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Metals & MFG Outlook – June 2016
I. Cover Story: CONFUSION TIME AGAIN?
II. NORTH AMERICAN PERSPECTIVE
III. U.S. FORGING INDUSTRY
IV. MANUFACTURING TALK RADIO
VI. ASIA OUTLOOK
VII. SOUTH AMERICA
VIII. APRIL BUSINESS SURVEY INSIGHTS
IX. THE MANUFACTURING SCENE
X. TECHIE CORNER
XI. THE FINAL WORD
As manufacturing moves into the summer months, we find ourselves staring into a cloudy crystal ball – is that a second half 2016 pick-up that we see or a cloud that looks like a bunny? Did the most recent prognosticators say 2.1 GDP or 1.2 for 2016? Did somebody mention that capital investment may be forthcoming in 2016 or 2017, or 2018?
It just seems all so sluggish. Fed Chair Janet Yellen points to slow growth and low rates in the long run, saying, “The central bank expects gradual rate increases if ‘headwinds slowly fade over time’.” That would mean the U.S. dollar would need to weaken against other currencies, exports would need to increase, Asian and Euro economies would have to strengthen, international demand for U.S. goods would need to rise, consumer spending would have to increase over current levels, manufacturing orders would need to improve significantly, the auto industry would have to continue to boom, new home construction would need to continue to gain strength, and a few other positive factors would have to kick in. Hmm, seems like a pretty long list.
Keep in mind that manufacturing still has not reached pre-recession levels in output or employment and has actually been shedding jobs recently. So it is little wonder that the Fed Chair isn’t cranking up interest rates now or near term. And while the U.S. economy may be the strongest one going right now, it cannot lift the world even with its great size.
And how about those politicians? They seem unable to pass legislation that makes sense but very capable of passing more rules and regulations that stifle growth, and the usual pro-business, pro-growth Republicans are proving they are wolves in sheep’s clothing. The Ex-Im Bank still lacks a full board and the ability to help support exports because one man – one person in all of America, the Senate Banking Committee Chairman, Republican Senator Richard Shelby of Alabama, refuses to advance any board nominations because he is ideologically opposed to the Ex-Im Bank. So regardless of bipartisan support reauthorizing the bank last December, one ideologue prevents companies from doing business if their transaction is over $10 million, and apparently, if Shelby had it his totalitarian way, the bank wouldn’t exist.
If you are looking to Washington D.C. for solutions or answers, ‘fahgettaboudit’. It just isn’t going to happen with a bunch of appointed kings keeping a stranglehold on their committees, causing the wheels of progress to grind against the rails until there is no metal left. Politics has become so divisive in America that Congress is now like a grudge match between two teams that hate each other and will do anything to deny the other guy a win, especially at our expense, and they have We, the People, sitting in the stands cheering for “our team” completely oblivious of the greater whole – America. We have allowed our elected misrepresentatives to divide us into ‘their’ camps, ignoring that a house divided against itself cannot stand. Want proof? Ask any of the living presidents their view of Congress, now or during their term(s).
We now suggest that the governors of each state begin to vigorously execute their states’ rights under the 10th Amendment, “Each state retains its sovereignty, freedom, and independence, and every power, jurisdiction, and right, which is not by this Confederation expressly delegated to the United States, in Congress assembled.”
Perhaps solutions can be forthcoming from the states, rather than an incompetent federal government. Perhaps the “new tomorrow”, instead of the ‘new normal’ are state by state solutions that leave the federal government to wallow in its own misery.
Likely you will be hearing more of this on Manufacturing Talk Radio in the coming weeks. Tune in to find out what Connecticut is doing, and if any governor wants to tout what their Department of Labor (think ‘skills gap’) or Department of Economic Development (think ‘winning new manufacturing plants’), is doing we invite them to join us on the air!
Lewis A. Weiss
I. COVER STORY: CONFUSION TIME AGAIN?
Manufacturing in the U.S. may not be pulling up too many proverbial trees, but is holding its head up well, particularly when compared with the other emerged economies. There is optimism, but optimism amidst conflicting reports as to the strength of the manufacturing sector.
The PMI figure from the Institute of Supply Management moved up from April’s 50.8 percent to 51.3 percent in May representing growth in manufacturing for the third consecutive month. There was growth in the overall economy for the 84th consecutive month.
The Markit PMI for the U.S. manufacturing sector moved down to 50.7 percent in May from April’s 50.8 figure. Markit’s analysis of this situation is initially quite pessimistic, mentioning the weakest manufacturing performance in six-and-a-half years, with production falling for the first time since September 2009, and new orders expanding at the slowest pace since December 2015.
Survey respondents are pointing to subdued demand and increased economic uncertainty as major issues, with the U.S. election campaign doubtless contributing also in its own way. But along with this, Markit state that employment picked up slightly in May, on the back of new product launches and sustained optimism regarding the longer-term business outlook.
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.
But in early June Bloomberg News reported that ’employers in May added the fewest number of workers in almost six years, reflecting broad cutbacks that may raise concern about U.S. growth and prompt Federal Reserve policy makers to put off an increase in interest rates.’ Some 38,000 workers, the fewest since September 2010, followed a 123,000 April increase that in itself was smaller than previously estimated. Employment figures for April and May combined have been cut back by some 59,000 on initial estimates.
It isn’t every day we read about or hear of extraordinary engineering triumphs, but one has recently been accomplished. A tunnel 57.1 kms (35 Miles) long has just been completed in Switzerland after 17 years of excavation and construction, all following on from a referendum and aided by taxes on gasoline, value added taxes, road tolls for heavy vehicles and a state loan to be repaid in ten years. There may be lessons from this project – see Manufacturing Scene.
Michael Bloomberg, of Bloomberg LP and Bloomberg Philanthropies, and former mayor of NYC, and Jamie Dimon, chairman and CEO of JPMorgan Chase & Co. have come out in criticism of the education and training of young people for the U.S. manufacturing sector, and are contributing to programs that are being shown to improve it. They particularly cite YouthForce NOLA, created by a group of Louisiana education, business and civic leaders with the aim of providing high-school students with training and experience that will prepare them for well-paying jobs.
North American prices on hot-rolled and cold-rolled steel coil are holding up as of late May, but the steel situation as such is not causing the media furor it promised in April.
Meanwhile Asian stocks were climbing in early June, due to a non-increase in the Fed’s interest rate, and a greater than 20 percent increase in commodity prices, from soybeans to copper.
Lithium is in the news, and for one simple reason, namely that there are just over 60 kgs (132 lbs) of it in each electric car battery. There isn’t an awful lot of it around, and, poetically just, the countries that have all the oil have no lithium. The metal, the lightest known to us, is super reactive and not easy to extract. Chile, Australia and Argentina hold 81 percent of the world’s lithium reserves between them. If the electric car takes off as it threatens to do, demand for this metal will go from 184,000 tonnes in 2015 to 534,000 tonnes in 2025.
The Bureau of Economic Analysis came out with its ‘second’ estimate for the annual rate of Real GDP growth in the first quarter of 2016, putting it at 0.8 percent. The ‘advance’ estimate put the figure at 0.5 percent.
GALLUP’s U.S. Economic Confidence Index was flat in May at -14. The job creation index was hovering around +32 in late May.
World crude steel production for the 66 reporting countries for the month of April 2016 was 134.9Mt, down 0.5 percent y-o-y. For the first quarter it was 385.7Mt, down by 3.6 percent from the same period in 2015.
U.S. crude steel production, for April 2016 was 6.57Mt, up 2.5 percent y-o-y.
Primary Global Aluminum Production in April 2016 was reported at 4.721 million tonnes, of which 2.57 million tonnes, over 54 percent, were produced in China. The Gulf Corporation Council (GCC) produced 421,000 tonnes, North America 329,000 tonnes, Western Europe 311,000 tonnes and Eastern and Central Europe 327,000 tonnes.
Here are the latest figures for US new car and light truck sales for ‘the big eight’ for May 2016. This was a 24-day sales month as compared to a 26-day sales month in 2015, and the month of May saw a 6 percent y-o-y fall in light vehicle sales.
|The ‘Big Eight’||May ’16||May ’15||YTD % change|
|Total new cars and light trucks||1536276||1635090||-6|
CARS LIGHT TRUCKS TOTAL
MAY 2015 764,697 870,393 1,635,090
MAY 2016 645,763 890,513 1,536,276
-15.6% +2.3% -6.0%
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||+0.8 (qtr)||-1.1 (Apr)||+1.1 (Apr)||5.0 (Apr)|
|Canada||+2.4 (qtr)||-0.2 (Mar)||+1.7 (Apr)||7.1 (Apr)|
|China||+4.5 (qtr)||+6.0 (Apr)||+2.3 (Apr)||4.0 (Qtr 1)|
|Japan||+1.7 (qtr)||-3.5 (Apr)||-0.3 (Apr)||3.2 (Apr)|
|Britain||+1.4 (qtr)||-0.3 (Mar)||+0.3 (Apr)||5.1 (Feb)|
|Euro Area||+2.1 (qtr)||+0.2 (Mar)||-0.1 (May)||10.2 (Apr)|
|France||+2.6 (qtr)||-0.8 (Mar)||– 0.1 (May)||9.9 (Apr)|
|Germany||+2.7 (qtr)||+0.2 (Mar)||+0.1 (May)||6.1 (May)|
|Spain||+3.1 (qtr)||-1.7 (Mar)||-0.9 (May)||20.1 (Apr)|
|India||+9.6 (qtr)||+0.1 (Mar)||+5.4 (Apr)||4.9 (2013)|
|Brazil||– 1.1 (qtr)||-11.3 (Mar)||+9.3 (Apr)||11.2 (Apr)|
|Taiwan||+ 3.1 (qtr)||– 4.1 (Apr)||+ 1.9 (Apr)||4.0 (Apr)|
|Mexico||+3.3 (qtr)||-2.0 (Mar)||+2.5 (Apr)||3.9 (Apr)|
by Royce Lowe
II. NORTH AMERICAN PERSPECTIVE
by Royce Lowe
The Institute of Supply Management PMI figure registered 51.3 percent in May, up 0.5 percentage points from April’s 50.8 reading, representing growth in manufacturing for the third consecutive month, and growth in the overall economy for the 84th consecutive month. Of the 18 manufacturing industries, 12 are reporting growth in May in the following order: Wood Products; Textile Mills; Printing & Related Support Activities; Fabricated Metal Products; Paper Products; Plastics & Rubber Products; Computer & Electronic Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Machinery; and Primary Metals. The six industries reporting contraction in May, listed in order, are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Transportation Equipment; Nonmetallic Mineral Products; Chemical Products; and Furniture & Related Products.
Following are comments from the industry:
Fabricated Metal Products personnel say that there is brisk order flow for the business. Chemical Products respondents say there is consistent sales growth in greater China, North Asia, Southeast Asia, Canada and Mexico, but that it is flat for the Americas and Europe. Computer & Electronic Product respondents say a slowdown in the Chinese economy is causing low orders. Transportation Equipment personnel say that business is still good but slowing. Miscellaneous Manufacturing personnel say that business conditions are stable and that demand for products is steady. Plastics and Rubber Products say their business is strong, but that many of their suppliers say business is flat. Machinery reports steady to slightly up production rates compared to previous month. Food, Beverage & Tobacco Products respondents say that business conditions remain strong with the exception of South America. There is continued expectation for a strong year even with the headwinds of currency and economic slowdown. Wood Products point to a market that is improving steadily in both orders and pricing, and Petroleum and Coal Products say that Oil & Gas continues to struggle to meet cost controls required in the new low-oil price environment.
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.
- The ISM New Orders Index for May, at 7 percent, was down 0.1 percent on April’s figure of 55.8 percent., representing growth in new orders for the fifth consecutive month. The fourteen industries reporting growth in new orders in May, listed in order, are: Textile Mills; Printing & Related Support Activities; Wood Products; Miscellaneous Manufacturing; Primary Metals; Fabricated Metal Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Plastics & Rubber Products; Machinery; Electrical Equipment, Appliances & Components; Chemical Products; Paper Products; and Nonmetallic Mineral Products. The four industries reporting a decrease in new orders during May are: Apparel, Leather & Allied Products; Transportation Equipment; Petroleum & Coal Products; and Furniture & Related Products.
- The ISM Production Index for May is at 52.6 percent, down6 percentage points from April’s 54.2 percent reading, representing growth in production for the fifth consecutive month. Twelve industries reported growth in production during the month of May, namely, listed in order,: Wood Products; Primary Metals; Paper Products; Fabricated Metal Products; Textile Mills; Printing & Related Support Activities; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Machinery. The six industries reporting a decrease in production during May, listed in order, are: Apparel, Leather & Allied Products; Transportation Equipment; Nonmetallic Mineral Products; Chemical Products; Furniture & Related Products; and Plastics & Rubber Products.
- The ISM Employment Index for May registered a reading of 2 percent, unchanged from April’s reading, representing a sixth consecutive month of contraction in the Employment Index. Ten of the 18 manufacturing industries reported employment growth in May, in order, Textile Mills; Wood Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Paper Products; Primary Metals; Miscellaneous Manufacturing; Machinery; and Computer & Electronic Products. The six industries reporting a decrease in employment in May, listed in order, are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Chemical Products; Fabricated Metal Products; and Furniture & Related Products.
- The ISM Supplier Deliveries Index indicates that the delivery performance of suppliers to manufacturing organizations was slower in May than in April, as the Supplier Deliveries Index registered 54.1 percent, 5.0 percentage points above April’s 49.1 reading. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries. The six industries reporting slower supplier deliveries in May, listed in order, are: Plastics & Rubber Products; Machinery; Fabricated Metal Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Transportation Equipment. The two industries reporting faster supplier deliveries during May are: Primary Metals; and Chemical Products. Ten industries reported no change in supplier deliveries in May compared to April.
- The ISM Inventories Index, is at 45.0 percent for May, 0.5 percentage points below April’s 45.5 percent reading, indicating a contraction of raw materials inventories in May for the eleventh consecutive month at a faster rate than in April. Four industries reported higher inventories in May, namely: Apparel, Leather & Allied Products; Wood Products; Computer & Electronic Products; and Fabricated Metal Products. The 13 industries reporting lower inventories in May, listed in order, are: Primary Metals; Textile Mills; Transportation Equipment; Machinery; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Chemical Products; Miscellaneous Manufacturing; Plastics & Rubber Products; and Printing & Related Support Activities.
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
- The ISM Customers’ Inventories Index registered 50.0 percent in May, 4.0 percentage points above April’s reading of 46.0 percent, meaning that customers’ inventories are unchanged in May relative to April. The seven manufacturing industries reporting customers’ inventories as being too high during the month of May are: Apparel, Leather & Allied Products; Furniture & Related Products; Transportation Equipment; Chemical Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing. The seven industries reporting customers’ inventories as too low during May, listed in order, are: Textile Mills; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Computer & Electronic Products; Paper Products; Machinery; and Primary Metals.
- The ISM Prices Index registered 63.5 percent in May, which is 4.5 percentage points higher than April’s 59.0 percent reading, indicating an increase in raw material prices for the third consecutive month. In May 34 percent of respondents reported paying higher prices, 7 percent lower and 59 percent the same prices as in April.
Of the 18 manufacturing industries, thirteen reported paying increased prices for their raw materials in May, namely, in order: Fabricated Metal Products; Plastics & Rubber Products; Apparel, Leather & Allied Products; Primary Metals; Electrical Equipment, Appliances & Components; Machinery; Food, Beverage & Tobacco Products; Paper Products; Transportation Equipment; Chemical Products; Furniture & Related Products; Miscellaneous Manufacturing; and Computer & Electronic Products. The three industries reporting paying lower prices during the month of May are: Wood Products; Petroleum & Coal Products; and Textile Mills.
Up in Price in May were: Aluminum (4); #1 Bundle Scrap (2); Copper (3); Corn; Crude Oil; Diesel (2); Electrical Components; Gasoline; HDPE Resin (2); Oil (2); Petroleum Based Products; Polypropylene (4); Silver; Stainless Steel (2); Steel (5); Steel — Cold Rolled (2); Steel — Hot Rolled (4); and Structural Steel Tubing.
Down in Price in May were: Corrugated Boxes
In Short Supply in May: None
Note: The number of consecutive months the commodity is listed is indicated after each item.
- The ISM Backlog of Orders Index was at 47.0 percent in May, 3.5 percentage points down on the April reading of 50.5 percent, indicating contraction in order backlogs. Of the 85 percent of respondents who measure their backlogs, 17 percent reported greater backlogs, 23 percent smaller backlogs and 60 percent no change from April. Six industries reported an increase in order backlogs in May, namely, in order: Textile Mills; Printing & Related Support Activities; Plastics & Rubber Products; Furniture & Related Products; Fabricated Metal Products; and Electrical Equipment, Appliances & Components. The 10 industries reporting a decrease in order backlogs during May, listed in order, are: Apparel, Leather & Allied Products; Primary Metals; Transportation Equipment; Miscellaneous Manufacturing; Chemical Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Machinery; Nonmetallic Mineral Products; and Paper Products.
- The ISM New Export Orders Index was at 52.5 percent for May, the same reading as for April. This represents growth in new export orders for the third consecutive month. Six industries reported growth in new export orders in May, namely, listed in order, are: Wood Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Paper Products; Transportation Equipment; and Computer & Electronic Products. The six industries reporting a decrease in new export orders during May, listed in order, are: Primary Metals; Nonmetallic Mineral Products; Chemical Products; Fabricated Metal Products; Machinery; and Plastics & Rubber Products. Six industries reported no change in new export orders in May compared to April.
- The ISM Imports Index, is at 50.0 percent in May, unchanged from April, representing imports in May as unchanged from those in April. Six industries reported growth in imports in the month of May, namely, Nonmetallic Mineral Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Machinery; and Furniture & Related Products. The seven industries reporting a decrease in imports during May, listed in order, are: Primary Metals; Transportation Equipment; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Miscellaneous Manufacturing; and Printing & Related Support Activities.
The biggest U.S. automotive industry news, apart from a drop in monthly light vehicle sales, might come from Tesla. The company is to sell $1.4 billion in shares to help pay for an expansion that includes its forthcoming Model 3 electric car, and boosting production to 500,000 vehicles in 2018.
The company is looking at a sharp rise in spending for its increased production plan, which includes making as many as 200,000 of its Model 3 cars by the second half of 2017. It is also beefing up its battery factory in Nevada, expanding global sales and service and adding more charging stations. Tesla had approximately 373,000 pre-orders for its Model 3, and around 8,000 cancellations.
In U.S. Aerospace news, Boeing Commercial Airplanes has an order from Vietjet Aviation, a low-cost Vietnamese airline, for 100 737MAX aircraft, the largest ever single commercial airplane purchase in Vietnam. The order is worth $11.3 billion and delivery is set to start in 2019.
Vietjet chose Pratt and Whitney to supply its PurePower Geared Turbofan engine for its 63 Airbus A320neo and A321neo jets, starting in 2017.
Lockheed Martin Corp. is under orders from the U.S. Navy to correct quality control failures in building its version of the Littoral Combat Ship (LCS) under three citations from the service’s shipbuilding inspectors.
Quality questions, not previously disclosed, add to concerns regarding the $29 billion program that Defense Secretary Ash Carter reduced from 52 to 40 units. Austal Ltd., a competitor of Lockheed Martin for another version of the ship, had no citations.
The Defense Contract Management Agency found Lockheed has ‘systematic quality deficiencies’ at the Marionette Marine Yard in Wisconsin, where the ships are built.
Much manufacturing news these days concerns the difficulties companies have in finding qualified personnel. No more will minimum qualifications cut it in the manufacturing environment. Ford Motor Co., for example, stated at a recent Brookings Institution workshop that some 95 percent of the auto body construction process is automated, and that people who work on these lines are highly trained, specialized technicians. Ford says that U.S. universities are the best in the world at training engineers, but not enough U.S. students are leaving high school prepared for engineering school.
Delphi Automotive is concerned about the caliber of U.S.engineers and has been looking to Romania, Poland, China and Mexico to fill the gap.
Microsoft wonders whether STEM investments in high schools have enough long-term impact.
The list goes on and on, and everywhere there are complaints that there are just not enough qualified people ‘out there.’ In line with this is a recent SME survey from which it is reported that over 20 percent of parents’ view manufacturing as outdated and/or a dirty work environment; 50 percent do not see manufacturing as an exciting, challenging or engaging profession, and almost 25 percent of parents surveyed do not think manufacturing is a well-paying job. All this regardless of reams of recent publicity pointing to changes in the manufacturing environment and the fact that jobs in the sector are indeed well paid. Question….At what age do students decide what THEY want to do?
The U.S. infrastructure is in bad shape. A recent report by the American Society of Civil Engineers (ASCE) states that over the next decade it would cost over $3.3 trillion to keep up with repairs and replacements, but with that based on current funding the nation will come up $1.4 trillion short.
In addition to the danger to human life, Americans can look forward to traffic jams, airport bottlenecks and potential power outs. Deterioration of U.S ports, roads, trains, water and electrical facilities will also take an economic toll, cutting payroll growth by some 2.5 million jobs and some $4 trillion of GDP in lost sales and higher costs.
Clean-energy jobs: the number of U.S. jobs in solar energy overtook those in oil and gas extraction for the first time in 2015. Employment in the U.S. solar business grew twelve times faster than overall job creation, according to the International Renewable Energy Agency. Some 8.1 million people worldwide had jobs in clean energy in 2015, up from 7.7 million in 2014. Projections are for worldwide clean energy jobs to hit 24 million by 2030 if the U.N. targets on climate change and development are met.
CANADA’S RBC (Royal Bank of Canada) Manufacturing PMI decreased very slightly from April’s 16-month high 52.2 to 52.1 in May, to continue three months of sustained improvement. The manufacturing sector showed moderate improvement in May, with production, new orders and employment all generally on the up.
Again, Québec and Ontario were the bright spots, with continued declines in B.C. and Alberta. The forest fires in Alberta, which raged in a horrific way, are expected to put increased pressure on manufacturing in that province.
Canada produced 1.10 Mt of crude steel in April, down 1.6 percent y-o-y.
Canadian light vehicle sales fell by 1.6 percent in May, the first drop since December 2015. The fall in sales was led by a 16.5 percent drop at GM Canada. But at 194,866 vehicles sold in May, YTD sales are still up by 5.6 percent and analysts are forecasting another record year for the Canadian industry.
In associated news, Fiat Chrysler will create 1,200 jobs at its Windsor, Ontario plant, in preparation for the new Pacifica minivan.
Tesla Motors is to open six new charging stations in Ontario and Québec. One has to wonder if Tesla knows how big a space that is, Ontario plus Québec.
In May, MEXICO saw its strongest upturn in manufacturing since April 2015, with the PMI moving up to a 13-month high of 53.6 from April’s 52.4 reading.
There was a rebound in production and new orders – both domestic and export – and there was an accumulation of work backlogs for the first time since December 2011, which prompted a rise in employment numbers.
Mexico produced 1.31 Mt of crude steel in April, down 7.3 percent y-o-y.
III. U.S. FORGING INDUSTRY
by Royce Lowe
Dana Holding Corp. will open a new high-tech axle manufacturing facility in Toledo, Ohio, on a site that was previously home to Willys-Overland Motors. The new facility is adjacent to I-75 and well positioned to support automakers throughout the region. Dana plans to expand a recently constructed 100,000-square-foot facility on the property to nearly 300,000 square feet, and to invest approximately $70 million during the next few years, creating 300 jobs by 2020. The facility will integrate the company’s best global manufacturing practices and advanced operating systems.
“The investment in this new manufacturing facility is another substantial example of Dana’s commitment to the city and our community. It is an honor for Dana to return manufacturing to the same historic site where Toledo’s automotive industry began more than 100 years ago,” said James Kamsickas, Dana president and CEO.
IV. MANUFACTURING TALK RADIO
by Tim Grady
Manufacturing Talk Radio continues to pursue breaking news, advanced technology stories, economic updates and other information important to all manufacturers and manufacturing suppliers across America. Updates include information about Europe, Asia, and emerging markets where fascinating developments are occurring in the industry.
It is also the political season, as if that actually ever ends, and it has become impossible to ignore some of the profound stupidity emanating from Washington D.C. For example, while gun makers might balk because of its very little impact on actual gun sales, Congress failed to pass a single gun control measure. Why?!? If you read our Publisher’s Statement, you learned why.
There are also some stubborn perceptions about manufacturing that prevail in spite of the facts, and it is clear that manufacturing continues to get a bum rap from a past of being dark, dirty and dangerous. It will soon get another bum rap as it puts robots and cobots to work because young adults are simply not going into the industry. Then manufacturing will be blamed for not hiring unskilled workers.
Coming up – what are the states going to do about the inability of Washington to perform? After all, education is more local than federal. We will be covering what several states are doing, from the governors’ offices through their Departments of Labor and Economic Development to local actions by mayors, tech schools and even chambers of commerce. Why? Because a skilled labor shortage across America will cripple America’s global competitiveness, not just in manufacturing but in technological innovation.
Listen for some exciting format changes that pack the show with ore guests and information. Tune in on Tuesday’s for the live show or visit www.mfgtalkradio.com anytime to hear recent shows on topics you cannot afford to miss.
by Royce Lowe
Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) for May, at 51.5, was slightly down from April’s 51.7 reading, and a 3-month low.
There was expansion in six of the eight countries surveyed, with downturns continuing in France and Greece. There was further growth slowdown in Eurozone manufacturing, as new orders from both the domestic and export markets continued to rise at lackluster rates.
Eurozone manufacturing production was up for the 35th consecutive month in May, with Germany, Italy, Spain and the Netherlands reporting increases in new export business, although all reported slower expansions than in April.
Manufacturing employment rose during May, with levels up in all nations except France and Greece, with Greece showing a slight drop and France reporting its most serious job cuts since August 2014.
|Netherlands||52.7 (52.6)||2-month high|
|Italy||52.4 (53.9)||3-month low|
|Germany||52.1 (51.8)||4-month high|
|Spain||51.8 (53.5)||7-month low|
|Ireland||51.5 (52.9)||34-month low|
|France||48.4 (48.0)||2-month high|
|Greece||48.4 (49.7)||3-month low|
FRENCH NUCLEAR regulatory agency Autorité de Sûreté Nucléaire (ASN) confirms the existence of safety defects in about 400 forged parts produced since 1965 for nuclear reactors built by Areva. About 50 of the parts are installed in nuclear reactor plants operating in France.
France has 19 nuclear power plants consisting of 58 nuclear reactors, to supply an estimated 75 percent of the nation’s electricity. The plants are operated by Electricité de France (EDF) which will take over construction of nuclear reactors, a business that was developed by Areva.
The enquiry started over a year ago after ‘weaknesses’ were discovered in forged steel parts being supplied for the new reactor under construction.
In May, with an extra selling day in a number of countries, passenger car sales in Western Europe rose to 1.06 million units. Western European car registrations grew 14 percent y-o-y, with sales in Germany up 12 percent, in France up 22 percent, in UK 2.5 percent (Brexit fears?), in Italy 27 percent and in Spain up 21 percent. Seasonally adjusted registrations are forecast to reach 14.08 million in 2016, up 5.7 percent on 2015.
Crude steel production in Germany in April was at 3.56Mt, down 1.5 percent y-o-y; in Italy 2.09Mt, up 14.5 percent y-o-y; in France 0.97Mt, down 26.5 percent y-o-y and in Spain 1.19Mt, down 10.6 percent y-o-y.
Russia’s crude steel production for April was at 5.89Mt, down 0.4 percent y-o-y; Ukraine’s was 2.15Mt, up 11.7 percent y-o-y.
Markit reports that the UK manufacturing sector saw a slight increase in the PMI figure from April’s 49.4 to 50.1 in May.
There was growth in production and new orders in the consumer and intermediate goods sectors, but ongoing downturns in investment goods. New export business was down for the fifth consecutive month.
Over one third of survey respondents see detrimental effects on manufacturing business from an uncertainty regarding the upcoming referendum vote, within which 8 percent see the impact as ‘strongly detrimental.’
Manufacturing employment was down for the fifth consecutive month, though at a slightly more modest level.
The UK produced 0.700Mt of crude steel in April, down 24.1 percent y-o-y.
The name British Steel has once again risen from the ashes. Tata Steel of India has completed a part sale of its European assets to safeguard 4,800 jobs, though thousands more are still threatened with no buyer found for the balance of the business. The Long Products Europe (LPE) business has been sold to Greybull Capital for an undisclosed sum, and this will see 4,400 jobs saved in the UK, a further 400 in Northern France.
This will be the first time the British Steel name has been in evidence since 1999. Tata says it has chosen seven bidders as potential buyers of its remaining UK activities, most notably the flat-rolled works at Port Talbot in Wales.
In 1875, some 40 percent of world steel output came from Britain, mostly from the northern city of Sheffield.
The JP Morgan Global Manufacturing PMI – a composite index produced by JPMorgan and Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – eased back in May to 50.0. The word from Markit is stagnation. Contraction in new export orders was one of the steepest in the past three years, and employment was down for the fourth consecutive month.
The global consumer goods industry showed slight expansion in May, with minor contractions noted in the intermediate and investment goods sectors. All three sectors reported slight drops in employment.
VI. ASIA OUTLOOK
by Royce Lowe
CHINA produced 69.42Mt of crude steel in April, down 0.5 percent y-o-y; Japan 8.50Mt up 1.2 percent y-o-y; India 7.80Mt, up 3.9 percent y-o-y and South Korea 5.67Mt, down 1.3 percent y-o-y. Taiwan produced 1.72Mt in April, down 8.3 percent y-o-y.
The Caixin China manufacturing PMI for May eased to a three-month low of 49.2 percent from April’s 49.4 percent reading. This represents the fifteenth month that the PMI has been below 50, but there was only a very slight deterioration in the manufacturing sector overall. There were declines in new orders, both domestic and export in May, along with a slight decline in production and a continuing drop in employment.
Passenger vehicle sales – cars, SUVs and multipurpose vehicles – were up 6.4 percent in April in China, with ytd sales up 6.7 percent at 7.36 million units. Dealers are reported to be offering an average 18 percent discount off the automakers’ retail sales price.
JAPAN’s manufacturing sector saw its operating conditions worsen at the fastest rate in over three years, and the PMI at a 40-month low. The PMI for May was down from April’s 48.2 reading to 47.7.
Production and new orders were down in May at the quickest rates in 25 and 41 months respectively, with new export orders falling at the quickest pace since January 2013.
Japanese sources say the aftermath of recent earthquakes in one of the country’s key manufacturing areas is impacting unfavorably on the goods-producing sector.
In spite of all this, together with a drop in international demand, employment continues to show slight increases.
Japanese car sales, for May 2016 are reported as up 6.6 percent y-o-y, at 223,753 units. Minicars, with a 660 cc max engine, sold 107,834 units, down 14.3 percent and the 17th consecutive month of decline. Overall sales, at 331,587 units, were down 1.2 percent y-o-y.
Production growth eased in the INDIAN manufacturing sector in May, for the second consecutive month, with the slowest rise in manufacturing production in the ongoing five-month expansion sequence.
The Nikkei PMI reading increased slightly from April’s 50.5 to 50.7 in May. New orders are up in May at a slightly faster pace, but new export orders fall for the first time since September 2013. More workers were taken on in May
VII. SOUTH AMERICA
by Royce Lowe
Brazil’s manufacturing downturn gets worse in May. Business conditions deteriorated, in May, to the greatest extent since February 2009, with new orders and production down at the fastest rate in over seven years. Plant layoffs were at record levels.
The PMI for May was at 41.6 percent, down from April’s 42.6 reading, an 87-month low. Inflation reached a 94-month peak, hence there was a continuing increase in raw material costs. There was a slight increase in export orders.
Brazil’s crude steel production for the month of April was 2.30Mt, a 20.6 percent y-o-y decrease.
VIII. SLOW GROWTH THE NAME OF THE GAME – MAY 2016 BUSINESS SURVEY INSIGHTS
by Norbert Ore
The global economy continued to grow in May as 11 of the 17 (down from 13 in April) surveys we follow are growing, and combine for an average PMI of 50.2. The JP Morgan Chase Global PMI (50.0, -0.1) which measures 24 countries indicates that May is basically a repeat of April. Slowing growth is the name of the game.
Growth in the Eurozone PMI (51. 5, -0.2) is now in its 35th consecutive month. Germany (52.1, +0.3) continued positive and posted its 18th consecutive month of growth. The remaining seven Eurozone countries were led by the Netherlands (52.7, +0.1) and Italy (52.4, -1.5), while France (48.4, +0.4) and Greece (48.4, -1.3) failed to grow.
The UK (50.1, +0.9) returned to expansion in May after ending 36 months of growth in April. This is weaker than the YTD average of 50.8 percent. Employment of factory workers declined for the fifth consecutive month contributing to the weakness.
China’s Official Report, the CFLP PMI (50.1, unch) stayed precariously above the 50 mark for the third consecutive month, a questionably measurable improvement in the economy. The Caixin China General Manufacturing PMI (49.4, -0.2) has now been below the mid-point for 14 consecutive months. Of the select group, Taiwan’s SMIT/CIER (54.9, +0.3) Survey marked a third month of strong growth and led with the highest manufacturing PMI in May.
In North America, Canada (52.1, -0.1) reported above 50 for the third month following a seven-month trend of contraction. Mexico (53.6, +1.2) expanded at a pace slightly above its six-month average of 52.8 percent.
The following Scattergram of Purchasing Manager’s Index results will show which way the global manufacturing market is moving in the overall and what country or region is shifting direction.
IX. THE MANUFACTURING SCENE: WHERE HANNIBAL CROSSED
by Royce Lowe
It’s a few years since Hannibal crossed the Alps to make himself a real nuisance to the Romans, but since that time that crossing was effectively the only way to get from northern to southern Europe. Until now.
In 1992 there was a referendum in Switzerland on whether or not to build the Gotthard base tunnel, through and under the Swiss Alps. It passed. Two years later the Swiss-backed a proposal from environmental groups to move all freight traveling through Switzerland from road to rail.
The tunnel, the world’s longest and deepest, officially opened in early June, after 17 years of construction work on a project that sounds like something out of the most fictitious of science fiction.
This project cost $12.5 billion – which in light of some of the sums we read about for defense spending is far from exorbitant – and was brought in on budget and on time, which again sounds fictitious. The tunnel, a twin-bore, 57.1 kms (35 miles) long, will complete a high-speed link under the Swiss Alps and will create a mainline rail connection between Rotterdam and Milan. The tunnel’s course is flat and straight instead of winding up through the mountains like the old rail tunnel and a road tunnel opened in 1980.
It was financed by value added taxes, fuel taxes, road charges on heavy vehicles and state loans to be repaid in ten years.
The tunnel runs to 2.3 kms deep, and during construction 73 different kinds of rock were encountered, some as hard as granite, some as soft as sugar. A boring machine 410 meters long, 10 meters diameter went through it all, at times at temperatures up to 46 ºC (115ºF) and 28 million tonnes of rock were excavated – then recycled to make concrete to build the tunnel. Four million cubic meters of concrete were used to build the tunnel. Reinforced steel rings – what else – were used to prevent gravity bearing down on the project.
Advantages cited for this huge feat of engineering are easier movement of goods and increased tourism plus, and a very important plus for residents, a dramatic decrease in air and noise pollution.
The tunnel will effectively replace movement of one million trucks per year, and 15,080 shipping containers per day will move through it on 260 freight trains, intermingled with 65 passenger trains, on a journey that will take as little as 17 minutes.
Two thousand six hundred people were employed on this construction project. A plaque near the tunnel’s northern end commemorates the four Germans, three Italians, a South African and an Austrian who died working on it.
Switzerland is a relatively small country, with a total population, at around eight-and-a-half million, not much bigger than those of New York, Paris or London. Its residents were ‘persuaded’ to pay extra taxes, including for gasoline no less, to bring in this project that will forever benefit them.
The country is at once renowned for cuckoo clocks, chocolate and secret bank accounts. And wonderful scenery, world-class skiers and enviable efficiency.
It doesn’t take an Einstein to figure what a small extra tax on the price of gasoline in other developed countries might contribute to the repair and maintenance of infrastructure, or the realisation of additional projects. It does take politicians with the courage to bring in the tax.
X. TECHIE CORNER
by Royce Lowe
General Motors is looking to join steel and aluminum – an in-house development from the automaker. GM says the process solves the problem of spot welding the two materials, mainly due to the widely differing melting points of steel and aluminum. They plan to use the process this year on the Cadillac CT6, by means of a uniquely designed welding tip, which they say they are willing to license to other automakers.
The process will eliminate rivets which will cut costs and mass, for example on aluminum to aluminum welding, cost savings on rivets alone are $5-$60 per vehicle. But GM will be cautious and replace only a couple of rivets initially.
GM are also looking at carbon-fiber wheels and under-body magnesium parts -although results from the latter are so far not encouraging.
The CT6 body contains eleven different materials, while the new Malibu lost 300 lbs (136 Kgs) by using seven different types of steel for the body.
Add a little to a little and….you eventually come up with a fair bit.
XI. THE FINAL WORD
by Royce Lowe
The manufacturing environment may be confusing in its ups and downs, but it is nothing if not exciting. Manufacturing in the U.S., Europe and Asia will doubtless continue its months-up, months-down journey. We should be getting used to it by now.
The last decade or two have seen giant strides in the use of alternate production methods, materials and applications. We expect this to continue, and at an increased pace.
Manufacturing will continue to be exciting, and an exciting industry to work in