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Metals & MFG Outlook – July 2016
I. Cover Story: THE MONTH THAT WAS: AND WHAT A MONTH IT WAS
II. NORTH AMERICAN PERSPECTIVE
IV. MANUFACTURING TALK RADIO
V. ASIA OUTLOOK
VI. SOUTH AMERICA
VII. FORGING AND CASTING
VIII. U.S. STANDING OUT IN GLOBAL GROWTH PICTURE
IX. THE SKILLS GAP
XII. THE MANUFACTURING SCENE
XIII. TECHIE CORNER
XIV. OUT AND ABOUT
XV. THE FINAL WORD
What a mess in the U.S.! Chasing ISIS globally, the Brexit uproar, the highest business taxes in the world keeping trillions of corporate profits offshore instead of invested at home, an economy stuck in the doldrums, an election process yielding two of the least-liked candidates in more than 100 years, continuous bickering in Congress which has either been essentially lame duck or just plain disastrous for more than a decade, all of which has manufacturing caught squarely in the middle. There seems to be uncertainty everywhere and federal leadership nowhere.
There is no end in sight in the fight to limit the overreach of the bureaucracy of federal departments and agencies concocting rules and regulations with the force of law but without the legitimacy of being passed as law, impacting both business and everyday life. The intent of our forefathers to create a limited government of the people, by the people and for the people has morphed into a super control freak monster examining every aspect of how we work, live, play, eat, breathe, and sleep, and injecting some good but many bad ways to manage us and our employers. Is all this regulation really necessary? Really?!?
Just look at the many and never-ending issues being pursued by the National Association of Manufacturers, the premier lobbying organization for the industry. NAM’s work will never be done.
Witness one U.S. Senator, Richard Shelby (R-AL), blatantly ignoring the will of the people as expressed in the votes by their elected representatives to reauthorize the EXIM Bank, in his refusal to put forth nominations to complete the board because he personally disagrees with the existence of the bank as ‘crony capitalism’. I wonder how much corporate money he has accepted in his current re-election campaign? Isn’t real crony capitalism the big corporate bucks flowing into re-election coffers and Super PACs? It may be legal, but it smacks of bought-and-paid-for politicians.
The Boston Tea Party was all about “Taxation without representation”. Now we have taxation with misrepresentation – and it doesn’t end there. We have the Chairman of the United States Senate Committee on Banking, Housing, and Urban Affairs positioning himself as a Prince lording over the proper functioning of the Exim Bank based solely on his own personal objections and defying the will of the people. And he is hardly the only elected congressional politician to ignore the will of the people.
Little wonder that manufacturing is struggling in this country and stuck in a cycle of anaemic growth struggling to steer towards revival versus recession. And although it may only represent 12% of the economy, as manufacturing goes – so goes the entire economy. Manufacturing has led this country out of every recession since 1945 and is the leading indicator of economic health or hurt. There are no instances of the services sector preventing recession in this country when manufacturing retrenches.
So we encourage every reader to check out www.nam.org (the National Association of Manufacturers) as if your job depends on manufacturing even if you are in the services sector – because it does! For a list of industries in each sector, we refer you to the Report on Business® for Manufacturing and the Report on Business® for Non-Manufacturing issued each month by the Institute for Supply Management – or just tune into the radio show, Manufacturing Talk Radio at www.mfgtalkradio.com for an in-depth discussion of the manufacturing report each month, along with other meaty topics pertinent to the industry.
Above all, especially this election cycle, pay attention to business – your business, your employer’s business – and how the politicians you will be voting for could help or harm your livelihood. Manufacturing thrives on economic stability – and so do you, whether you know it or not. ISIS uncertainty, Brexit uncertainty, tax uncertainty, EXIM uncertainty, regulation uncertainty is all keeping a potentially vibrant economy tepid, at best.
Lewis A. Weiss
BREAKING NEWS ABOUT NICKEL PRICES
Spanish-based stainless steelmaker Acerinox said late Wednesday it does not expect nickel prices to fall again this year, leading the way for revenues in the remainder of 2016 after it reported its first quarterly profit in four quarters. Following a stabilizing and then slight recovery in nickel prices this year the company said in a regulatory filing: “a renewed fall in the nickel price is unlikely given that analysts forecast demand to exceed supply in 2016 for the first time in five years, as reflected in the drop in inventories at the London Metal Exchange.”
I. COVER STORY: THAT WAS THE MONTH: AND WHAT A MONTH IT WAS
Fear of the unknown, fear of too much immigration, together with politicians’ outrageous lies and irresponsible reporting from Britain’s ‘gutter press,’ sent record numbers to the polls for the EU referendum and a 52 to 48 percent vote to leave the European Union that Britain had worked so hard to join back in 1973. London, 18-25 year olds and Scotland all voted 70 percent or more to stay.
Stock markets and currency markets went wild globally and the British pound dived to its lowest level in over 30 years. The word stability was used a lot by politicians. The Prime Minister resigned.
The bottom line is that fear, perhaps of fear, among a large number of Brits (mostly English) seems to have shot The Island in more than the foot.
The two leading politicians, Johnson and Farage, who campaigned so strongly for Brexit, have since resigned and left others to clean up the mess. The UK Construction PMI fell from 51.2 in May to 46.0 in June, in its worst performance since the dark days of 2009, with residential construction being particularly hard hit.
Mark Carney, the (Canadian) governor of the Bank of England, says that body is ready to inject £250 billion into the economy.
To add to it all, England’s football team (as in soccer) lost to Iceland – yes Iceland – in the European Cup. The manager resigned.
In better news, the ISM PMI figure for U.S. manufacturing took a healthy jump in the month of June to 53.2 percent from May’s 51.3 percent, putting the seal on four months of growth in manufacturing and 85 months of growth in the U.S. economy as a whole.
The Markit PMI for the U.S. manufacturing sector moved to a three-month high of 51.3 percent in June from May’s 50.7 reading. Markit noted improvements in new orders, production and employment for the month.
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 ‘third’ estimate for the annual rate of Real GDP growth in the first quarter of 2016, putting it at 1.1 percent. This is up again from the ‘second’ estimate of 0.8 percent and the ‘advance’ estimate of 0.5 percent.
GALLUP’s U.S. Economic Confidence Index was steady in June at -14. The job creation index was hovering around +34 in late June.
World crude steel production for the 66 reporting countries for the month of May 2016 was 139.15Mt, down 0.1 percent y-o-y.
|The ‘Big Eight’||June ’16||June ’15||YTD % change|
|Total new cars and light trucks||1513901||1476675||2.5|
U.S. crude steel production for May 2016 was 6.82Mt, down 0.4 percent y-o-y.
Primary Global Aluminum Production in May 2016 was reported at 4.905 million tonnes, of which 2.675 million tonnes, over 54 percent, were produced in China. The Gulf Corporation Council (GCC) produced 435,000 tonnes, North America 337,000 tonnes, Western Europe 322,000 tonnes and Eastern and Central Europe 338,000 tonnes.
Here are the latest figures for US new car and light truck sales for ‘the big eight’ for June 2016. The sales trend from May was reversed as light vehicle sales for June were up 2.5 percent y-o-y.
CARS LIGHT TRUCKS TOTAL
JUNE 2015 676,627 800,048 1,476,675
JUNE 2016 622,854 891,047 1,513,901
-7.9% +11.4% 2.5%
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||+1.1 (qtr)||-1.4 (May)||+1.0 (May)||4.7 (May)|
|Canada||+2.4 (qtr)||-0.2 (Mar)||+1.5 (May)||6.9 (May)|
|China||+4.5 (qtr)||+6.0 (May)||+2.0 (May)||4.0 (Qtr 1)|
|Japan||+1.9 (qtr)||-0.1 (May)||-0.3 (Apr)||3.2 (Apr)|
|Britain||+1.4 (qtr)||+1.6 (Apr)||+0.3 (May)||5.0 (Mar)|
|Euro Area||+2.2 (qtr)||+2.0 (Apr)||-0.1 (May)||10.2 (Apr)|
|France||+2.6 (qtr)||+1.9 (Apr)||nil (May)||9.9 (Apr)|
|Germany||+2.7 (qtr)||+1.2 (Apr)||+0.3 (June)||6.1 (May)|
|Italy||+1.0 (qtr)||+1.8 (Apr)||-0.3 (May)||11.7 (Apr)|
|Spain||+3.1 (qtr)||+8.9 (Apr)||-0.8 (June)||20.1 (Apr)|
|India||+9.6 (qtr)||-0.8 (Apr)||+5.8 (May)||4.9 (2013)|
|Brazil||– 1.1 (qtr)||-7.2 (Apr)||+9.3 (May)||11.2 (May)|
|Taiwan||+ 3.1 (qtr)||+1.9 (May)||+ 1.2 (May)||4.0 (May)|
|Mexico||+3.3 (qtr)||+1.9 (Apr)||+2.6 (May)||4.0 (May)|
II. NORTH AMERICAN PERSPECTIVE
by Royce Lowe
The Institute of Supply Management PMI figure registered 53.2 percent in June, up 1.9 percentage points from May’s 51.3 reading, representing growth in manufacturing for the fourth consecutive month, and growth in the overall economy for the 85th consecutive month.
Thirteen of the 18 manufacturing industries reported growth in June in the following order: Printing & Related Support Activities; Textile Mills; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Apparel, Leather & Allied Products; Paper Products; Miscellaneous Manufacturing; Computer & Electronic Products; Chemical Products; Primary Metals; Machinery; and Nonmetallic Mineral Products. Three industries reported contraction in June, namely: Electrical Equipment, Appliances & Components; Transportation Equipment; and Plastics & Rubber Products.
Respondents’ comments from the industry were positive from Fabricated Metal Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Machinery; Miscellaneous Manufacturing; and Plastics and Rubber Products, whereas Chemical Products respondents had problems with flooding; Transportation Equipment noted a slight slowdown; Primary Metals say their China business is slowing, and Nonmetallic Mineral Products say business is slower than expected.
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.
New orders grew in June for the sixth consecutive month, with the index at 57 percentage points, 1.3 points up on May’s 55.7 percent reading. Growth was noted in twelve of the eighteen industries surveyed, including Petroleum & Coal Products and Fabricated Metal Products, with five industries, including Primary Metals and Transportation Equipment, showing a decrease during the month.
Production grew in June for the sixth consecutive month, with the index at 54.7 percentage points, 2.1 points up on May’s 52.6 percent reading. Growth was noted in twelve of eighteen industries, including Petroleum & Coal Products; Fabricated Metal Products, Food, Beverage & Tobacco Products, Primary Metals and Chemical Products. Three industries, Transportation Equipment; Plastics & Rubber Products and Machinery showed a decrease in the month of June.
Employment was up to 50.4 percent in June, from May’s 49.2 reading, representing growth in employment following six consecutive months of contraction. Employment growth was noted in seven industries, including Furniture & Related Products; Primary Metals and Chemical Products. Six industries reported a decrease in employment in June, including Machinery; Fabricated Metal Products and Food, Beverage & Tobacco Products.
The delivery performance of suppliers to manufacturers was slower in June as the index registered 55.4 percent, or 1.3 percentage points higher than May’s 54.1 reading. Eight industries showed slower deliveries in June, including Fabricated Metal Products; Food, Beverage & Tobacco Products; Machinery and Transportation Equipment. Three industries, Furniture & Related Products; Primary Metals and Miscellaneous Manufacturing showed faster deliveries in June. Seven industries showed no change in speed of deliveries from May.
Raw Materials Inventories contracted for the 12th consecutive month in June but at a slower rate than in May, as the Inventories Index increased to 48.5 percent in June from May’s 45.0 percentage points. Eight industries reported higher inventories in June, including Wood Products; Machinery; Transportation Equipment; Food, Beverage & Tobacco Products and Primary Metals. Seven industries reported lower inventories in June, including Furniture & Related Products; Fabricated Metal Products; Chemical Products and Miscellaneous Manufacturing.
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 51.0 percent in June, 1.0 percentage points above May’s reading of 50.0 percent, meaning that customers’ inventories are considered to be too high in June. Five manufacturing industries reported customers’ inventories as being too high in June, including Fabricated Metal Products; Furniture & Related Products and Transportation Equipment. Six industries reported customers’ inventories as too low during June, including Plastics and Rubber Products; Machinery; Chemical Products and Food, Beverage & Tobacco Products.
The ISM Prices Index registered 60.5 percent in June, which is 3.0 percentage points lower than May’s 63.5 percent reading, indicating an increase in raw material prices for the fourth consecutive month. In June 27 percent of respondents reported paying higher prices, 6 percent lower and 67 percent the same prices as in May.
Only three industries, Wood Products; Petroleum & Coal Products and Paper Products reported paying lower prices in June.
Up in Price in June were: Aluminum* (5); Corn (2); Corrugate; Diesel (3); Fuel Oil; Gasoline (2); Natural Gas; Oil (3); Stainless Steel (3); Steel (6); Steel — Carbon; Steel — Cold Rolled (3); and Steel — Hot Rolled* (5).
Down in Price in June were: Aluminum* and Steel – Hot Rolled*
In Short Supply in May: None (2)
* Reported as both up and down in price.
Note: The number of consecutive months the commodity is listed is indicated after each item.
The ISM Backlog of Orders Index leaped to 52.5 percent in June, 5.5 percentage points up on the May reading of 47.0 percent, indicating growth in order backlogs. Of the 89 percent of respondents who measured their backlogs, 24 percent reported greater backlogs, 19 percent smaller backlogs and 57 percent no change from May. Seven industries reported an increase in order backlogs in June, including Fabricated Metal products; Printing & Related Support Activities; Petroleum & Coal Products and Chemical Products. Six industries reported a decrease in order backlogs for June, including Wood Products; Primary Metals; Transportation Equipment and Machinery.
The ISM New Export Orders Index was at 53.5 percent for June, 1.0 percentage point up on the May reading of 52.5, representing growth in new export orders for the fourth consecutive month. Ten industries reported growth in new export orders in June, including Food, Beverage & Tobacco Products; Chemical Products; Fabricated Metal Products; Transportation Equipment; Machinery and Computer & Electronic Products. Three industries reported a decrease in new export orders during June, namely: Primary Metals; Non-metallic Mineral Products and Electrical Equipment, Appliances & Components.
The ISM Imports Index is at 52.0 percent in June, 2.0 percentage points up on May, representing growth in imports in June. Seven industries reported growth in imports in the month of June, including Machinery; Plastics & Rubber Products; Food, Beverage & Tobacco Products and Fabricated Metal Products. Two industries, Chemical Products and Transportation Equipment, reported a decrease in imports in June. Eight industries reported no change in imports compared to May
CANADA’S RBC (Royal Bank of Canada) Manufacturing PMI decreased very slightly to 51.8 in June from May’s 52.1 reading, alongside the slowest improvement in business conditions for 3 months.
Alberta and B.C. are still ‘suffering,’ and Ontario saw its slowest pace of production growth so far in 2016.
Québec and ‘Rest of Canada’ recorded the fastest increases in manufacturing production in June. Canada produced 1.14 Mt of crude steel in May, up 6.5 percent y-o-y.
Canadian light vehicle sales were on the up again in June following May’s drop in y-o-y sales. June saw a 7.4 percent year-on-year increase to 191,088 units, with the big three and the Japanese big three all profiting.
In June, following May’s strong upturn, MEXICO’s PMI slipped to its lowest level since October 2013, ending the month at 51.1, down from May’s 53.6. There was a slight reduction in production after more than 2.1/2 years of production growth, and a stagnation in export sales. Employment growth, on the other hand, was maintained. Mexico produced 1.57Mt of crude steel in May, down 4.1 percent y-o-y.
by Royce Lowe
Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) for June, at 52.8 was up from May’s 51.5 reading.
Growth was noted in all nations except France. There was growth in production and new orders to the fastest level so far this year, led by Germany and Austria, where performances were at their best since February 2014 and March 2011 respectively.
Good performances were also noted in Italy, Spain and Ireland: Greece moved back into expansion, with France the only country in contraction. Strike activity in France may have been partly responsible for this.
Eurozone manufacturing has now increased continuously for three years. Germany, Italy, Austria and Ireland show the strongest growth of both production and total new orders in June. Employment is up across EU manufacturing.
|Germany||54.5 (52.1)||28-month high|
|Austria||54.5 (52.0)||61-month high|
|Italy||53.5 (52.4)||2-month high|
|Ireland||53.0 (51.5)||3-month high|
|Spain||52.2 (51.8)||2-month high|
|Netherlands||52.0 (52.7)||4-month low|
|Greece||50.4 (48.4)||25-month high|
|France||48.3 (48.4)||2-month low|
Car sales in Western Europe were up again in June, with sales in Germany up 8 percent to 339,600 units, in France up a mere 0.8 percent to 227,366 units, in Italy 12 percent to 165,208 units and in Spain up 11 percent to 123,790 units.
Crude steel production in Germany in May was at 3.86Mt, up 4.0 percent y-o-y; in Italy 2.19Mt, up 9.3 percent y-o-y; in France 1.17Mt, down 18.8 percent y-o-y and in Spain 1.25Mt, down 10.6 percent y-o-y.
Russia’s crude steel production for May was at 5.95Mt, up 0.4 percent y-o-y; Ukraine’s was 2.30Mt, up 5.7 percent y-o-y.
Markit reports that the UK manufacturing PMI rose to a 5-month high of 52.1 in June, up from May’s 50.1 reading.
There was growth in production and new orders, mostly domestic, with some improvement in export orders and a slight upturn from the U.S. and mainland Europe, particularly Germany. Employment was down for the sixth consecutive month. It should be noted that these data were collected before results of the EU referendum were known.
The UK produced 0.700Mt of crude steel in May, down 37.1 percent y-o-y
IV. MANUFACTURING TALK RADIO
by Tim Grady
With audience growing, the live radio show broadcast each Tuesday at 1:00 p.m. ET is building new content in both live interviews and podcasts, as well as adding more senior correspondents to present information on manufacturing, the global economy and the U.S. economy as it impacts U.S. manufacturing.
In addition, hosts Tim Grady and Lew Weiss present commentary on federal follies and government goof-ups that adversely affect manufacturing – and there is no shortage of things local, state and especially the federal government are do that retard manufacturing growth in America.
Recent shows have included guests from the National Association of Manufacturers, the Institute for Supply Management, Potomac Photonics, the Association for Advancing Automation, Armada Corporate Intelligence, the Carby Corporation, and the Office of Apprenticeship Training for the State of Connecticut Department of Labor.
In addition, news stories at www.mfgtalkradio.com include 4 Technologies to Create the Most Efficient Warehouse Possible, Massachusetts Get Serious about Closing the Skills Gap, and How to Improve Manufacturing Speed, Quality and Cut Costs, along with other informative and helpful articles for manufacturers.
We encourage every staff member at all manufacturers to tune in to Manufacturing Talk Radio or browse its website for the latest trends in the industry
V. ASIA OUTLOOK
by Royce Lowe
CHINA produced 70.5Mt of crude steel in May, up 1.8 percent y-o-y; Japan 8.84Mt down 0.9 percent y-o-y; India 8.04Mt, up 4.9 percent y-o-y and South Korea 5.81Mt, down 3.5 percent y-o-y. Taiwan produced 1.81Mt in May, down 4.7 percent y-o-y.
The Caixin China manufacturing PMI for May slipped to 48.6 in June from May’s 49.2 reading. Poor market conditions, and a drop in new orders meant attendant cuts in production and employment. June saw the sharpest decline in operating conditions for four months.
Passenger vehicle sales – cars, SUVs and multipurpose vehicles – were up 9.8 percent in May in China, with passenger car sales up 11.3 percent to 1.79 million units. YTD sales are up 7 percent y-o-y to 10.76 million units.
‘New-energy’ vehicle sales are up 134.1 percent to 126,000 units in the first five months of the year.
JAPAN’s manufacturing sector saw continuing worsening operating conditions in June, with drops in new orders and a sharp drop in export orders – probably due to the strong Yen. Growth in employment slowed. The PMI for June, at 48.1 was up slightly from May’s 47.7 reading, and a slightly slower rate of deterioration was noted.
Some Japanese sources are still pointing to the aftermath of recent earthquakes as being part of the manufacturing sector’s woes.
The INDIAN manufacturing sector showed production growth at a three-month high in June, together with a sharp rise in new orders and a rebound in export orders.
The Nikkei PMI reading increased from May’s 50.7 to 51.7 in June. New orders are coming in best at the consumer goods level, but improvement is also noted in the intermediate and investment goods sectors.
There was no significant change in employment levels in June. Domestic demand is the real driver in India.
VI. SOUTH AMERICA
by Royce Lowe
The news from Brazil is effectively all bad, with some deteriorations a little ‘softer’ than those seen in May. Brazil’s crude steel production for the month of May was 2.59Mt, a 13.2 percent y-o-y decrease.
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) – increased slightly in June to 50.4 from May’s 50.0 reading. A few nations showed solid improvement in June, all in the Eurozone, namely Germany, Italy, Austria and Ireland. Growth was also recorded in the U.S., UK, Spain, Netherlands, Russia, Mexico, India, Taiwan, South Korea, Indonesia and Vietnam. Contraction was noted in China and Japan, France, Brazil, Malaysia and Turkey.
VII. FORGING AND CASTING
by Royce Lowe
Alcoa Titanium and Engineered Products plans to expand production at its Martinsville, VA, titanium forging operation, by the addition of a new grinding line and two new forging furnaces. The $8.6 million expansion, to be completed before the end of 2016, will double the plant’s forging operation. This plant represents part of the $1.5 billion takeover by Alcoa of RTI International in 2015.
GE and Italy’s Cividale SpA will build a $400 million metalcasting and forging complex for Saudi Aramco, with production to start in 2020. The complex will supply critical finished parts for the energy and maritime manufacturing sectors in the Middle East and North Africa.
Siempelkamp will supply a new 6,000 tonne upsetting and piercing press to be installed in ThyssenKrupp’s Rothe Erde Dortmund works. The press will replace the existing 4,000 tonne press. Start-up is forecast for January 2018.
VIII. U.S.STANDING OUT IN GLOBAL GROWTH PICTURE
by Norbert Ore
While global economies are still considered to be under performing, 12 of the 17 (up from 11 in May) surveys that we follow are growing, at an average PMI of 52.9 and higher than the May average of 51.8 percent. The U.S. stands out as both manufacturing and non-manufacturing set new highs for the year.
The JP Morgan Chase Global PMI (50.4, +0.4) which measures over 30 countries indicates that June provides little change from May, but is consistent with the 50.6 percent that it has averaged for the past 12 months.
With all eyes seemingly on the BREXIT vote, the UK (52.1, +2.0) manufacturing sector paid little heed and posted its best month since January (52.9). We believe the impact of BREXIT will be seen in the financial sector (currency and credit) much more than the actual manufacturing of products or provision of services. While trade agreements are to be negotiated, we believe that buyers and sellers will find creative ways to maintain supply agreements.
The Eurozone PMI (52.8, +1.3) is now in its 36th consecutive month of growth and showing a modest acceleration. Germany (54.2, +2.1) posted its 19th consecutive month of growth and its highest reading since February 2014. The remaining seven Eurozone countries were led by Austria (54.5, +2.5), while France (48.3 -0.1) failed to grow. Asia continues to send mixed signals.
Japan’s PMI (48.1, +0.4) recorded a fourth month of contraction while Taiwan’s SMIT/CIER (53.3, -1.3) marked a fourth month of strong growth. China’s Official Report, the CFLP PMI (50.0, -0.1) has averaged 49.8 for the past 18 months. The Caixin China General Manufacturing PMI (48.6, -0.6) has now been below the mid-point for 15 consecutive months with an average of 49.6. The surveys continue to show minimal change in China’s supply chains. In North America, Canada (51.1, -1.0) reported above 50 for the fourth month following a seven-month trend of contraction.
Mexico (51.1, -2.5) expanded at a pace below its six 7/6/16 Strategas Research Partners – Proprietary Research 2-month average of 52.6 percent and reported its first decline in production in over 2 years – possibly an inventory correction.
Note: Strategas invites all manufacturers to participate in their survey of manufacturers. In exchange, participants with receive the SLIM Report (Strategas Leading Indicators of Manufacturing) and the Strategas Global Survey Insights report. Simply send an email to Norbert Ore at firstname.lastname@example.org and ask to be included.
IX. THE SKILLS GAP
by Royce Lowe
Volvo Construction Equipment’s Sean Glennon, President, Operations Americas, had a few choice words to say about his potential future employees, namely ‘ We can’t always hire the interns we train, but it’s our intent to prepare them. Because you never know how that may be returned to you. They may end up working with a supplier we work with. They could end up working for a dealer or a customer.’ Volvo believes in collaboration with universities, in fact they worked with academia to put together the curriculum. Their interns go through work and class training on a temporary or full-time basis.
There are those who say the skills gap shortage in manufacturing may be easing, with 33 percent of manufacturers saying they have little or no difficulty in hiring talent and 44 percent having ‘moderate’ difficulty. Yet manufacturing job openings are still far outnumbering hires, viz the Bureau of Labor Statistics’ figures for July 2015, where they were 388,000 openings and 294,000 hires.
A recent survey of 120 U.S. manufacturers by the PwC/Manufacturing Institute showed that 31 percent don’t see a skills shortage now, but anticipate one in 3 years; 26 percent say the shortage has already peaked and better days are ahead and 29 percent say the shortage exists and will only increase in the next three years. Advanced manufacturing technologies have prompted 37 percent of companies to hire more employees, 45 percent to stay as is, and 17 percent to hire fewer. Only 13 percent of manufacturers say they have no difficulty finding talent for advanced manufacturing jobs in 3DP, IoT, robotics etc.
There is clearly a serious problem to be addressed here. The U.S. Department of Labor talked of 450,000 registered apprenticeships in 2015, up from 350,000 in 2010 – a start.
by Royce Lowe
Let’s talk of quality first. In the latest J.D. Power annual survey South Korea’s Kia Motors Corp. went to the top in the U.S. new-vehicle quality ratings, the first time in 27 years a ‘non-premium brand’ held top spot. GM had seven winners in vehicle categories, the most of any company in the Initial Quality Study released June 22. Kia’s rate of 83 problems per 100 vehicles in the first 90 days of ownership was one fewer than Porsche, with Hyundai third at 92. The two Korean companies have been moving up the quality ladder for ten years, with quality a priority across the board. They worked very hard to improve quality.
The survey was carried out from February to May amongst over 80,000 purchasers and lessees of new 2016 model vehicles after 90 days of ownership.
Volkswagen, meanwhile, finds itself with a bill of over $15 billion to pay to redeem itself for having cheated on emissions. Over $10 billion will go to buybacks or fixes for vehicles that used illegal software, and $2 billion, over 10 years, will go to fund programs directed by California and the EPA to promote construction of electric vehicle charging infrastructure and other programs to boost sales of cars that don’t burn petroleum. In doing this, of course, they are helping competitors in development of alternate vehicles. A further disbursement of $2.7 billion, over three years, will go to replace old buses or to fund infrastructure to reduce diesel emission.
475,000 2.0 liter diesel Jettas, Beatles, Audi A3s, Golfs and Passats, 2009-2015, are involved, and a separate $600 million settlement has been made with 44 U.S.states, D.C. And Puerto Rico.
GM is to open an Automotive Software Development Center in the Toronto area, near to ‘proven talent’ and a ‘strong ecosystem of great universities, start-ups and innovative suppliers.’ Its count of engineers in the area will jump from 300 to 1,000 and the center will research autonomous-vehicle software and control development, together with safety technology.
Toyota finds itself atop the Made in America car list, having eight car models built and sold in the U.S. with at least 75 percent of their parts made domestically. The Camry ranks number one, with the Honda Accord and the Toyota Sienna second and third. The Detroit three do not figure in the top five.
The Camry, the number one selling car in the U.S., has a 75 percent domestic content and is assembled at Toyota’s manufacturing plant in Georgetown, Ky, with parts from 270 U.S. supplier locations. This plant is Toyota’s largest worldwide.
The trade body for the UK automotive sector, the Society of Motor Manufacturers and Traders (SMMT) says Brexit must not adversely affect the nation’s car-making industry. UK automakers represent $100 billion in sales and some $20 billion value added, with 160,000 people directly in manufacturing and some 800,000 across ancillary industries, representing 11.8 percent of total UK export of goods and investing £3.3 billion each year in automotive R&D.
So now it is up to the government to secure a deal with the EU which safeguards UK economic interests.
by Royce Lowe
Skeptics, problems, sanctions, nuclear deals, 100 planes, $20 billion: a provisional agreement has been signed for the sale or lease of over 100 Boeing aircraft to Iran’s national carrier over the next decade.
One side says this will open up doors to other business with Iran, another side doesn’t want to do business with Iran under any conditions. Neither the U.S. financial system nor the U.S. dollar can be used to finance this deal, but ways will be found to push the deal through and any final agreement must be approved by the U.S. Treasury Department. Maybe that much maligned euro will come to the rescue. First deliveries are scheduled for 2017.
Bombardier ‘unveiled’ its new C series, narrow-body jets with a maiden Swiss Air flight from Dublin to Zurich. Bombardier Commercial Aircraft has a confirmation, finalization of a deal made earlier this year with Air Canada for 45 CS300 jets, with options for 30 more, a deal worth up to $3.8 billion. The CS300 is a 135-seat narrow-body aircraft for medium-range routes that will compete with the Boeing 737 and the Airbus A320 series. Bombardier has stated that it will offer ‘the best seat-mile cost in its category.’ Deliveries to Air Canada will be between 2019 and 2022.
Vietjet, the Vietnamese budget airline, has ordered over 200 LEAP (Leading Edge Aviation Propulsion) -1B turbofan jet engines to power the 100 Boeing 737 MAX aircraft it recently ordered, for delivery between 2019 and 2023. This is worth over $3 billion to CFM International, the joint venture of GE Aviation and France’s Snecma.
Alcoa will supply aluminum sheet and plate materials to Brazil’s Embraer SA for its new E-Jets E2 regional aircraft, scheduled for a commercial debut in 2018, for wing skins and fuselage sheet material. The jets, to be powered by Pratt and Whitney’s PW 1000G geared turbofan engine, promise lower fuel and maintenance costs per seat.
Boeing is nearing a deal for almost $4 billion with Russia’s largest air freight company, AirBridgeCargo, for ten 747s, to extend the life of this icon. AirBridgeCargo Airlines’ parent, Volga-Dneps Group, is Moscow-based.
XII. THE MANUFACTURING SCENE: WHITHER TESLA?
by Royce Lowe
Smooth lines, exorbitant – yet unnecessary – acceleration, battery factories in the desert, charging stations around the world, and a larger-than-life South African-born Elon Musk for a CEO. That must be Tesla.
Constant berating from the press for late deliveries, particularly, and of late for offer to purchase SolarCity Corp., of which Mr. Musk is Chairman and the largest shareholder.
Unveiling of a new model, and almost 400,000 reservations at $1,000 each, for delivery late 2017, shows a daring and a go-ahead not normally seen in mere mortals.
A really bad week to do with a death in Florida tied to Tesla’s ‘Autopilot’ and another accident involving an elderly man, both still under investigation.
Tesla Motors is not that new. It was founded in 2003 by a group of engineers in Silicon Valley who wanted to prove that electric cars could be better than gasoline-powered cars. Tesla cars would show instant torque, incredible power, and zero emissions, and each new generation would be increasingly affordable, allowing a whole bunch of buyers to speed the world’s transition to sustainable transport.
Tesla’s engineers first designed a powertrain for a sports car built around an AC induction motor, patented in 1888 by Nikola Tesla, the inventor who inspired the company’s name. From this sprang the Tesla Roadster, launched in 2008, a model that went from 0 to 60 mph in 3.7 seconds and gave a range of 245 miles per charge of its lithium ion battery. Tesla went on to sell over 2,400 Roadsters, now burning up the roads in more than 30 countries.
Tesla launched its Model S in 2012, as the world’s first premium electric sedan, a model conceived and built to be 100 percent electric. The Model S has room for seven passengers and more than 64 cubic feet of storage space, giving the comfort and utility of a family sedan and the performance of a sports car, going from 0 to 60 mph in about five seconds. Its flat battery pack is integrated into the chassis and allows 265 miles per charge. Model S was named Motor Trend’s 2013 Car of the Year and achieved a 5-star safety rating from the U.S. National Highway Traffic Safety Administration.
Now with a significant number of vehicles on the road worldwide, Tesla is preparing to launch its new model 3, starting at a base price of $35,000 and due to start delivery in late 2017. The latest count was 373,000 reservations at $1,000 each.
Tesla’s vehicles are produced at its factory in Fremont, California, previously home to New United Motor Manufacturing Inc., a joint venture between Toyota and General Motors. The Tesla Factory has brought thousands of jobs back to the area and is capable of producing 1,000 cars a week. Which, considering it has reservations for almost 400,000 cars is not an awful lot. Of late, Elon Musk is reputed to have been spending his nights next to the production line to cheer on that same production line.
Tesla and key strategic partners, including Panasonic, have begun construction of a gigafactory in Nevada that will reduce the costs of lithium ion battery packs, a necessity in the production of the Model 3. By 2020, the gigafactory will produce more lithium ion cells than all of the world’s combined output in 2013. The gigafactory will also produce battery packs intended for use in stationary storage, to help improve the power of the electrical grid, reduce energy costs for businesses and residences, and provide a power supply backup.
If the purchase of SolarCity Corp. goes through, Tesla will become more than just an automaker; it will become a total energy innovator.
At first sight this all looks rather good. It’s not every company that can persuade almost 400,000 people to cough up $1,000 as a down payment on a car whose delivery date they can’t really count on. Even though production has been ramped up at the Fremont plant, where forecasts are for 500,000 cars per year by 2018, delivery performance so far makes all this look like a tall order. Just over 14,000 cars were delivered in the second quarter of this year, missing a target of 17,000. If the 50,000 forecast are shipped in the second half of 2016, this will mean just under 80,000 shipped against a forecast of 80,000/90,000 units.
Early June saw investigation into a fatal crash using the ‘Autopilot’ feature on a Model S car that occurred in May this year. The feature apparently failed to pick up on the side of a white trailer, causing the driver to go under the ‘obstacle.’
The $2.86 billion offer for SolarCity Corp. was not popular on Wall St., but this story has not seen its end as yet, and things may not be as bad as they initially seemed.
The Tesla saga will continue. Cars and lithium batteries and solar panels will all play their part. Add to this competition from the world’s major players in the automotive and energy industries and we have a very interesting scenario. For Tesla, the Model 3 may well be the true test.
XIII. TECHIE CORNER
by Royce Lowe
There’s a little, well smallish, company based in Arizona called Local Motors. We’ve mentioned them before. They’re into 3D printing of automobile parts, and well, automobiles of sorts. They’re serious, very well managed and innovative. They do things small scale, if you can call printing vehicles small scale. The latest project is a minibus called “Olli.”
The minibus was recently unveiled outside Washington D.C. It’s self-driving and was designed and built by Local Motors in partnership with IBM’s supercomputer platform WATSON.
Olli was designed as on-demand transportation that passengers can summon with a mobile app., as in Uber rides. There will be demonstrations and trials over the next few months, possibly in Berlin, Copenhagen and Canberra.
The hope is to print in about 10 hours and assemble in another hour. The company envisages hundreds of ‘micro-factories’ producing the vehicles around the world. Driving will be controlled by a system developed by Local Motors and several software and technological partners: IBM are involved.
XIV. OUT AND ABOUT
by Royce Lowe
India is seeking a commitment from Apple Inc. to bring manufacturing facilities to the country before the government will approve Apple’s request to open its own retail stores. Apple is pushing to increase its presence in India as the country is on the verge of becoming the world’s fastest-growing smartphone market, and as sales slow in the rest of the world.
India requires companies to procure at least 30 percent of their components locally if they want to sell through their own retail stores. Apple makes most of its products in China, via its main manufacturing partner Foxconn, which company has expressed plans to assemble in India and is talking of opening up to 12 factories there, to create a million jobs by 2020.
Reshoring is still in the news, and according to new data from Boston Consulting Group, manufacturers producing goods for domestic U.S. markets are increasingly likely to add capacity in the U.S. than in any other country.
Among those companies expecting to increase capacity in the next five years for goods consumed in the U.S., 31 percent intend to add capacity in the U.S. and 20 percent in China compared, two years ago, to 30 percent in China, 26 percent in the U.S.
Those surveyed, to 76 percent, said the primary reason for reshoring was to shorten the supply chain; 70 percent to reduce shipping costs and 64 percent to be closer to customers.
Nucor is going into a 50-50 joint venture with JFE Holdings Inc., Japan’s number two steel mill, in an autosheet venture in Mexico. The plant, to start production in 2019, will have a capacity of 400,000 tonnes per year and a price tag of $270 million. The product will be aimed at the U.S. market.
Nucor will open a facility near Hamilton, Ontario, to produce ‘construction products.’
Siemens AG (59%) and Gamesa Corp. Tecnologica SA of Spain (41%) will combine their wind-turbine manufacturing businesses to give them the biggest installed capacity worldwide, a combined 69 gigawatts of installed turbines.
China is looking to rival Arcelor Mittal by merging its second (Baosteel Group) and sixth (Wuhan Iron and Steel Group) largest steelmakers by output. There is a capacity of 70 million tonnes.
China’s net 2016 exports may top 90,000 tonnes, with domestic consumption falling by 20 million tonnes to 650 million tonnes.
The European Machine Tool Industry Association (CECIMO) said recently at its AGM that there was an encouraging outlook for its machine tool exports.
CECIMO, based in Brussels, is the union of trade associations for over 1,500 companies across the EU, and accounts for more than a third of global machine tool production. Production in 2016 is forecast at €24.3 billion, with exports at €19.0 billion.
XV. THE FINAL WORD
by Royce Lowe
It’s not often these days that the UK takes center stage worldwide. It just had its turn, much to the disappointment of some, the disgust of others and the incredulity of millions.
This is a saga that will be long in the telling. Let us hope that from somewhere will appear men and women who are willing and able to make good this situation.
The manufacturing figures from the U.S. and Europe this month may be termed a pleasant surprise.
Onward and upward.
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