Metals & Manufacturing Outlook November 2016


 

metals & Manufacturing Outlook Newsletter

Presented by All Metals & Forge Group, the MetalsWatch! newsletter was first published in print in 1988 for All Metals & Forge Group. Its primary focus was to be informative to the metalworking industries in the United States. Its original circulation was 2500 organizations. In 1994 we converted to electronic version only, therefore our first archived edition is dated Dec 1994 . Previous printed issues are not available for archiving. Today, Metals & Manufacturing Outlook™ (formerly MetalsWatch!) has a global circulation of 60,000 subscribers at 50,000 companies from a very diverse group of industries, including Aerospace, Defense, Oil, Chemical, Automotive, Medical, Electronics, Heavy Industry, Shipbuilding, amongst many others. Feel free to read the most current issue below, or Click here to view the back issues in our Library at the bottom of the page. To Subscribe to Metals & Manufacturing Outlook™ and receive future issues, please enter your e-mail address and click on Submit below.

 

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Metals & Manufacturing Outlook – November 2016

IN THIS ISSUE:

MANUFACTURING OUTLOOK

CREDIT MANAGER’S INDEX

METALS OUTLOOK

AUTOMOTIVE AND AEROSPACE OUTLOOK

AUTOMOTIVE OUTLOOK

AEROSPACE OUTLOOK

ISSUES OUTLOOK

ENERGY OUTLOOK

GLOBAL OUTLOOK

EUROZONE OUTLOOK

ASIA OUTLOOK

SOUTH AMERICA OUTLOOK

GLOBAL BUSINESS SURVEY INSIGHTS

SCATTERGRAM

THE FINAL WORD

PUBLISHER’S STATEMENT

Publisher’s Statement

The Metamorphosis of Manufacturing

Change is constant and manufacturing is the poster child of change in the 21st Century, driven or amplified by advanced robotics, additive manufacturing, horizontal and vertical integration, augmented reality, cloud and cybersecurity, simulation and rapid prototyping, big data and analytics, and the Industrial Internet of Things, or what people are collectively calling Manufacturing 4.0.

With all this change, you may begin to notice the transformation of this publication, Metals & Manufacturing Outlook. In this issue, we have created sections that organize information into broad topic areas. As we solidify this – and make sure it works for the reader, we will be adding some color elements and pictures to balance the look and feel of each page, and help tell the story. And in the not-to-distant future the name will be shortened to Manufacturing Outlook® since the content has morphed beyond its metal roots as MetalsWatch® back in the late 1980’s into an industry-wide publication. In addition, Manufacturing Outlook® will include advertisers at a low charter CPM rate as the periodical becomes an informative resource somewhere between an e-newsletter and an ezine.

We will be abbreviating some content to provide room to expand into feature articles, short stories and timely topical discussions of the rapidly evolving manufacturing sector in the dynamic U.S. economy, which when fully measured accounts for almost 1/3 of U.S. GDP. For those who may still see manufacturing as the dark, dirty and dangerous workplace of the 1900’s, our hope is to write about and show what modern manufacturing looks like in the 21st Century in the feature articles, while presenting the broad brush strokes of industry segments in the “Outlook” sections that include Manufacturing Outlook, Metals Outlook, Automotive and Aerospace Outlook, Issues Outlook, Energy Outlook, and the Global Outlook.

Your feedback will be important during the metamorphosis of Metals & Manufacturing Outlook into the more focused but expanded Manufacturing Outlook®, which will continue to be a monthly newsletter presently sponsored by All Metals & Forge Group. For over 35 years, All Metals & Forge Group has been providing the metals industry with useful information and helpful resources in addition to its superior line of open die forgings and seamless rolled rings. MetalsWatch® was birthed from that emphasis on a forging manufacturer being more than a ‘heat it and hit it’ operation, whereby customers would gain knowledge about those manufacturing processes, the melting ranges of metal, material specifications, alloy reports, metal tidbits, SteelWeights®, SteelLog® – a glossary of 5,000 metallurgical terms, as well as the uses and characteristics of open die forgings and seamless, drawn over mandrel, hand forged or press forged rings.

Part of the driving force for this publication to transform is Manufacturing Talk Radio, the weekly live broadcast across the Internet of information coming from thought leaders and key experts in the manufacturing sector. Change is not only constant but has become so rapid as compared to the evolution in the metals industry, that this publication has to respond to what is happening ‘on the air’.

We hope you will continue to enjoy the information presented herein and share it with your colleagues.

Best Regards,
Lewis A. Weiss
Publisher

   

MANUFACTURING OUTLOOK
THAT WAS THE MONTH THAT WAS, BY WHICH TIME YOU’LL KNOW WHO WON

by Royce Lowe

MFG outlook

What a month it was: first and foremost an election and what we might or might not get from it. By the time you read this it will all be settled, Energy might be what we get from it, something we all need, with ongoing developments in nuclear and oil and gas and others, not forgetting lithium-ion. There’s still Brexit and Tesla and GE, and Alcoa forging aluminum in Russia, and China’s steel companies not really cutting back on production at all. But first…                       

Growth was seen in manufacturing just about everywhere. The U.S. continued in growth mode following its move from contraction in September, and there were significant gains in The Eurozone, China, Japan and India. The Global index soared a little further away from the 50 mark.

In Brexit Land a panel of three judges ruled that it will be up to Parliament to decide whether or not Article 50 can be triggered at the end of March 2017. The pound rose on this news. The ruling will be appealed by the government before the supreme court and that result may not be known until January 2017. Theresa May is adamant she will stick to her timetable and has told the EU so. Brexit will fill even more column inches than the football/soccer Premier League. The longer this goes on the more complicated it will become and the less those who voted Brexit will know about what’s going on, or even why they voted how they voted.

The U.S. economy created 161,000 non-farm jobs in October, which has been described as a ‘solid’ figure. This was less than the 175,000 jobs the economists were calling for, but the unemployment rate eased back to 4.9 percent. August’s figure was revised up from 167,000 jobs to 176,000; September’s from 156,000 to 191,000. Weekly earnings were up by 2.5 percent y-o-y. It’s reported that manufacturing has lost 62,000 jobs this year to date.

Light vehicle sales in the U.S. in October were down almost 6 percent y-o-y, albeit with two fewer selling days than last year.

The ISM PMI figure for U.S. manufacturing continued in growth mode in the month of October, with the PMI reading moving to 51.9, up from September’s 51.5 percent. The overall economy grew for the 89th consecutive month.

IHS Markit

The IHS Markit PMI for the U.S. manufacturing sector jumped to its highest reading for a year in October, up from 51.5 percent in September to 53.4 in October. IHS Markit report a sharp improvement in production and new orders, with jobs added at a modest pace. They further report an increase in inventories of finished goods and raw materials since September. Domestic demand is quoted as strong with a modest growth in new exports.

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

The Bureau of Economic Analysis came out with its ‘advance’ estimate for the annual rate of Real GDP growth in the third quarter of 2016, putting it at 2.9 percent. The figure for the second quarter was 1.4 percent.

GALLUP’s U.S. Economic Confidence Index was still running at -12 in late October, with the coincident job creation index remaining at a near-record +32.

World crude steel production for the 66 reporting countries for the month of September 2016 was 132.91Mt, 2.0 percent up y-o-y.

U.S. crude steel production for September 2016 was 6.31Mt, down 3.8 percent y-o-y.

Primary Global Aluminum Production in September 2016 was reported at 4.937 million tonnes, of which 2.751 million tonnes, over 55 percent, was produced in China. The Gulf Corporation Council (GCC) produced 426,000      tonnes, North America 325,000 tonnes, Western Europe 310,000 tonnes and Eastern and Central Europe 324,000 tonnes.

Here are the latest figures for US new car and light truck sales for ‘The Big 8’ for October 2016. There were almost across the board negative figures, and car sales were particularly badly hit. The only company to escape unscathed was Hyundai/Kia. Car sales results are shown in parentheses.

The ‘Big Eight’ October ’16 October ’15 YTD % change
General Motors 258584 262933 -1.7 (-14.1)
Ford 187692 213105 -11.9 (-27.5)
Toyota 186295 204045 -8.7 (-17.4)
FCA 173964 193376 -10.0 (-43.6)
Honda 126161 131651 -4.2 (-10.1)
Nissan 113520

 

116047 -2.2 (-13.3)
Hyundai/Kia 111482 110049 +1.3 (unchanged)
VW 24779 30387 -18.5 (-14.3)
Total new cars and light trucks 1372320 1456869

 

-5.8
Total cars 526,462 618,035 -14.8
Total l/trucks 845,858 838,834 +0.8 


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 Unemployment
United States +1.4 (qtr) -1.0 (Sept) +1.5 (Sept) 5.0 (Sept)
Canada -1.6 (qtr) -0.7 (July) +1.3 (Sept) 7.0 (Sept)
China +7.4 (qtr) +6.1 (Sept) +1.9 (Sept) 4.0 (Qtr 3)
Japan +0.7 (qtr) +4.5 (Aug) -0.5 (Aug) 3.1 (Aug)
Britain +2.7 (qtr) +0.8 (Aug)

 

+1.0 (Sept) 4.9 (July)
Euro Area +1.2 (qtr) +1.8 (Aug) +0.4 (Aug) 10.1 (Aug)
France -0.4 (qtr) +0.5 (Aug) +0.4 (Sept) 10.5 (Aug)
Germany +1.7 (qtr) +2.0 (Aug) +0.7 (Sept) 6.1 (Sept)
Italy + 0.1 (qtr) +4.1 (Aug) +0.1 (Sept) 11.4 (Aug)
Spain +3.4 (qtr) +6.8 (Aug) +0.2 (Sept) 19.5 (Aug)
India +5.5 (qtr) -0.7 (Aug) +4.3 (Sept) 5.0 (2015)
Brazil – 2.3 (qtr) -5.2 (Aug) +8.5 (Sept) 11.8 (Aug)
Taiwan + 0.2 (qtr) +5.0 (Sept) +0.3 (Sept) 3.9 (Sept)
Mexico – 0.7 (qtr) +0.3 (Aug) +3.0 (Sept)

 

3.9 (Sept)

CREDIT MANAGER’S INDEX

by Royce Lowe

Credit ReportThe news this month is not quite as uplifting as it was last month, but the numbers are still an improvement over what they had been for the last several months. The overall sense of the economy right now is mixed. Most of the indicators are telling the same jumbled story. We see improvements in parts of the Purchasing Managers’ Index and declines in other parts. “Retailers seem to be gearing up for a better season—at least they have been more aggressive as far as hiring,” said NACM Economist Chris Kuehl, Ph.D. “At the same time, consumers have continued to be somewhat reticent. It is a waiting game for many—a desire to see what happens once the dust settles from the election.”

Readings for the combined index were impressive last month, and there has been a bit of return to less exalted readings this month. The combined CMI was at 53.7 in September and is now at 53.5—close to what it has been for the year with the high point coming in April when the reading hit 54.6. The index of favorable factors was at year-long highs in September and has fallen back a little. It was 59.5 and is now 58.4. That is about where the numbers have been all year with two months (March and July) hitting 60.0. The index of unfavorable factors actually improved a little from what it was in September as it went from 49.9 to 50.3. This is certainly not a big change, but it is always significant to move out of the contraction zone.

There was quite a bit of variability within the sub-index readings for both the favorable and unfavorable categories. The sales reading slipped from 57.9 to 56.9. That is a little lower than the average for the year, but still respectable. In the last 12 months, four months had readings under 56.9. The rest have been higher with July sporting a 60.0 mark. The new credit applications index stayed almost the same as last month with a mark of 58.0 as compared with 58.6 in September. The dollar collections reading slipped a little more dramatically as it went from 59.5 to 57.0. The amount of credit extended also stayed about where it had been as it moved from 61.9 to 61.5.

“These are really good numbers and suggest that the best clients are asking for some substantial levels of credit to buy machines and inventory,” Kuehl explained.

 

METALS OUTLOOK

by Royce Lowe

steelforge-energyiStock_000016208139_LargeThe World Steel Association recently released its Short Range Outlook for world steel demand for 2016 and 2017. Overall world demand for finished steel is forecast to increase by 0.2 percent in 2016, and by a further 0.5 percent in 2017 to 1509.6Mt. By major region, NAFTA is forecast to decrease by 0.1 percent in 2016, then to increase by 2.9 percent in 2017 to 137.4Mt. The EU28 is forecast to increase by 0.8 percent in 2016 and by a further 1.4 percent in 2017 to 156.9Mt; and ASIA AND OCEANIA to increase by 0.5 percent in 2016 but to decrease by 0.4 percent in 2017 to 984.3Mt.

Meanwhile, China’s steel mills are producing more than they were a year ago thanks to a property boom, which has seen an increase in crude steel output for the first nine months of 2016 of 0.4 percent y-o-y. China’s investment in real estate and infrastructure was higher than forecast, and the GDP was up 6.7 percent in the third quarter of 2016. Data suggest that apparent steel consumption in China was up 9 percent y-o-y in September and that its steel exports in the first nine months were up 2.4 percent at 85.1Mt, the highest ever. Since heavy duties have been levied against Chinese steel in the west, China has turned to shipping large quantities to Vietnam, Thailand and the Philippines.

The U.S. aluminum industry is not in good shape, and there has been a tendency of late to put the blame at the door of Chinese production. It is reported that U.S. production of aluminum is at its lowest level since 1983. It is also reported that China’s factories are better and lower cost operations. It’s a well-known fact that it takes lots of electricity to remove aluminum form its ore, alumina, and in fact 1/5 to ½ the cost of raw aluminum is electricity.

In 2015, 8 percent of the electricity in North American smelters came from power stations owned by the plants themselves; the figure in China was 85 percent. Chinese producers with captive power pay $0.03 per kilowatt hour, versus $0.075 for power from the grid, according to Bloomberg Intelligence. Most North American smelters use hydroelectric power, whereas China’s are powered by the cheaper coal.

The big problem with U.S. smelters is their technology: the higher current that can be pumped through a smelting electrode, the lower are the energy costs per unit of metal produced. It seems that all U.S. smelters use old technology that runs at less than 300m kiloamperes, versus 23 percent in China. Some two thirds of U.S. smelters are even more antiquated, running on 200KA, versus 4 percent in China.

At least half China’s industry is on the latest technology, 400KA or higher, versus 4 percent elsewhere in the world. This of course does not apply to the whole of China’s aluminum industry, but the available information strongly suggests a technological advantage rather than a ‘commercial’ one. China produces some 55 percent of the world’s primary aluminum, and is intending to even surpass that. It is essential that U.S. smelters beef up their technology to get down their production costs if they are to survive in this critical industry.

And staying with aluminum, AlTi Forge is a joint venture formed by Alcoa and Russia’s VSMPO-Avisma in 2013. The JV has started producing titanium forgings for aircraft parts at Samara, Russia, with all the necessary consents and blessings of the Russian government. It will manufacture large titanium and aluminum forgings for aircraft manufacturers, including landing gear beams and wing pylons. It will further develop forgings in titanium aluminide (TiAl), a highly heat-resistant alloy much lighter than nickel alloys.

Alcoa’s complex in Samara will be part of the spin-off Arconic, which casts aluminum slabs and billets, rolls aluminum sheet and flat-rolled coils and produces extrusions and forgings.

VSMPO-Avisma is an integrated mining and metallurgy group and is the world’s largest producer of titanium ingots and forged products. No details have been announced regarding financial and ownership terms of the JV.

AUTOMOTIVE AND AEROSPACE OUTLOOK

auto-aero

by Royce Lowe

AUTOMOTIVE OUTLOOK
Hot on the heels of GM’s recent settlement with Unifor in Canada, FCA Canada, to avert a strike, has agreed to invest some C$400 million to rebuild an aging paint shop in Brampton, Ontario. And Ford has promised, as part of its labor agreement with Unifor, to invest over $470 million in its Windsor, Ontario engine plant and its Oakville, Ontario assembly plant. Ford has 6,400 auto workers in Canada.

Canada’s automotive output fell to 13 percent of North American production in 2015, from approximately 17 percent in 2009, whereas output in Mexico rose to about 20 percent over the same period. Canada lost over 53,000 automotive jobs between 2001 and 2014.

We’re OK and we know what we’re doing. Thus Ford to Silicon Valley, viz Apple and Google, who are OK when it comes to the software in their ‘future’ cars, but they seem to have forgotten, or never knew, what it takes to actually make a car, about dies and tools and stamping and steel and aluminum and dealing with suppliers for the 30,000 parts in a car. Makes one wonder where Tesla got its know-how.

BUICK, there’s a blast from the past, is the first U.S. model to crack the top three in the Consumer Reports’ reliability rankings, trailing only Toyota’s Lexus and other Toyota marques. Audi and Kia were in there, as was Tesla’s model S.

NISSAN, after threatening/warning that it might decide not to proceed with a couple of new models in the UK, (because of Brexit), has decided to stay and will build new versions of two sporty SUVs in its Sunderland, UK plant, safeguarding 7,000 jobs. The company built one of every three vehicles produced in Britain in 2015.

The UK’s business secretary told the Nissan board, in writing, that the government would ensure Nissan’s operations ‘remain competitive’ after Brexit, prompting some to wonder just what kind of deal Nissan had been offered. It is reported that the government privately advised the auto executives it is confident the sector can retain tariff-free access to the single market. [Ah, the joys of a free press.]

NISSAN is rescuing Mitsubishi – in trouble for improperly quoting fuel economy – with a $2.3 billion stake, to create Renault-Nissan-Mitsubishi, the world’s fourth largest auto group after Toyota, VW and GM. Carlos Ghosn, already chairman of Nissan and Renault SA, will share the role of Nissan CEO for the first time as he takes over Mitsubishi.

SUBARU and its parent Fuji Heavy Industries saw the first Impreza roll off the assembly line at its manufacturing operation in Lafayette, Indiana. Investment in this plant over the past four years is at $1.3 billion, with 1,400 additional workers being hired for the expansion. Production of the Impreza was moved to the U.S. because of increasing demand. The Indiana facility will now produce over 380,000 vehicles per annum, with the company planning a gradual increase to 436,000 units per annum by March 2019.

While FORD recovers from Donald Trump’s venom, GM is quietly making plans to invest $800 million in Mexico. The plans were initially announced in November 2015, and progress has been quietly made since.

A judge has approved VW’s $14.7 billion diesel-cheating settlement. Despite the bad publicity the company has been living through for over a year, it just recorded its biggest 2016 sales gain with September sales up 7.1 percent to 947,600 vehicles. Sales gains in China made up for fewer sales in Europe and Brazil.

TESLA MOTORS made a surprise profit, its first since 2013. It reported a net income of $22 million in the third quarter, versus a $250 million loss in the same period last year. Its revenues jumped to $2.3 billion.

U.S. sales of the model S sedan were up 59 percent over the same quarter in 2015, and the company now sells more than one third of large luxury cars in the U.S., beating out the BMW 7-series and the Mercedes-Benz S class. The luxury SUV new model X sold 5,428 cars for a 6 percent U.S. share in the third quarter, outselling both Porsche and Land Rover, but trailing SUVs from Mercedes, BMW, Cadillac, Volvo, Audi and Lexus.

Meanwhile Tesla cars are now fitted with eight cameras and a dozen or so sensors for 360º visibility and full self-driving capacity. A Los Angeles -to – New York drive, ‘without the need for a single touch,’ is planned by the end of 2017. BMW and Ford are generally ruling out self-driving capacity until after 2020. UBER says a self-driving truck packed with Budweiser made its first delivery in Colorado.

Overall, the question is whether the automotive industry in general and the U.S. automotive industry in particular can sustain record production levels. The answer lies in three pieces: 1) The average age of cars and light truck on the road in America is still around 11 years old, where the average used to be 7 years, 2) Cars and light trucks are being built more soundly, so the average age would likely rise, and 3) The consumer’s desire for ‘new’ over ‘old’ as well as the need for more and more vehicles in an aging population on the one hand, and youthful millennials on the other who may be more urban dwellers who may not see a vehicle as a necessity with the options of Uber or a car rental for longer trips.

We expect to see some cooling off in car and light truck production for 2017, but not dramatically so.

AEROSPACE OUTLOOK
BOEING has a deal to supply 40 jetliners, namely 30 787-9 Dreamliners and 10 777-300ERs to Qatar Airways, a transaction reportedly worth $11.7 billion. A letter of intent has also been signed for supply of 60 737MAX8s, for $6.9 billion.

Boeing has a further order with China Southern for the Dreamliner 787-9 valued at $3.2 billion, with a list price of $271 million each. The airline and its subsidiaries have ordered $15 billion worth of aircraft from Boeing and Airbus in the past year.

The U.S. Government Accountability Office (GAO) has overturned the protest by Boeing and Lockheed Martin regarding the choice of Northrop Grumman Corp’s winning bid to develop and build the U.S. Air Force’s new $80 billion bomber, citing significant structural advantages, in spite of the lower winning bid. The aircraft, to be designated B-21, will be ready in the mid-2020s, and will be a ”durable, stealthy aircraft that can fly deep into enemy territory and launch cruise missiles from safe distances.”

The F-35 needs a further $500 million for development: there has been a further warning from the Pentagon’s chief weapons tester to the effect that the aircraft is ”far from showing it has full combat capability.” The projected cost was $379 billion for a fleet of 2,443 aircraft. The development phase is already up to $55 billion.

Canada’s BOMBARDIER, in trouble with cost overruns and a two-and-a-half year delay on its $6 billion C series aircraft program, is to cut 7,500 more jobs, following the 7,000 job cuts announced in February, 60 percent of which were effected by the end of June. At December 31 2015, Bombardier’s workforce numbered 70,900.

Even before its single-aisle C919 aircraft goes into service, the Commercial Aircraft Corp. of China (Comac) is forming a joint venture with Russia’s United Aircraft Corp. to research and manufacture a twin-aisle jet aimed at the Beijing-New York route. Time to the maiden flight has been set at seven years, with a further three years before the aircraft sees service. The whole is to form serious competition to the Boeing-Airbus duopoly.

ISSUES OUTLOOK

by Royce Lowe and Tim Grady

Deloitte and the U.S. Council on Competitiveness have together compiled a listing of the top ten countries they predict to be the world’s most competitive in manufacturing in the year 2020. In ascending order they are: Singapore; Canada; Taiwan; Mexico; South Korea; India; Japan; Germany; China; The U.S.

The UK Tech Industry says that just under half the founders of UK startups in 2015 came from abroad, according to Balderton, a venture firm. Would-be entrepreneurs could just as easily go to Berlin, Amsterdam or Paris. Investment in European startups fell by a third between June and September 2016.

GE’s plans to acquire German 3-D printing company SLM Solutions Group AG were abandoned following a lack of support from shareholders including billionaire Paul Singer’s Elliott Management Corp. A further bid for Sweden’s Arcam has been upped from 285 to 300 kronors per share.

GE will in no way let its 3-D printing ambitions die, and it is offering to buy a 75 percent stake in Concept Laser GmbH for $599 million.

MFG Talk RadioManufacturing Talk Radio is experiencing more listeners live and downloading the podcasts each month, with over 300,000 downloads over the last 18 months. The show is also facing some positive changes as it consolidates its economic reports to make room for more features stories with manufacturers. While the live show on Tuesday’s at 1:00 p.m. EST will continue, breaking news articles and certain podcasts are posted separate from the live broadcast to stay current with a dynamic industry.

Recent articles include information on soaring solar advances, the slippage of oil, and the Dyson Institute of Technology to train tomorrow’s engineers, the many pros and few cons of TPP as presented by Ken Monahan from NAM, amazing developments in aerospace manufacturing, the continuing importance of Six Sigma and many other topical pieces relevant to everyone in manufacturing, from the C-Suite to the dock door.

A few selected articles will be appearing in future issues of Manufacturing Outlook where the subject matter is more evergreen than breaking news for this monthly newsletter delivered digitally. Visit www.mfgtalkradio.com often for updates. 

ENERGY OUTLOOK

energy outlook

by Royce Lowe

This section is new to Manufacturing Outlook beginning with this issue

The global energy situation is in a state of flux, from climate change and promises to solve it through the dilemmas caused by low oil and gas prices and closure of coal mines, to the present-day emphasis on alternate (clean) sources of power that will light our homes and factories and keep our trucks and automobiles on the road. In this section we will take a look at the countries and companies – both involved in the dilemmas and the solutions – who are grasping the problem and looking for the solutions.

JAPAN, before the Fukushima Dai-Ichi (FD-I) nuclear accident in 2011, generated 25 percent of its electricity from nuclear plants, and the government of the day was hoping to raise this to 50 percent by 2020. Since the disaster this figure is less than 1 percent. Before the disaster Japan had 54 working nuclear reactors. The six at FD-I are to be decommissioned and of the remaining 48 Japan’s new Nuclear Regulatory Authority (NRA) has received applications to restart 26.

The population is generally anti-nuclear, and post-disaster power generation has fallen back into the hands of plants powered by natural gas and coal; not an efficient way to meet Japan’s promised and hoped for reduction in carbon emissions.

The creation of the NRA means many new safety measures have been decreed, involving very high costs. The future of Japan’s nuclear industry is, to say the least, uncertain.

GE’s into wind, having made a $1.65 billion deal with Denmark-based LM Wind Power, a manufacturer of wind-turbine blades, owned by Doughty Hanson. This will increase GE’s ability to serve customers in onshore and offshore wind markets.

GE Renewable Energy is supplying equipment this year for the Block Island Project in Rhode Island, the first offshore wind farm in the U.S.

GE, Endeavour Energy Resources LP and Sage Petroleum Ltd. won approval from Ghanaian lawmakers for construction of the world’s largest liquefied petroleum gas (LPG) fired power plant, together with a 20-year purchase agreement with the nation’s electricity distribution utility. The plant will start producing, in a first phase, 144 megawatts for the Electricity Corporation of Ghana by mid-2017.

GE agreed to combine its oil and gas business with Baker Hughes Inc., creating a company that can offer much towards tackling the present slump in oil prices. GE will have a 62.5 percent stake in the combined provider of oilfield services, which will be publicly traded and have sales in the order of $32 billion. The ‘new Baker Hughes’ will profit from the companies’ combined experience in manufacturing and services, while broadening the use of digital technology, as exemplified by GE’s Predix operating system. Cumulative savings by cost cutting of $1.6 billion are forecast by 2020.

Robert Murray, CEO of Murray Energy Corp. (coal) has called Elon Musk a fraud, claiming that Tesla is being unfairly subsidized.

Royal Dutch Shell, who resumed purchases of Iranian oil in June 2016, has signed a letter of intent with Iran’s National Petroleum Company to ‘explore potential areas of cooperation.’

A Marathon Petroleum unit has sued BP for leaving its former Texas City refinery in shoddy condition and for lying about unfinished repairs and inspections. BP sold the refinery to Marathon in 2012 for less than originally asked. In 2015, 15 workers were killed and hundreds injured at the refinery due to equipment overflowing and igniting a blast. BP allegedly left thousands of critical pressure vessels untested and more than 500 electrical components out of compliance.

Meanwhile BP’s chief economist says that oil demand over the next two decades will likely overwhelm the impact of the electric car on crude markets.

Bloomberg Research suggests that battery-electric vehicles will displace 13 million barrels of oil per day by 2040. BP projects oil demand to increase by about 20 million barrels per day over the next 20 years. [We’ll see!]

If oil makes the vast majority of our cars run today, the electric car depends upon lithium, that very light, very expensive metal that is in no way abundant. Its price has almost tripled in the year to this past June, and China reports a y-o-y increase from $7,000 to $20,000 per tonne.

According to Bloomberg New Energy Finance (BNEF) and McKinsey & Co. the cost of a lithium-ion battery pack for electric cars has in fact fallen by 65 percent since 2010 and will keep falling. Vehicles and the way they are used will change more in the next 20 years than they have in the last hundred.

Cheaper batteries are the driver, and BNEF estimates that battery costs fell to $350 per kilowatt hour in 2015 from $1,000 in 2010. Electric car sales were at 448,000 in 2015 from 52,000 in 2010 and are on track to hit 647,000 this year. But to put this in perspective, present annual global auto sales are in the order of 90 million vehicles.

The cost of lithium-ion batteries, which make up around 40 percent of an electric car’s value, may fall by 16-20 percent with each cumulative doubling of vehicles’ manufacture.

TESLA and its relentless overlord Elon Musk are the driving forces, at least in the U.S., behind the push for generation and use of electrical energy. The cars are one story, the energy that will make them run another.

Tesla, for example, plans to collaborate with Panasonic Corp. to make solar energy components for SolarCity Corp. This is a final push by Elon Musk to merge the automaker and the solar company. Production of photovoltaic cells and modules for solar energy systems used by SolarCity will begin in 2017 at SolarCity’s factory in Buffalo, NY. This whole deal is contingent upon approval of Tesla acquiring SolarCity by the respective shareholders in a vote on November 17. There seem to be many good reasons for Tesla to purchase SolarCity.

Panasonic and Tesla are already ‘related’ in the $5 billion lithium-ion giga-factory in Nevada to produce batteries for the Model 3 electric car and energy storage products for home and utilities.

Elon Musk has one last card up his sleeve. To try to convince shareholders that Tesla must buy SolarCity, he invited hundreds of people to see ‘the roof,’ or many roofs, on an old Hollywood set, an artificial suburban neighborhood. His guests were met by new solar panels that replace shingles and are effectively the roof, rather than a panel that goes on a roof.

The roof tiles on a number of the houses in the neighborhood were made of textured glass, tough as steel – in fact they are quartz – that look like, well, ordinary roof tiles, that allow light to pass through from above onto a standard flat solar cell. It is planned that Panasonic will produce the solar cells and Tesla assemble the glass tiles and accessories.

The future looks like a house topped with solar tiles, where night-time electricity is stored in wall-hung Powerwall batteries, and where a model 3 prototype electric car has easy access to the home’s car charger.

The White House has announced plans to create a 25,000 mile (40,000 km) recharging network for electric cars that it hopes will encourage drivers to switch from gasoline-powered vehicles.

The Department of Transportation will designate 48 official electric vehicle routes on highways that cover 35 of the 50 states, with further building according to demand. Nissan, BME, GM and a number of major power companies will participate in the initiative.

There are currently around 16,000 charging stations across the U.S., up from 500 in 2008; and approximately 150,000 gas stations.

CHINA installed two wind turbines per hour in 2015, and in that same year 500,000 solar panels per day were installed around the world. For the first time ever, solar power capacity tops coal consumption.

CHINA is a country that really needs to up its installation of alternate energy sources. The country has excruciating problems with air and water pollution, due mainly to coal consumption, particularly in power plants and mining operations. In addition to pollution problems arising from coal consumption, the mining of the fuel is in itself dangerous and the cause of many deaths per year in China. But the country is the world leader in the use of alternate forms of energy.

 

GLOBAL OUTLOOK

Global Outlook

by Royce Lowe
EUROZONE OUTLOOK
IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) for October, at 53.5 was up from September’s 52.6. There was a broad-based improvement led by the Netherlands and Germany, with growth in production, new orders, new export orders and employment all gathering pace to push the PMI figure to a 33-month high. The Netherlands and Germany were on top, with solid rates of expansion seen also in Austria, Spain and Ireland. France, long in the doldrums, went back into expansion territory with a 31-month high – despite a slight decrease in employment. Italy grew but slower than in September. Only Greece of the ‘big eight’ is in contraction.

In what was a good month for the Eurozone, it saw the sharpest expansion in production since April 2014 and the second-fastest increase in total new orders over the same period. New export business increased for the 40th consecutive month in October, and job creation was quicker than for the past 60 months.

  PMI High/low
Netherlands 55.7 (53.4) 15-month high
Germany 55.0 (54.3) 33-month high
Austria 53.9 (53.5) 4-month high
Spain 53.3 (52.3) 6-month high
Ireland 52.1 (51.3) 4-month high
France 51.8 (49.7) 31-month high
Italy 50.9 (51.0) 2-month low
Greece 48.6 (49.2) 5-month low

New car registrations in Western Europe were down 1.0 percent overall in October, with Germany down 5.6 percent, France down 4 percent, Spain up 4 percent and Italy up 9.8 percent, The UK was up 1.4 percent. There were two fewer selling days than in October 2015.

Crude steel production in Germany in September was at 3.25Mt, down 3.9 percent y-o-y; in Italy 1.99Mt, down 5.3 percent y-o-y; in France 1.28Mt, up 2.2 percent y-o-y and in Spain 1.19Mt, down 8.7 percent y-o-y.

Russia’s crude steel production for September was at 5.74Mt, down 2.1 percent y-o-y; Ukraine’s was 1.88Mt, down 8.0 percent y-o-y.

IHS Markit reports continuing growth in the UK manufacturing economy, but the PMI fell from September’s final 55.5 reading to 54.3 in October. There was growth in production, new orders and employment, with new export orders, aided by a weak Sterling, coming through from the U.S., the EU and China. The SMEs showed the best employment figures.

Higher demand was seen in both the domestic and export markets, with the intermediate goods sector the strongest. The weak Sterling also impacts on costs of raw material and semi-finished goods.

The UK produced 0.644Mt of crude steel in September, up 13.3 percent y-o-y.

ASIA OUTLOOK

There were general signs of improvement in Chinese manufacturing in October, with the Caixin PMI rising to 51.2 in October from 50.1 in September. Production grew at the fastest pace in five-and-a-half years and there was an accompanying growth in new orders, mostly domestic as there was in fact a slight decrease in export orders over the month. Staff cutbacks were at their slowest pace in 17 months.

CHINA produced 68.17Mt of crude steel in September, up 3.9 percent y-o-y; Japan 8.44Mt down 1.5 percent y-o-y; India 7.88Mt, up 8.5 percent y-o-y and South Korea 5.72Mt, up 1.1 percent y-o-y. Taiwan produced 1.77Mt in September, up 10.0 percent y-o-y.

Chinese auto sales jumped 26.14% on year to 2,564,100 in September, says CAAM. In the first nine months of the year automakers in the country delivered 19,360,400 vehicles in total, 13.17% more than a year earlier. The passenger car market expanded 28.94% to 2,268,300 units in Sept., and 14.75% to 16,752,000 units in the first nine months of 2016.

JAPAN’s manufacturing sector saw its PMI increase to its highest level in nine months, from September’s 50.4 to 51.4 in October. New orders, both domestic and export, grew for the first time since January. Employment grew to a two-and-a-half year high and production was up at its sharpest rate in ten months.

There was greater trade with China, Taiwan, Europe and Southeast Asian countries.

The INDIAN manufacturing sector’s PMI was at a 22-month high in October, thanks to strong increases in new orders, purchasing activity and production. October’s PMI was at 54.4, up from September’s 52.1 figure.

Consumer goods producers outperformed intermediate and investment goods producers. Production expanded at its fastest rate for 46 months, new orders at their fastest rate for 22 months.

SOUTH AMERICA OUTLOOK

In Brazil, the manufacturing downturn continues with new export orders falling at their fastest pace since the global financial crisis. There were further sharp decreases in employment. The downturn in new orders softens, but production falls at a quicker pace.

The PMI for October, at 46.3, very slightly up from September’s 46.0 figure, represents the 21st consecutive month of contraction in the Brazilian manufacturing industry.

Brazil’s crude steel production for the month of September was 2.58Mt, a 3.1 percent y-o-y increase.

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) – increased significantly in October to 52.0 from September’s 51.0 reading, the highest reading recorded for two years.

Of the 31 nations for which October data were available, 22 showed improved operating conditions in October, and of the nine showing contractions six were in Asia, with Brazil, Turkey and Greece also showing declines.

All indexes, production, new orders, new export orders and employment were up, as were input and output prices.

 

GLOBAL BUSINESS SURVEY INSIGHTS

global-insights

by Norbert Ore

ECONOMY CHUGGING ALONG FOR NOW OCTOBER 2016

Last month we saw faster growth – albeit slow, persistent economic growth across much of the globe. And we also recognized more positive activity than we’ve seen in any month since March. So last month was a positive by most standards. Now we see October as a large step forward based on global survey data.

While there are still many challenges to global growth, October does provide short term encouragement. In reviewing the data from 21 countries, we find various levels of growth, while notably only Brazil, South Korea, and Greece remain in contraction. Admittedly, two months do not make a trend, but it does illustrate resilience in the global economy.

The Eurozone PMI (53.5, +0.9) rose to its highest level since January 2014. The strong showing was led by Netherlands (55.7, +2.3), Germany (55.0, +0.7), Austria (53.9, +0.4) and Spain (53.3, +1.0).

UK manufacturing has, to this point, not been negatively impacted by BREXIT. This is in spite of strong expectations to the contrary. The UK PMI (54.3, -1.1) reading is also the average for the past three months. It is likely this level of activity can be explained by inventory replenishment and favorable exchange rates and may not be sustainable. However, it is impressive in the short term!

Thanks to a modest improvement during October, China’s Official Report, the CFLP PMI (51.2, +0.8), raised the average for Jan-Oct to 50.1. Both the Official Report and the Caixin China General Manufacturing PMI (51.2, +1.1) rose to their highest level in 28 months.

In North America, Canada (51.1, +0.8) reported growth for the eighth month following a seven-month contraction. Meanwhile, Mexico (51.8 -0.1) recorded its thirty-ninth consecutive month of growth as it continues a stronger trend after posting its lowest level in 33 months in July.

October Scattergram

 

IX. THE FINAL WORD


Manufacturing from a global perspective looks better this month than it has done in a long time. Results from the U.S., Europe and Asia are encouraging.

Ongoing efforts are being made to replace some of the world’s fossil fuels with alternate forms of energy, while information continues to come to light as to how important this is. Much damage has been done to the planet, but we are told by those who know that there is still time to turn the situation around, but only if all concerned can put together a joint effort, and if certain politicians can take their heads out of the sand.

Last Months Issue can be seen HERE

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