Metals & MFG Outlook Newsletter for December 2015

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Metals & MFG Outlook – December 2015

I. Cover Story: Now what?
II. NORTH AMERICAN PERSPECTIVE
III. U.S. FORGING INDUSTRY IV. MANUFACTURING TALK RADIO
V. EUROZONE
VI. ASIA OUTLOOK
VII. SOUTH AMERICA
VIII. THE GLOBAL SUMMARY
IX. CREDIT MANAGERS INDEX
X. THE MANUFACTURING SCENE
XI. THE FINAL WORD

PUBLISHER’S STATEMENT

Remember the boom times way back when? When you could hardly keep up with orders? When lead times were months instead of weeks or days? So do we, but we’re not writing about that yet. The prognosis from most quarters is favorable and no one is talking recession except media desperate for attention.

However – our government continues to pound manufacturing with new taxes and new regulations. Exactly what do they expect to happen to jobs and consumer spending? At some point, the government may cause the very downturn in GDP they wish to avoid. Consumers don’t have endless buying power because wages are mostly stagnant, and their borrowing power in credit cards or home equity evaporated in 2008. The only wiggle room they have had are low gas prices at the pump. If those begin to rise, then consumer spending may weaken.

Additional new taxes and more new regulations may cause employment in 2016 to begin to retrench. This may be further accelerated by new technology implanted to perform mundane and repetitive jobs. Costs will be passed on to consumers because manufacturers cannot endlessly absorb them. And, manufacturers are still grappling with regulations from 2015 and 2014. Bottom line: the government isn’t helping.

Manufacturing Talk Radio will be covering the shifts in the industry each and every week with a watchful eye on these dynamics. Did you know that the recovery from every recession over the last 100 years has been led by a recovery in manufacturing? The services sector may be a larger percentage of GDP, but unless something is made and bought – nothing happens. And the coolest jobs with the latest technology in R&D and operations are going to be in manufacturing over the next decade. ‘Green’ isn’t just a discussion – it’s a better product or a way of winnowing out waste such as toxic waste, machining waste, packaging waste, time waste, energy waste and planet resources waste.

If you have been listening, you know that we report on the stories behind the sound bites. There is no ‘gotcha’ in our game. We believe all the men and women working in manufacturing or who are impacted by manufacturing deserve the details that make the headline a story. Look at what you drive, sleep on, eat with, drink from, dress in and recognize that our lives directly or indirectly depend on manufacturing.

So, as you read this issue of Metals & Manufacturing Outlook, we’d still like to hear from more of you. Send you comments to publisher@steelforge.com. Until then, enjoy the ebbs and flows of each of the following sections.

Sincerely,

Lewis A Weiss, Publisher

I. COVER STORY: NOW WHAT?

by Royce Lowe

Not many of us would have predicted a further fall in the ISM PMI figure for the U.S. manufacturing economy, but that’s exactly what we got. Apart from employment, all indices were down in the month of November and that might be the encouraging news: more people are being hired so better things must be around the corner? But new orders are down and so are backlogs. So what we’ll all need to do is just wait and see, and with Christmas coming up that’s maybe all a lot of us will want to do.

It’s interesting to note that Markit comments upon the resilience of manufacturing growth, good to hear in these somewhat uncertain times. Coincident with this is a moderate improvement in Europe, and the word from India that its economy will be ‘the one to watch’ for the next couple of years. Brazil is telling competitors in next year’s Olympics they’ll need to air condition their own dorms. So things aren’t getting much better in Brazil.

The PMI figure from the Institute of Supply Management fell from 50.1 to 48.6 percent in November, moving into contraction territory for the first time in 36 months. There was growth in the overall economy for the 78th consecutive month.

The Markit PMI for the U.S. manufacturing sector fell from October’s 54.1 figure to 52.8, a 25-month low, on the back of the weakest improvement in business conditions since October 2013, with production, new orders and employment all expanding at lower rates. New export orders fell for the first time since August this year.

Growth in production, at a seven-year high in October, moderated in November and backlogs of work decreased for the first time since November 2014. Through all this, while the pace of manufacturing growth appears to have slowed in November, it remains resilient – all the more noteworthy considering the dollar’s strength and the weakness in overseas markets.

The five ISM components are equally weighted at 20 percent each. The Markit components are weighted: 30 percent New Orders, 25 percent Production, 20 percent Employment, 15 percent Supplier Deliveries and 10 percent Raw Materials Inventories.

The Bureau of Economic Analysis came out with its ‘second’ estimate for the annual rate of Real GDP growth in the third quarter of 2015, placing it at 2.1 percent. The figure for the second quarter was 3.9 percent. The Real GDP is the value of goods and services produced by the nation’s economy, less the value of the goods and services used in production, adjusted for price changes.

The Dun and Bradstreet Economic Health Index for November stated that   214,000 new non-farm jobs were added to U.S. payrolls in the month, with gains in all sectors except Manufacturing. According to DNB the Small Business Health Index fell 1.1 points in the month of November.

DNB say their Overall Business Health Index fell by 0.2 percent month-on-month, the first drop in six months. DNB further state, ” despite this month-to-month drop active and open businesses remain near lowest level of risk compared to the prior five years.” In effect the latest data reflect an economy that is stronger than a year ago.

GALLUP’s U.S. Economic Confidence Index began the month of December at -12, whereas the Gallup Job Creation Index was showing a +31 figure.

World crude steel production for the 66 reporting countries for the month of   October 2015 was 133.64Mt, down 3.2 percent from the October 2014 figure.

U.S. crude steel production, for October 2015 was 6.74Mt, down 9.6 percent y-o-y.

Primary Global Aluminum Production in October 2015 was 4.908 million tonnes. Of this total, 2.675 million tonnes, almost 55 percent, was produced in China. The Gulf Corporation Council (GCC) produced 433,000 tonnes, North America 377,000 tonnes.

Here are the latest figures for US new car and light truck sales for ‘the big eight’ for November 2015. 

The ‘Big Eight’ November ’15 November ’14 YTD % change
General Motors 229296 225818 1.5
Ford 186889 186334 0.3
Toyota 189517 183346 3.4
FCA 172901 167704 3.1
Honda 115441 121814 -5.2
Nissan 107083 103118 3.8
Hyundai/Kia 105560 98608 7
VW 23882 31725 -24.7
Total new   cars and light trucks 1319913 1302043  1.4

 

                       CARS                  LIGHT TRUCKS             TOTAL 

NOV 2014       597557                 704486                          1302043

NOV 2015       546757                 773156                          1319913

                       -8.5%                    +9.7%                             +1.4%

Total YTD light vehicle sales are up 5.4 percent over 2014.

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

The figures for GDP represent the % change on the previous quarter, annual rate. The industrial production figures represent year-on-year changes, as do the consumer prices increases. The unemployment figures, %, are for the month as noted.

  GDP Indl Prodn Cons prices Unemployt
United States +2.1 (qtr) +0.3 (Oct) +0.2 (Oct) 5.0 (Oct)
Canada -0.5 (qtr) – 0.5 (Aug) +1.0 (Oct) 7.0 (Oct)
China +7.4 (qtr) +5.6 (Sept) +1.3 (Oct) 4.1 (Qtr 3)
Japan – 0.8 (qtr) -0.9 (Sept) -0.8 (Sept) 3.4 (Sept)
Britain +2.0 (qtr) +1.1 (Sept) -0.1 (Oct) 5.3 (Aug)
Euro Area +1.2 (qtr) +1.7 (Sept) +0.1 (Oct) 10.8 (Sept)
France +1.4 (qtr) +1.6 (Sept) +0.1 (Oct) 10.7 (Sept)
Germany +1.3 (qtr) +0.2 (Sept) +0.3 (Oct) 6.4 (Oct)
Spain +3.2 (qtr) +4.0 (Sept) -0.7 (Oct) 21.6 (Sept)
India + 6.6 (qtr) +3.6 (Sept) + 5.0(Oct) 4.9 (2013)
Brazil – 7.2 (qtr) -10.8 (Sept) + 9.9 (Oct) 7.9 (Oct)
Taiwan +0.2 (qtr) – 6.2 (Oct) + 0.3 (Oct) 3.8 (Oct)
Mexico +3.0 (qtr) + 1.7 (Sept) +2.5 (Oct) 4.2 (Sept)

 

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II. NORTH AMERICAN PERSPECTIVE

by Royce Lowe

The Institute of Supply Management PMI figure registered 48.6 percent in November, down 1.5 percentage points from October’s 50.1 reading, representing the first contraction in manufacturing for 36 months and growth in the overall economy for the 78th consecutive month. Of the eighteen manufacturing industries, five are reporting growth in November in the following order: Printing & Related Support Activities; Non-metallic Mineral Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Transportation Equipment. The 10 industries reporting contraction in November — listed in order — are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Machinery; Primary Metals; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Furniture & Related Products; Fabricated Metal Products; and Chemical Products.

Food, Beverage & Tobacco Products respondents say that month-over-month conditions are stable. Fabricated Metal Products personnel say automotive is still strong. Chemical Products respondents say they are still seeing deflation in raw materials. Computer & Electronic Product respondents say bookings and new orders are lower than expected. From the Machinery area we hear that the downturn in China and the European markets are negatively affecting their business. Transportation Equipment personnel say that business is still good.

Primary Metals are reporting that the strong dollar is hurting sales to China as they can buy in Europe. Miscellaneous Manufacturing reports that medical devices continue to be strong, while Furniture & Related Products state that incoming orders have leveled off from the summer.

Finally, Petroleum & Coal Products are saying that the oil and gas industry is accepting the present oil prices as a factor to be lived with for some time.

The following 5 components of the ISM’s PMI, New Orders, Production, Employment, Supplier Deliveries and Inventories are equally weighted and used to calculate the PMI number. A monthly PMI over 50.0 indicates an expanding economy; a number over 60.0 indicates strong manufacturing output, although overheating may occur.

  1. The ISM New Orders Index for November, at 48.9 percent, was down 4.0 percentage points on October’s 52.9 percent reading, indicating contraction in new orders for the first time since November 2012, when the New Orders Index was at 49.5 percent. The five industries reporting growth in new orders in November are: Electrical Equipment, Appliances & Components; Non-metallic Mineral Products; Miscellaneous Manufacturing; Chemical Products; and Primary Metals. The eight industries reporting a decrease in new orders during November — listed in order — are: Apparel, Leather & Allied Products; Paper Products; Plastics & Rubber Products; Machinery; Furniture & Related Products; Transportation Equipment; Fabricated Metal Products; and Computer & Electronic Products.
  2. The ISM Production Index is at 49.2 percent in November, down 3.7 percentage points from October’s 52.9 percent reading, representing contraction in production for the first time since August 2012, when the Production Index registered 49.1 percent. The five industries reporting growth in production during the month of November are: Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Furniture & Related Products; Fabricated Metal Products; and Food, Beverage & Tobacco Products. The seven industries reporting a decrease in production during November — listed in order — are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Machinery; Primary Metals; Plastics & Rubber Products; Transportation Equipment; and Chemical Products. Six industries reported no change in November compared to October.
  3. The ISM Employment Index for November, at 51.3 percent, is up 3.7 percentage points on October’s 47.6 reading, representing a return to growth in the Employment Index following one month of contraction. Nine of the 18 manufacturing industries reported growth in November, namely, in order: Textile Mills; Printing & Related Support Activities; Paper Products; Non-metallic Mineral Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Transportation Equipment; Chemical Products; and Miscellaneous Manufacturing. The five industries reporting a decrease in employment in November are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Machinery; and Computer & Electronic Products.
  4. The ISM Supplier Deliveries Index indicates that the delivery performance of suppliers to manufacturing organizations was slower in November as the Supplier Deliveries Index registered 50.6 percent, which is 0.2 percentage points higher than the 50.4 percent reported in October. This is the fourth month of slower supplier deliveries, following two consecutive months of faster supplier deliveries. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries. The three industries reporting slower supplier deliveries in November are: Food, Beverage & Tobacco Products; Transportation Equipment; and Chemical Products. The eight industries reporting faster supplier deliveries during November — listed in order — are: Primary Metals; Plastics & Rubber Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Miscellaneous Manufacturing; Machinery; and Fabricated Metal Products. Seven industries reported no change in supplier deliveries in November compared to October.
  5. The ISM Inventories Index, at 43.0 percent for November, is 3.5 percentage points below October’s 46.5 percent reading, indicating a contraction of inventories in November for the fifth consecutive month. The three industries reporting higher inventories in November are: Non-metallic Mineral Products; Transportation Equipment; and Computer & Electronic Products. The 11 industries reporting lower inventories in November — listed in order — are: Apparel, Leather & Allied Products; Textile Mills; Electrical Equipment, Appliances & Components; Primary Metals; Plastics & Rubber Products; Machinery; Furniture & Related Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Chemical Products.

The following 5 components of the ISM’s PMI, Customer Inventories, Prices, Backlog of Orders, Exports and Imports are not used to calculate the PMI number but are tracked for trends in the marketplace.

  1. The ISM Customers’ Inventories Index registered 50.5 percent in November, 0.5 percentage points lower than October’s 51.0 reading, meaning that customers’ inventories are considered to be too high for the fourth consecutive month. The seven manufacturing industries reporting customers’ inventories as being too high during the month of November — listed in order — are: Petroleum & Coal Products; Furniture & Related Products; Primary Metals; Chemical Products; Fabricated Metal Products; Transportation Equipment; and Machinery. The five industries reporting customers’ inventories as too low during November are: Plastics & Rubber Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; and Computer & Electronic Products.
  2. The ISM Prices Index registered 35.5 percent in November, 3.5 percentage points lower than in October, indicating a decrease in raw material prices for the 13th consecutive month. In November 1 percent of respondents reported paying higher prices, 30 percent lower and 69 percent the same prices as in October. Of the 18 manufacturing industries, no industry reported paying increased prices for their raw materials in November. The 14 industries reporting paying lower prices during the month of November — listed in order — are: Textile Mills; Electrical Equipment, Appliances & Components; Transportation Equipment; Petroleum & Coal Products; Fabricated Metal Products; Machinery; Primary Metals; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Chemical Products; Furniture & Related Products; Non-metallic Mineral Products; and Computer & Electronic Products.

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

Up in Price in November were: None

Down in Price in November were:

Aluminum (12); Copper; Nickel (5); Steel (5); Steel — #1 Busheling Scrap (2); Steel — Cold Rolled (2); Steel — Hot Rolled (2); Stainless Steel (13); and Styrene.

In Short Supply in November: None
  1. The ISM Backlog of Orders Index was at 43.0 percent in November, 0.5 percentage point up on October’s reading of 42.5 percent. Of the 89 percent of respondents who measure their backlogs, 15 percent reported greater backlogs, 29 percent smaller backlogs and 56 percent no change from October. The only industry reporting an increase in order backlogs in November is Textile Mills. The 12 industries reporting a decrease in order backlogs during November — listed in order — are: Apparel, Leather & Allied Products; Primary Metals; Furniture & Related Products; Paper Products; Miscellaneous Manufacturing; Machinery; Food, Beverage & Tobacco Products; Chemical Products; Computer & Electronic Products; Plastics & Rubber Products; Transportation Equipment; and Fabricated Metal Products.
  2. The ISM New Export Orders Index was at 47.5 percent for November, the same reading as for October. This is the sixth consecutive month of decrease in new export orders. The five industries reporting growth in new export orders in November are: Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Machinery; Food, Beverage & Tobacco Products; and Fabricated Metal Products. The eight industries reporting a decrease in new export orders during November — listed in order — are: Apparel, Leather & Allied Products; Paper Products; Primary Metals; Plastics & Rubber Products; Transportation Equipment; Chemical Products; Computer & Electronic Products; and Non-metallic Mineral Products.
  3. The ISM Imports Index, is at 49 percent in November, or 2.0 percentage points higher than October’s 47.0 reading. This represents contraction in imports for the second consecutive month. The seven industries reporting growth in imports during the month of November — listed in order — are: Textile Mills; Electrical Equipment, Appliances & Components; Transportation Equipment; Computer & Electronic Products; Chemical Products; Plastics & Rubber Products; and Fabricated Metal Products. The six industries reporting a decrease in imports during November — listed in order — are: Apparel, Leather & Allied Products; Primary Metals; Furniture & Related Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Machinery.

The MAPI foundation recently brought out reports forecasting, for the next three years, an inflation-adjusted GDP expansion of 2.0 percent in 2016, 2.7 for 2017 and 2.5 in 2018. Manufacturing production is expected to overtake 2015’s growth rate of 1.8 percent, with 2.6 percent in 2016, 3.0 in 2017 and 2.8 in 2018.

Cutting tool consumption by U.S. Manufacturers was at $170.8 million in September, down 1.3 percent from August and down 11.7 percent from September 2014.

Kansas City, Missouri has seen 11 suppliers to Ford and GM set up shop in the area, providing 1,795 jobs that pay $74.1 million, taking up over 2.2 million ft2 of industrial real estate. The area is the second-largest auto hub in the U.S. and is lauded for the quality of its workforces and of its educational institutions. Ford produces its F-150 and its Transit full-size van in the area, which is home to some of the world’s largest auto-supply companies.

News on the aerospace front again sees Boeing picking up contracts around the world. TAP, Portugal’s flagship, is in for 53 long and medium-haul neo-jets with a catalog value of $8.5 billion. Boeing will supply India’s Jet Airways, the country’s second-largest airline, with 25 new 737 MAX8 aircraft, with options for 50 more. The price tag for these fuel-efficient carriers is in the order of $8 billion. Boeing forecasts a demand for some 3,000 jets worth $350 billion by 2034 in Latin America and the Caribbean.

GE Aviation, for its part, picked up a maintenance contract from Emirates for its fleet of 150 Boeing 777s. The MRO on the GE9X engines for 12 years is worth $16 billion.

And Pratt & Whitney’s new PW 1900G Pure Power Geared Turbofan (GTF) engines went on their first test flight at the Mirabel Flight Test Center near Montreal. The engines are for Brazil’s Embraer for its E2 jet series.

General Motors will, after all, sell Chinese-made SUVs in the U.S. The Buick Envision, made in China, will join the Encore, built in South Korea and the Enclave, built in Michigan, in the U.S. Market.

The automotive news wouldn’t be complete these days without mention of Tesla, who recently announced a third-quarter loss of $230 million on revenues of $937 million. But news of progress with upcoming models was sufficient to send their share price up 9 percent. In the third quarter they produced 13,091 vehicles and delivered 11,603. They estimate total production for 2015 of 50 to 52,000 vehicles, with global orders for the S model increasing, over 50 percent of which are sold to China. It’s not all good news though: all model S cars sold since 2012 will be recalled for a security problem with front seatbelts which failed to fasten correctly. No accidents have been reported.

CANADA’S RBC (Royal Bank of Canada) Manufacturing PMI saw its fourth consecutive month below the 50 mark, with November’s 48.6 percent reading up from October’s 48.0 figure. November saw a slightly slower downturn in overall business conditions than the low seen in October. There was a moderation in manufacturing production cuts in November, with the latest decrease in output the least marked for three months.

New business levels decreased at a sharper pace than in October, and there were continuing efforts to adjust employment levels and inventories. There was a slight improvement in new export sales in November. Ontario put in the best performance in the month, and showed the fastest rise in export sales since March 2011. Alberta and British Columbia were again ‘in trouble.’

Overall manufacturing employment fell for the fifth consecutive month. Canada produced 1.03Mt of crude steel in October, down 7.7 percent y-o-y. Again, in spite of a slow economy, Canadians bought 145,426 new vehicles in November, up 4.7 percent y-o-y. This represents the highest November sales on record, along with an annual figure estimated to reach 1.94 million units.

Quebec put its second cash injection in a month into manufacturer Bombardier. The company gave up a stake in its rail unit for the funding to get its C-series jetliner flying. The Caisse de depot et placement du Quebec (CDPQ), which is Canada’s second-largest pension fund, will put $1.5 bn into Bombardier in exchange for a 30 percent stake in its rail subsidiary Bombardier Transport.   Bombardier Transport would be spun off into a separate entity registered in Britain, with its headquarters remaining in Berlin. The Bombardier rail unit employs 39,700 people worldwide and has, according to the company, a $30 bn order backlog.

MEXICO’s PMI for November was at 53.0, unchanged from October’s 53.0 reading.  Production and New Orders picked up in November and growth accelerated to its fastest since April. New export orders were up only slightly. Mexico’s manufacturing sector remains on track to put in a good performance for the rest of the year. Mexico produced 1.75 Mt of crude steel in October 2015, up 8.0 percent y-o-y.

III.  U.S. FORGING INDUSTRY

by Royce Lowe

Alcoa will supply titanium for Lockheed Martin’s F35 Lightning II aircraft program. Alcoa becomes the titanium supplier for aircraft structures for all three F35 types, over nine years, 2016 to 2024, a $1.1 billion contract. The titanium plate and billet will be supplied by Alcoa’s recently acquired RTI company.

Metal Technology Inc (MTI), of Albany, Oregon, a forger, is collaborating with the NASA Johnson Space Center (JSC) on the next generation of rocket engines. Recognizing the potential of 3D printing in space hardware, MTI  has embraced the technology and is working on production of the first test components for customers they have served with traditional manufacturing techniques for over 30 years.

IV. MANUFACTURING TALK RADIO

by Tim Grady

Manufacturing Talk Radio tackled several topics in November including the detail behind the ISM number of 48.6, which wasn’t all bad news, and the drivers the determine plant location or relocation presented by Deloitte on November 3.

Then it was off to FabTech 2015 at McCormick Place in Chicago, Illinois from November 8 -12 where more than 1800 exhibitors is the metal fabrication, sheet metal forming, welding, coatings and precision metalworking displayed the newest technology across 750,000 square feet in three halls on two levels. Wandering amongst millions of dollars of industrial machines makes it readily apparent that manufacturing touches almost every aspect of our lives.

Back in the studio on November 17th, our Senior Correspondent Norbert Ore unpacked the 18 global business surveys while MAPI’s Stephen Gold, president and CEO, explained the 5 megatrends driving the 21st century’s manufacturing revolution including The New Industrial Revolution, Aging Workers and Automation, Data and You, Global Supply Chains and Marketplace, and the Growth of New Megacities.

Finally, on November 24th, Manufacturing Talk Radio did a wrap up of the kinds of technology witnessed at the show. We look forward to FabTech in Las Vegas in 2016!

Over the course of more than 100 live shows on Manufacturing Talk Radio, the current of consciousness has remained consistent. Gone are the days of “Dark, Dirty, Dangerous and Declining”. Modern Manufacturing is Digital, Dynamic, Diversified and Demanding. From the Internet of Things to big data, manufacturing is a digital powerhouse of actionable information managed and measured by handheld devices from the factory floor to cloud servers, in a dynamic environment adapting to new with new – the new needs of tomorrow met by the new technology of today. It is a diversified lab and landscape examining every aspect of life on Earth, from the air we breathe to nearly everything we eat, smell, touch, see and hear ranging from nanotechnology and one atom thick graphene to monster machines moved by a mouse, a finger or sight alone. This demanding profession requires the best educated minds in the world using and honing critical thinking, collaborative communication, visionary exploration and logical (and sometimes illogical) problem solving skills to make things that don’t yet exist to fix or cure things that are a real mess, or that just make things better.

We hear of a STEM program, (Science, Technology, Engineering, Math) at Bosch Rexroth in S. Carolina, and of the Steelworker of the Future program being reborn by Arcelormittal. We hear of plants being set up with community college or even university level educational facilities or direct collaboration with every educational institutional from grade school through post-graduate research facilities. We hear the word apprentice being used more and more, and we think that more people are taking very seriously the very dire present and future need for very large numbers of skilled workers in manufacturing industries. It is becoming quite clear that if manufacturing wants skilled workers, they may have to develop those individuals with internal training and educational programs specific to their needs.

V. EUROZONE

by Royce Lowe
eurozone

Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) for November was 52.8, up from October’s 52.3 reading. Growth in production and new orders was seen in all nations except Greece, and in fact was the highest for some eighteen months. Increases were also seen in new export orders and employment – this in its fifteenth consecutive month. Again, manufacturing performance is not pulling up many trees at the moment, but there is cautious optimism, coupled with probable stimulus action on the part of the ECB.

  PMI High/low
Italy 54.9 (54.1) 4-month high
Netherlands 53.5 (53.7) 2-month low
Ireland 53.3 (53.6) 21-month low
Spain 53.1 (51.3) 3-month high
Germany 52.9 (52.1) 3-month high
Austria 51.4 (53.0) 3-month low
France 50.6 (50.6) unchanged
Greece 48.1 (47.3) 8-month high

 

VW has found its whistle blowers. ‘Around 50’ came forward at the last minute prepared to testify. Revelations regarding NOx and carbon emissions – understated for 800,000 vehicles – have had an impact on car sales, with demand falling for the group’s 12 brands, including Porsche and Audi. Sales were down 25 percent in the U.S. in November to 23,882 vehicles, some 8,000 less than a year ago. 

Airbus sold 30 single-aisle A321 aircraft to Vietnam’s Vietjet airline. The deal was worth $3.6 billion, but Vietjet did not pay the catalog price.

VW saw its diesel brands lose 2 percent of their sales in Germany in November, but Germany’s new car registrations were up 8.9 percent y-o-y in the month to 272,377 units, with numbers to date for the year up 5.4 percent at 2.95 million units. France was up 11 percent to 150,339 units, Italy up 23 percent to 134,021 units and Spain up 25 percent to 81,650 units. Spain is still on its scrappage program, which it intends to extend. Sales of diesel cars in Germany were up 10 percent for a 49.7 percent market share, with gasoline cars up 6.6   percent for a 48.2 percent market share.

Crude steel production in Germany in October 2015 was at 3.64Mt, up 2.8 percent y-o-y; in Italy 1.87Mt down 9.1 percent y-o-y; in France 1.17Mt, down 21percent y-o-y and in Spain 1.25Mt, down 3.2 percent y-o-y.

Russia’s crude steel production for October was at 5.69Mt, down 2.2 percent y-o-y, Ukraine’s was 2.05Mt, up 12 percent y-o-y.

The UK’s manufacturing sector had another good month in November, with growth easing moderately from October’s very good month. The PMI figure eased from October’s 55.2 (originally reported as 55.5) to 52.7. Consumer goods led the way, with solid growth in investment goods and a sharp growth slowdown in intermediate goods. Manufacturing production expanded for the 32nd consecutive month in November. There were rising levels of new business. The U.K. produced 0.91Mt of crude steel in October, down 5.3 percent y-o-y.

The JP Morgan Global Manufacturing PMI – a composite index produced by JP Morgan and Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – was at 51.2 in November, effectively unchanged from October’s 51.3 reading (previously reported as 51.4.)

November continued what is reported as the subdued run of data for the global manufacturing sector through 2015 so far. The respective averages for the PMI sub-indices of production, new orders and new export orders are all around 1.0/1.5 points below the levels for 2014 as a whole.

North America and Europe continued to register good production expansion in November. Growth in the U.S. remained near October’s seven-month high, while the pace of increase in Mexico more than offset the ongoing, albeit slowing, downturn in Canada. Output growth in the Eurozone was at its fastest pace in some eighteen months. Production rose at its fastest pace in twenty months in Japan, but apart from India all other Asian countries showed lackluster performances. Employment was up in the U.S., Japan, Germany, Taiwan and South Korea, but down in China, the UK, France and Brazil.

VI. ASIA OUTLOOK

by Royce Lowe
china

CHINA produced 66.12Mt of crude steel in October 2015, down 3.2 percent y-o-y; Japan 9.0Mt down 4.0 percent y-o-y; India 7.50Mt, up 4.9 percent y-o-y and South Korea 5.83Mt, down 5.8 percent y-o-y. Taiwan produced 1.71Mt in October, down 17.4 percent y-o-y.

The Caixin China manufacturing PMI for November, seasonally adjusted, was up slightly to 48.6 percent from October’s 48.3. Production stabilized in November, ending six months of reduction. There was a decline in new orders similar to that seen in October, despite a pick up in new export orders growth. In fact new export work rose at the fastest rate in over a year. Inventories declined.

Chinese vehicle sales were up 13.3 percent in October following a tax cut, to the fastest pace in 10 months. Sedans, SUVs and multipurpose vehicles combined to a total of 1.94 million for the month, with SUV sales up 61 percent to 622,000 units. Chinese carmakers boosted their share of sales by 2.1 percent.

China completes the production of a C919 168-seat passenger plane, which will make its maiden voyage in 2016. The plane was built by the Commercial Aircraft Corporation of China (COMAC), with engines by CFM International, a joint venture of GE and France’s Safran. There are orders for 517 planes, mostly domestic, but no service is expected before 2019.

China has signed a $15 billion nuclear reactor contract with Argentina’s Nucleoelectrica, its fourth and fifth reactors. One will use Canadian heavy-water technology, the other China’s locally developed Hualong One Reactor.

China’s Geely, which owns Volvo and Manganese Bronze (the maker of London’s iconic black taxis) is aiming to produce 90 percent hybrid and electric cars by 2020: mostly hybrids, 35 percent electric.

JAPAN’s manufacturing sector saw a significant improvement in the month of November, with both production and new orders up markedly, the former at the fastest rate since March 2014. The Nikkei manufacturing PMI was up from October’s 52.4 to 52.6, the highest reading in 20 months. Along with increases in new orders and production, employment was up with the rate of job creation on a par with October’s 18-month record.

Japanese car sales for November were down 6.6 percent y-o-y. Improved passenger car sales were offset by weakness in mini-vehicle sales – cars with a maximum engine size of 660cc. Total sales were 388,817 units, 149,002 mini-vehicles, 239,815 ‘normal’ vehicles.

The Japanese government will be in competition with France’s DCNS and Germany’s TKMS on a $36 billion contract to supply new generation submarines for Australia. All three bidders are promising to build large parts of the contract in Australia.

In INDIA, the Nikkei PMI reading eased a little further back to 50.3 in November from October’s 50.7 reading. This reading is a 25-month low. The health of India’s manufacturing economy improved for the 25th month, but at the slowest rate over this period. The latest PMI data show slower increases in new orders and production. Unemployment was basically unchanged in the month of November.

India’s economy grew 7.4 percent y-o-y in the third quarter, including 7 percent or greater in manufacturing, financial, insurance and trade and transport, following steady 7.5 and 7.0 percent growth in the year’s first and second quarters. India feels they will set the pace in global growth for the next two or three years, following China’s stint for two decades plus.

India is about to spend a lot of money on its railroads, $137 billion over the next five years. The system, which may be the world’s densest, is surely in need of repair, and will be a significant factor in India’s push to modernize its infrastructure. GE has a $2.6 billion contract to develop and supply Indian Railways with 1,000 diesel locomotives over an eleven year period. GE will invest $200 million to build a factory and maintenance sheds. This will be the company’s largest deal in India in its 100-year history. France’s Alstom picked up a $3 billion contract to modernize India’s ‘colonial-era’ train network, which will involve supply of 800 electric locomotives and construction of a factory in the eastern state of Bihar.

VII.  SOUTH AMERICA

by Royce Lowe

BRAZIL IS STILL IN THE DOLDRUMS, the country’s manufacturing downturn shows no sign of abating and in November the PMI falls to an 80-month low of 43.8, from October’s 44.1 reading. Brazil’s crude steel production for the month of October 2015 was 2.98Mt, a 2.3 percent y-o-y decrease.

There is a weak underlying demand which is triggering serious decreases in production and unemployment figures. In fact, workforce numbers fell at the quickest pace since April 2009. The weak currency appears to be having no helpful effect on export orders.

On another note, it seems Olympic athletes will have to pay for air conditioning in their dorms during the 2016 games. Water cleanliness will not meet the standards agreed upon when Brazil was awarded the Olympic games, and athletes practicing in those waters have already gotten sick from effluent in the ocean. It is highly likely that the performance of competitors will be diminished, skewing the results of true competition. On top of all of this, the people are looking to impeach the President of Brazil.

VIII.  GLOBAL GROWTH STILL POSITIVE

by Royce Lowe

Global growth slipped slightly in November, but still remained positive overall. Of the 18 surveys that we follow, 10 are growing and 8 are declining. The 10 that are growing combine for an average PMI of 52.3, while the 8 in decline average 47.3 percent. The JP Morgan Chase Global PMI (51.2, -0.2) which combines reports from 24 countries tells a similar story.

With the exception of Greece (48.1, +0.8), the Eurozone (52.8, +0.6) is growing. Though Greece is contracting, the rate has slowed for five consecutive months. Considering their recent problems, the rate of contraction has lessened significantly as it posted a reading of 30.2 in July. Germany (52.9, -0.8) continued positive as it has strung together twelve consecutive months above the mid-point. The remaining six Eurozone countries average 52.8 percent and were again led by Italy (54.9, +0.8), Netherlands (53.5, -0.2), and Ireland (53.3, -0.3).

The UK (52.7, -2.5) registered its 32nd consecutive month above the 50 mark. While the rate of expansion slowed, the UK manufacturing sector continues to benefit from consumer spending and exports.

As for North America, Canada (48.6, +0.5) failed to grow for the month, and for the year, as it has averaged 49.5 since January; if there is a bright spot in the Canadian economy, it is export orders being fueled by the weaker looney. Mexico (53.0, unch) expanded at a pace slightly above its five month average of 52.7.

The official data for China, the CFLP PMI (49.6, -0.2) continues to offer insight to a lack of change as it averages 50.0 percent for the year. However, the Caixin China General Manufacturing PMI (48.6, +0.3) registered a rate of contraction slightly below 48.8 percent which is the average for this year.
November Scattergram

 

IX. CREDIT MANAGER’S INDEX

by Norbert Ore

Dr. Chris Kuehl

This month, Metals & Manufacturing Outlook is pleased to introduce Dr. Chris Kuehl, noted economist for the FMA and the National Association for Credit Management. Dr. Kuehl has been a featured guest on Manufacturing Talk Radio and we welcome his monthly input on this additional key economic indicator. If you have heard him speak, you know that Dr. Kuehl uses metaphorical or anecdotal humor to convey the topic at hand.

There are many things one could say about the latest data from the Credit Managers’ Index but this is a family publication and those words are not appropriate. Last month we were teased with an improved index performance and there was a faint hope that improvement would be seen in November since this was the start of the holiday spending season. Now that faint hope is that much fainter. The data was not a disaster as the numbers are still above the contraction zone but they fell back to what they were the month before.

The Credit Manager’s Index is from the National Association for Credit Management and is modeled after the Purchasing Managers’ Index that you are all familiar with. It uses the same scale so that anything under 50 is contraction and numbers over 50 equal expansion. It asks credit managers what they are seeing in terms of positive things like sales and their ability to collect on their debt as well as negatives like the number of accounts submitted for collection or bankruptcies or slow pays.

The overall combined CMI score (both manufacturing and service sector) slipped from 53.9 to 52.6 and that is lower than it was in September when it hit 52.9. This is the lowest reading in the past year and that is not what had been expected although if one looks at some of the other data sets on the economy they have all been struggling of late. The latest PMI numbers are now in contraction territory with a reading of 48.6. There was misery to share with both the favorable (factors like sales and applications for credit) and unfavorable (factors like bankruptcies and collection action) categories showing decline. The more worrisome of the two is the unfavorable factors as the combined score is now in the contraction zone with a reading of 49.2 – back to what it was in June of this year. The favorable factors also slipped with a reading that went from 59.4 to 57.7 and the same as was seen in September. It looks as if that little October bump was an anomaly and not a trend that could be counted upon.

  X. THE FINAL WORD

by Royce Lowe

It used to be that manufacturers made things, put them on the market, added a bit of after-sales service – depending on the state of the economy – collected their money, and started all over again, sometimes making the same old stuff, sometimes using a new technique called innovation. Those who made the best ‘things’ did the best.

Today we have the ‘Internet of Things’ and products are leaving the workplace packed with sensors and connected to the Internet. This is altering manufacturing and the way people need to think about it. There is a shift from products to services, and it is estimated by one source that the number of products connected wirelessly, excluding smartphones and computers, will rise from the present 5 billion to 21 billion by 2020.

What are we talking here?  Well, windscreen wipers whose movement helps produce real-time weather reports, tennis racquets equipped with sensors that might fix your serve or your forehand, and machines that can order a new spare part as required. Then there are the platforms, software foundations that services and applications can be built on, without which your smartphone would be no more than a piece of plastic. Amazon will quickly tell you which books they think you’re interested in buying. The concept is new in manufacturing, where manufacturers are used to taking materials from their suppliers and turning them into things they can convince customers they want or need.

Germany – where manufacturing accounts for 22 percent of GDP against 12 percent in the U.S. – seems to have taken the idea seriously, and in 2011 it launched ‘Industrie 4.0’, a government initiative to promote the computerization of manufacturing. A good example of the use of the technology is Trumpf, a maker of industrial equipment, which has set up a software platform that collects data from machines both it and its competitors build, to effect smoother production processes.

The data, with certain privacy restrictions, will be open to everybody and will allow collaboration between competitors, viz the recent purchase of a digital mapping company by BMW, Audi and Daimler. The information and technology involved in the ‘Internet of Things’ is everyday fodder for IT companies, but relatively new ground for manufacturers. But it speaks volumes about the need for, and the advantages of, cooperation between the two fields.

XI. THE FINAL WORD

by Royce Lowe

Confusion cubed. But still room for cautious optimism.

Happy holidays and a happy, prosperous new (leap) year.

 

 

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