studies, whitepapers or reports. They stayed attentive and attuned to the ever-changing trends in the company, focusing on financial performance and strategically selected when and where a new “ask” would be made. They were both casual and formal in their communications, but found a solid balance between them - they weren’t “on” and intense about the business when it wasn’t suitable.

3. Strategic Selection of Commitments - When my peers did commit to something outside of their area, such as taking on a board seat or volunteering for a committee, they did so strategically. It was rarely a commitment for personal interest, but rather a strategic connection to their department, or an area where they would increase their visibility and engagement with other leaders that would help downstream initiatives. They didn’t overcommit - each one had only a handful of additional commitments and turned down many more. If a new opportunity arose, they would evaluate and leave one before adding another.

4. Strategic Development of Personal Brand - My peers also were very purposeful when it came to building their own personal brand within the organization. Whether it be new idea generation, competitive intelligence, or financial acumen, each took on a focused and consistent approach to ensure the organization as a whole knew they were the “go-to” guy in their respective areas.

They didn’t try to wade into territory they weren’t

WHY OVER-PRODUCTIVITY IS COUNTER PRODUCTIVE FOR WOMEN IN BUSINESS

knowledgeable in, and this also helped each of them to clearly identify who the subject-matter experts were.

5. Strategic Control - In most circumstances, my peers focused on ensuring they maintained control and knowledge about the things that mattered most. Never did they show up to an important meeting unprepared. Never did they voice being overwhelmed or having too much to do - if this was the case, it was always framed in a business perspective, rather than a personal one. They would take time off when they needed to, without apology. They never stated their team couldn’t take on more, but rather focused on defining the scope and timing of additional initiatives.

In short, what I learned was that while I was focusing on building respect and gaining

inclusiveness with my male peers, it wasn’t about my skillsets, ability or knowledge. My peers were taking a different approach to their productivity, and it was effective, both personally and professionally. As women in business, we should re-examine our approach - instead of trying to prove our worth by doing everything, we should take a page from the boys and craft a strategy.

About the Author: This introspective essay was previously published on LinkedIn. com by Andrea Olson. In addition to writing and consulting, Andrea Olson speaks to leaders and industry organizations around the world on how to craft effective customer-centric organizations. More information is available on pragmadik.com or thecustomermission.com.

Metals & Manufacturing Outlook / September 2019

31

ISM REPORT OUTLOOK

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

BREAKING NEWS

ISM PMI at 49.1% for August ISM PMI for the past 5 years

32

Metals & Manufacturing Outlook / September 2019

ISM REPORT OUTLOOK

ISM® REPORT ON BUSINESS®

MANUFACTURING E

conomic activity in the manufacturing sector contracted in August, and the overall economy grew for the 124th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The August PMI® registered 49.1 percent. The New Orders Index registered 47.2 percent, a decrease of 3.6 percentage points from the July reading of 50.8 percent. The Production Index registered 49.5 percent, a 1.3-percentage point decrease compared to the July reading of 50.8 percent.

The Employment Index registered 47.4 percent, a decrease of 4.3 percentage points from the July reading of 51.7 percent.

The Supplier Deliveries Index registered 51.4 percent, a

AUGUST 2019 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® Manufacturing Business Survey Committee

1.9-percentage point decrease from the July reading of 53.3 percent. The Inventories Index registered 49.9 percent, an increase of 0.4 percentage point from the July reading of 49.5 percent. Comments from the panel reflect a notable decrease in business confidence. August saw the end of the PMI® expansion that spanned 35 months, with steady expansion softening over the last four months. Of the 18 manufacturing industries, nine reported growth in August, in the following order: Textile Mills; Furniture & Related Products; Food, Beverage & Tobacco Products; Wood Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Machinery; Miscellaneous Manufacturing ‡; and Chemical Products.

PMI @ 49.1% ®

‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

MANUFACTURING AT A GLANCE Aug Index 49.1 47.2 49.5 47.4 51.4 49.9 44.9 46.0 46.3 43.3 46.0

July Index 51.2 50.8 50.8 51.7 53.3 49.5 45.7 45.1 43.1 48.1 47.0

% Point Change -2.1 -3.6 -1.3 -4.3 -1.9 +0.4 -0.8 +0.9 +3.2 -4.8 -1.0

Faster

Trend* (months) 1 1 1 1 42 3 35 3 4 2 2

OVERALL ECONOMY

Growing

Slower

124

Manufacturing Sector

Contracting

From Growing

Index PMI® New Orders Production Employment Supplier Deliveries Inventories Customers’ Inventories Prices Backlog of Orders New Export Orders Imports

Rate of Change From Growing From Growing From Growing From Growing Slower Slower Faster Slower Slower Faster

Direction Contracting Contracting Contracting Contracting Slowing Contracting Too Low Decreasing Contracting Contracting Contracting

1

*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 2017

50% = Manufacturing Economy Breakeven Line

2018

2019

49.1%

PMI® Manufacturing contracted in August, as the PMI® registered 49.1 percent, a decrease of 2.1 percentage points from the July reading of 51.2 percent. This is the lowest reading since January 2016, when the index registered 48 percent. The PMI® contracted for the first time since August 2016 (when it registered 49.6 percent) and ended a 35 month expansion period in which the composite index averaged 56.5 percent.

42.9% = Overall Economy Breakeven Line

COMMODITIES REPORTED Commodities Up in Price: Polypropylene; Scrap; and Steel — Hot Rolled*.

Commodities Down in Price: Aluminum (5); Aluminum Products (2); Caustic Soda; Corrugated Boxes (3); Natural Gas; Crude Oil; Pulp; Steel (2); Steel — Hot Rolled*; Steel Products* (8); and Steel — Stainless.

Commodities in Short Supply: Electronic Components; and Helium (2).

Metals & Manufacturing Outlook / September 2019

14

Note: The number of consecutive months the commodity is listed is indicated after each item. *Reported as both up and down in price.

SEPTEMBER 2019

33

ISM REPORT OUTLOOK

ISM Report On Business ®

®

manufacturing

August 2019 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

New Orders (Manufacturing) 2017

2018

52.5% = Census Bureau Mfg. Breakeven Line

2019

47.2%

New Orders ISM’s New Orders Index registered 47.2 percent. Of 18 manufacturing industries, three reported growth in new orders in August: Nonmetallic Mineral Products; Machinery; and Chemical Products. The 11 industries reporting a decline in new orders in August — in the following order — are: Apparel, Leather & Allied Products; Paper Products; Wood Products; Transportation Equipment; Textile Mills; Fabricated Metal Products; Petroleum & Coal Products; Plastics & Rubber Products; Primary Metals; Miscellaneous Manufacturing‡; and Computer & Electronic Products.

Production (Manufacturing) 2017

2018

2019

Production ISM’s Production Index registered 49.5 percent. The four industries reporting growth in production during the month of August are: Textile Mills; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; and Chemical Products.

49.5%

51.7% = Federal Reserve Board Industrial Production Breakeven Line

Employment (Manufacturing) 2017

2018

2019

47.4%

50.8% = B.L.S. Mfg. Employment Breakeven Line

Supplier Deliveries (Manufacturing) 53.1% 2017

2018

2019

51.4%

Employment ISM’s Employment Index registered 47.4 percent. Of 18 manufacturing industries, six reported employment growth in August, in the following order: Furniture & Related Products; Textile Mills; Miscellaneous Manufacturing‡; Petroleum & Coal Products; Nonmetallic Mineral Products; and Paper Products.

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations slowed in August, as the Supplier Deliveries Index registered 51.4 percent. The eight industries reporting slower supplier deliveries in August — listed in order — are: Wood Products; Textile Mills; Computer & Electronic Products; Machinery; Paper Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing‡; and Transportation Equipment.

Inventories (Manufacturing) 2017

2018

2019

49.9%

Inventories The Inventories Index registered 49.9 percent. The seven industries reporting higher inventories in August — listed in order — are: Printing & Related Support Activities; Wood Products; Petroleum & Coal Products; Textile Mills; Electrical Equipment, Appliances & Components; Primary Metals; and Food, Beverage & Tobacco Products.

44.3% = B.E.A. Overall Mfg. Inventories Breakeven Line

‡Miscellaneous

Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

34

Metals & Manufacturing Outlook / September 2019

ISM REPORT OUTLOOK

ISM Report On Business ®

®

manufacturing

August 2019 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

Customer Inventories (Manufacturing) 2017

2018

2019

44.9%

Customers’ Inventories ISM’s Customers’ Inventories Index registered 44.9 percent. The six industries reporting customers’ inventories as too high during the month of August, in order, are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Primary Metals; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing‡; and Computer & Electronic Products.

Prices (Manufacturing) 2017

2018

2019

Prices The ISM Prices Index registered 46 percent. Four of the 18 industries reported paying increased prices for raw materials in August: Plastics & Rubber Products; Computer & Electronic Products; Fabricated Metal Products; and Miscellaneous Manufacturing‡.

46% 52.5% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line

Backlog of Orders (Manufacturing) 2017

2018

2019

Backlog of Orders ISM’s Backlog of Orders Index registered 46.3 percent. The five industries reporting growth in order backlogs in August are: Nonmetallic Mineral Products; Plastics & Rubber Products; Miscellaneous Manufacturing‡; Fabricated Metal Products; and Computer & Electronic Products.

46.3%

New Export Orders (Manufacturing) 2017

2018

2019

43.3%

New Export Orders ISM’s New Export Orders Index registered 43.3 percent. The two industries reporting growth in new export orders in August are: Furniture & Related Products; and Food, Beverage & Tobacco Products. The 10 industries reporting a decrease in new export orders in August — listed in order — are: Petroleum & Coal Products; Apparel, Leather & Allied Products; Primary Metals; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Paper Products; Transportation Equipment; Machinery; Miscellaneous Manufacturing‡; and Computer & Electronic Products.

Imports (Manufacturing) 2017

2018

2019

Imports ISM’s Imports Index registered 46 percent. The four industries reporting growth in imports during the month of August are: Furniture & Related Products; Textile Mills; Nonmetallic Mineral Products; and Miscellaneous Manufacturing‡.

46% ‡Miscellaneous

Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

Metals & Manufacturing Outlook / September 2019

35

ISM REPORT OUTLOOK

Leading2Lean

ª

ARE YOU READY FOR MANUFACTURING 4.0?

36

Get ready for the next evolution in manufacturing

Metals & Manufacturing Outlook / September 2019

Metals & Manufacturing Outlook / September 2019

37

38

Metals & Manufacturing Outlook / September 2019

Metals & Manufacturing Outlook / September 2019

39

40

Metals & Manufacturing Outlook / September 2019

Metals & Manufacturing Outlook / September 2019

41

42

Metals & Manufacturing Outlook / September 2019

Metals & Manufacturing Outlook / September 2019

43

The Manufacturing & Business Podcast Network

O U R

P O D C A S T S :

MFGTALKRADIO.COM

L I S T E N TO O U R P O D C A S T S AT:

www.jacketmediaco.com