Metal & MFG Outlook Newsletter April 2015

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Metals & Manufacturing Outlook – April 2015

I. Cover Story: WORLD RECOVERING FROM GLOBAL GLOOM
II. NORTH AMERICAN PERSPECTIVE
III. U.S. FORGING INDUSTRY
IV. MANUFACTURING TALK RADIO
V. EUROZONE
VI. ASIA OUTLOOK
VII. SOUTH AMERICA
VIII. THE MANUFACTURING SCENE
IX. THE FINAL WORD


Publisher’s Statement

The economies of several countries and regions around the world are on the up-tic with the U.S. leading the way despite per barrel oil prices in the 50’s and likely to stay below the 70’s for several more months – if it gets there.

The International Longshoreman and Warehouse Union delegates voted in favor of recommending the tentative five-year agreement with waterfront employees to the rank-and-file members. Acceptance of this agreement would be the first step in clearing up the chaos resulting from this long-term disruption but East coast ports continue to see increases in container volume as West coast ports lose volume, particularly ports in southern California.  However, importers and exporters who don’t have to ship through the West coast ports are weighing their options and shifting their cargo to the Gulf States and Eastern ports.  Next year when the Panama Canal opens to the large container vessels, additional cargo volumes may float into the Gulf while West coast volume follows its historical pattern of the last 10 years of losing business. And now there is a new brouhaha about port operators charging excessive and unsubstantiated fees in the face of the port slowdown, so it appears both sides may have been gold-digging in the self-created crisis.

The Consumer Confidence Index® which got a chill in February and warmed in March isn’t moving dramatically in either direction for the U.S. as some industries recover and others are sluggish. The most notable exception has been aerospace which has been on a steady growth curve for over a decade, with 40,000 commercial aircraft anticipated to be built over the next 20 years. Keep in mind that once built, an aircraft needs to be maintained and may fly for 20 to 40 years, so aircraft support services will be booming for decades as new planes come into service and older planes stay in service as long as fuel prices remain low.

Another key component of economic growth, the transition of the workforce from gray hairs to fair hairs, is driving dynamics new cooperation between education and industry, especially in engineering and machinery operations. In less than a decade, virtually every machine on factory floors will be Internet-connected, feeding data into corporate systems where it will be crunched and analyzed for process improvements and profitability tweaks. Hand-held devices are the new desktop computers with the advantage that they can be used within eyesight of the machines they control so a change on the hand-held will be immediately seen and measured.

All these topics are discussed on Manufacturing Talk Radio in its regular Tuesday show at 1:00 p.m. ET; more on that in Section IV of this newsletter.  Shows can also be heard at www.mfgtalkradio.com where our library of previous episodes also exists.

Enjoy this issue of Metals & Manufacturing Outlook.

Sincerely,
Lewis A Weiss
Publisher

 

I. COVER STORY:  WORLD RECOVERING FROM GLOBAL GLOOM

Global Economy

The US and the UK economies are still, to date, looking in good shape, but from some quarters we hear doubts as to how long they will stay that way.

Canada slipped further, but there is light at the end of this tunnel. Brazil is falling further into the proverbial quagmire. China and Japan both slipped a little, and there are some worries, short-term at least, for both economies.

India’s Prime Minister Modi has come out fighting, saying now that India has beaten the US in steel production he’s going after China. That’s quite a challenge he’s set himself and his country.

The news from Europe is a little more promising, but optimism may have to wait for a couple more months.

The PMI figure from the Institute of Supply Management was at 51.5 percent in March, down 1.4 percentage points from February’s 52.9 percent. This represents manufacturing expansion for the 27th  consecutive month and growth in the overall economy for the 70th consecutive month.

On the other hand, the Markit PMI for the US manufacturing sector was up to 55.3 percent in March, slightly higher than February’s 55.1figure. Markit cited the sharpest rise in production since September 2014 and new orders increasing at the fastest pace for five months. Manufacturing employment was up in March, whereas there was a slight fall in export orders. Input costs were down for the third consecutive month.

The Bureau of Economic Analysis came out with its ‘third’ estimate for the annual rate of Real GDP growth in the fourth quarter of 2014, placing it at 2.2 percent, the same as its second estimate.

The Dun and Bradstreet Economic Health Index for March showed that 262,000 new non-farm jobs were added to US payrolls in the month, with the business services segment continuing to lead, but real estate services stagnant. Small business health showed a slight improvement of 0.1 percent.

The conclusion from D and B is a ” still stuttering economy, highlighted by key bright spots in specific segments.”

CANADA’S RBC (Royal Bank of Canada) Manufacturing PMI  was at 48.9 percent in March, virtually unchanged from February’s 48.7 reading. This represents the second consecutive month below the 50 reading, and the first back-to-back deterioration in overall business conditions in this survey’s 4.1/2 year history.  This further drop in business conditions in the Canadian manufacturing sector in March was somewhat tempered by the fact that the rate of contraction moderated somewhat from February’s record survey low. Production, New Orders and Employment all fell at slower rates than in February, while manufacturers lived through slimmer order books, forcing inventory reductions and concerns about future demand.

Canada’s crude steel output for February 2015 was 1.04 Mt, a 5.6 percent y-o-y increase.

Canada saw a further increase in light vehicle sales in March,     albeit at a more moderate pace than in the previous few months.  Sales were up 1.9 percent to 160,274 units, with increases for     FCA Canada, Volkswagen and Nissan, and decreases for Ford,  General Motors, Ford and Honda.

Mexico saw its manufacturing PMI ease a little from February’s  54.4 percent, to 53.8 percent in March. The manufacturing sector experienced the slowest improvement in business for five months, while production growth slowed for the second consecutive month in  March. Job creation was up for the eighth consecutive month, and in fact its rate increased to its second fastest since October 2012.

Mexico produced 1.465 Mt of crude steel in February 2015, an 8.1 percent y-o-y decrease.

World crude steel production for the 65 reporting countries for the month of February 2015 was 128Mt, up 0.6 percent from the February 2014 figure. The capacity utilization ratio, at 73.4 percent, was down 1.7 percent y-o-y, but up 3.8 percent on January 2015.

US crude steel production, for February 2015 was 6.9Mt, down 7.9 percent y-o-y.

Primary Global Aluminum Production in February 2015 was 4.204 million tonnes. Of this total, 2.203 million tonnes, or just over  52 percent, was produced in China. The second largest player on the global aluminum scene is the Gulf Cooperation Council, made up of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE). In February 2015 they produced 389,000 tonnes of primary aluminum, compared with the 350,000 tonnes produced in North America.

Here are the latest figures for US new car and light truck sales for ‘the big eight’ for March 2015. These figures, ex the Wall Steeet Journal, include sales of both domestic and import cars and light trucks. The SAAR figure is now running at  just over 17 million vehicles for the year 2015.

The ‘Big Eight’ March ’15 March ’14 YTD % change
General Motors 249875 256047 -2.4
Ford 234788 243417 -3.5
FCA US LLC 192694 189177 1.9
Toyota 225959 215348 4.9
Honda 126293 133318 -5.3
Nissan 145085 149136 -2.7
Hyundai/Kia 133790 121782 9.9
Volkswagen 30025 36717 -18.2
Total new cars and light trucks 1545802 1537288 0.6

II. NORTH AMERICAN PERSPECTIVE


North America USAThe Institute of Supply Management PMI figure registered 51.5 percent in March, 1.4 percentage points below February’s 52.9 percent reading, representing expansion in manufacturing for the 27th  consecutive month and growth in the overall economy for the 70th consecutive month. Ten of the eighteen industries reported growth in March, in order, Paper Products; Wood Products; Transportation Equipment; Fabricated Metal Products; Nonmetallic Mineral Products; Machinery; Chemical Products; Primary Metals; Food, Beverage & Tobacco Products; and Computer & Electronic Products. Seven industries reported contraction in March, namely Apparel, Leather & Allied Products; Textile Mills; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Plastics & Rubber Products; and Furniture & Related Products.

Comments on the month from the manufacturing sector are still stressing the effects of the west coast port strike, which has been joined by energy prices, the winter weather, and the strengthened  dollar.  The Fabricated Metal Products, Transportation Equipment and Food, Beverage & Tobacco products sectors come through as particularly bullish.

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

  1. The ISMNew Orders Index for March, at 51.8 perccnt, was down by 0.7 percentage points from February’s 52.5 percent reading, representing growth in new orders for the 28th consecutive month. Nine industries reported growth in new orders in March, including, in order, Wood Products; Paper Products; Fabricated Metal Products; Transportation Equipment; Food, Beverage & Tobacco Products; Machinery; and Chemical Products. Eight  industries showed a decrease in March, including, in order, Petroleum & Coal Products; Miscellaneous Manufacturing; Electrical Equipment, Apppliances & Components, Primary Metals; and Plastics & Rubber Products.
  1. The ISM Production Index, at 53.8 percent in March, was effectively unchanged from February’s 53.7 percent reading. This represents growth in production for the 31st consecutive month. Growth was noted in nine industries, including, in order, Paper Products; Transportation Equipment; Fabricated Metal Products; Chemical Products; Primary Metals; and Machinery. Five industries reported a decrease in production in March, namely Printing & Related Support Activities;  Leather & Allied Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; and Plastics & Rubber Products.
  1. The ISM Employment Index for March, at 50.0 percent, is down 1.4 percentage points from February’s reading of 51.4 percent. This follows 21 consecutive months of increase in the employment index. Growth was reported in seven industries, namely, Printing & Related Support Activities; Nonmetallic Mineral Products; Paper Products; Primary Metals; Transportation Equipment; Machinery; and Plastics & Rubber Products. The seven industries reporting a decrease in employment in March are: Apparel, Leather & Allied Products; Textile Mills; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing.
  1. The ISMSupplier Deliveries Index – to manufacturing organizations – slowed in March at a slower rate as the Supplier Deliveries Index registered 50.5 percent, or 3.8 percentage points lower than February’s 54.3 percent reading. A reading below 50 percent represents faster deliveries, above 50 percent means slower deliveries. Slower supplier deliveries were noted in 11 industries in March including, in order, Textile Mills; Wood Products; Plastics & Rubber Products;   Transportation Equipment; Machinery; Fabricated Metal Products; and Chemical Products. Faster supplier deliveries in March were noted in four industries namely Petroleum & Coal Products; Primary Metals; Food, Beverage & Tobacco Products; and Paper Products.
  2. The ISM Inventories Index, at 51.5 percent for March, is 1.0 percentage points lower than the 52.5 percent reading for February, indicating a growth in raw materials inventories for the third consecutive month. Eight industries reported higher inventories in March including, in order, Primary Metals; Machinery; Chemical Products; and Transportation Equipment. Five industries reported lower inventories in March, including Plastics & Rubber products; Textile Mills; and Paper Products.

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

  1. The ISM Customers’ Inventories Index, registered 45.5 percent in March, 1.0 percentage points lower than February’s 46.5 reading, meaning that customers’ inventories are considered to be too low, and lower than February’s.Three manufacturing industries showed too high customers’ inventories in March, namely Electrical Equipment, Appliances & Components; Primary Metals; and Food, Beverage & Tobacco Products. Eight industries reported too low customers’ inventories in March, namely Transportation Equipment; Paper Products; Furniture & Related Products; Plastics & Rubber Products; Machinery; Chemical Products; Computer & Electronic Products; and Fabricated Metal Products.
  1. The ISM Prices Index registered 39 percent in March, 4.0 percentage points higher than in February, indicating a decrease in raw material prices for the fifth consecutive month. In March 10 percent of respondents reported paying higher prices, 32 percent reported paying lower prices and 58 percent reported paying the same prices as in February. Two  industries reported paying higher prices in March, namely Food, Beverage & Tobacco products; and Computer and Electronic products. Fourteen industries reported paying lower prices, namely  Paper Products; Petroleum & Coal Products; Printing & Related Support Activities; Wood Products; Apparel, Leather & Allied Products; Textile Mills; Fabricated Metal Products; Machinery; Furniture & Related Products; Plastics & Rubber Products; Transportation Equipment; Nonmetallic Mineral Products; Chemical Products; and Primary Metals.

Up in Price in March were:

 

Dairy; Gasoline; Polypropylene Resin; and Steel — Hot        Rolled*.

Down in Price in March were:

Aluminum (4); Carbon Steel (3); Copper (8); HDPE Resin (4); Nickel (3); Oil (4); PET Resin (5); Plastic Resin (4); Scrap Steel (4); Stainless Steel (5); Steel (4); Steel — Cold Rolled; and Steel — Hot Rolled (5)*.

In Short Supply in March:

 

The only commodity listed in short supply during March is Trucking Services.

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

  1. The ISM Backlog of Orders Index was at 49.5 percent in March, 2.0 percentage points lower than February’s 51.5 percent reading, representing a contraction in order backlogs after one month’s expansion. Of the 84 percent of respondents reporting, 18 percent reported greater backlogs, 19 percent reduced backlogs and 63 percent reported no change from February. Six industries reported increased order backlogs in March, namely, in order, Wood Products; Fabricated Metal Products; Machinery: Nonmetallic Mineral Products; Chemical Products; and Transportation Equipment. Nine industries reported reduced backlogs in March, namely, in order, Textile Mills; Plastics & Rubber Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Paper Products; Food, Beverage & Tobacco Products;  Furniture & Related Products; Computer & Electronic Products; and Primary Metals.

4 The ISM New Export Orders Index at 47.5 percent for March is 1.0 percentage points down on February’s 48.5 percent reading. The month’s reading represents three months of contraction in exports following 25 consecutive months of growth. Five industries reported an increase in New Export Orders in March, namely Fabricated Metal Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Machinery; and Miscellaneous Manufacturing.  Eight industries reported a decrease in New Export Orders in March, namely Textile Mills; Furniture & Related Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment; Paper Products; and Chemical Products.

  1. The ISM Imports Index, at 52.5 percent in March, is 1.5 percentage point down on February’s 54.0 percent reading. This represents the 26th consecutive month of growth in imports. Eight industries reported an increase in imports in March, namely, in order, Textile Mills; Primary Metals; Machinery; Miscellaneous Manufacturing; Transport Equipment; Chemical Products; Computer & Electronic Products; and Furniture & Related Products. Five industries reported a decrease in imports in March, namely, Nonmetallic Mineral Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Fabricated Metal Products; and Food, Beverage & Tobacco Products.

 

III. US FORGING INDUSTRY


forged-shapes MSC Software, based in Newport Beach, California,whose ‘motto’ is Simulating Reality, Delivering Certainty, makes products that enable engineers to validate and optimize their designs using virtual prototypes. Customers in many sectors of manufacturing use their software to complement, and in some cases even replace, the physical prototype “build and test” process that has traditionally been used in product design. It is involved, among others, in the automotive, aerospace, shipbuilding and electronics industries. MS

C, founded in 1963, recently acquired Simufact Engineering, based in Hamburg, Germany, a global provider of metal forming and joining simulation software and related services to manufacturing industries. Simufact.forming and Simufact.welding are process simulation tools used by aerospace and automotive industries, their parts and materials suppliers, and OEMs to realize savings by cutting back on in-house trials of their manufacturing processes. Simufact has developed processes including hot forging, rolling, ring rolling, open-die forging and heat treatment.

 

IV.  MANUFACTURING TALK RADIO


mfgtalkradio1steelforgeAs more listeners tune in each Tuesday at 1:00 p.m. ET, Manufacturing Talk Radio broadcasts breaking news, industry trends and economic forecasts in lively panel discussions with experts from the shop floor to the top floor, association executives, analysts and pundits. Between the live broadcast and podcast downloads from the archive, the show is now attracting thousands of listeners each week.

On March 3rd, Dr. Chris Kuehl, noted economist who works closely with the Fabricators and Manufacturers Association International (FMA) joined ISM’d Brad Holcomb, committee chair of the well-respected Report on Business® to discuss what the economy looked like in manufacturing in February and how it might roll out for the balance of the year.  Each month, Mr. Holcomb joins co-hosts Lew Weiss and Tim Grady to dive into the detail of the ISM’s report, reflect on previous months, and touch on the ISM annual forecast.

Be sure to tune in on Tuesday, May 5th to hear Brad Holcomb’s update of the ISM’s 2015 Forecast that will be released that morning. You can also go to www.mfgtalkradio.com to see a schedule of guests who will be on the air with Lew Weiss and Tim Grady as they broadcast from the ISM’s 100th Anniversary show in Phoenix, AZ.

On March 10th, Lew and Tim interviewed three of the winners of the ’30 Under 30 Rising Supply Chain Stars’ program co-sponsored by ISM and ThomasNet.  Additional supply chain rising stars will be interviewed at the ISM’s 100th Anniversary show in Phoenix, AZ. Dates and times have not been set, so be sure to go Manufacturing Talk Radio’s website to find out when to tune it to catch the latest live show.

On March 17th, Lew and Tim dove into a discussion with Terry Wohlers, President of Wohlers Associates Inc. in a primer about 3D Printing and Advanced Manufacturing.  This is a fascinating old technology that has been around since the 1960’s but is blossoming now. It is already being used in many industries, especially for rapid prototyping and creation of obsolete parts, as well as replacement parts that were originally made by the thousands but where the need is now only a handful. Printers have come down so far in price that they are appearing in many schoolrooms at the high school level. This is the new ‘shop class’ of days gone by. Instead of woodworking or engine repair, students are designing prototype parts or printing gadgets for class projects. Commercial printers are using many mediums, including plastic, metal and glass. Listen to the show to learn more at http://mfgtalkradio.com/3d-printing-is-it-the-key-to-making-manufacturing-in-america-successful-again/

On March 24th, Manufacturing Talk Radio welcomed experts in exporting and importing talk about the incredible top-line and bottom-line potential for America’s manufacturers to export their goods to new customers around the world. Made in America still carries the credibility of quality globally, so manufacturers in the U.S. should seize that marketing advantage and begin the process of developing a new revenue stream for their business. The Department of Commerce’s Export Assistance Center is one place to start, as well as the Industry Resources section of mfgtalkradio.com.

On March 31st, the live show covered the aerospace industry in the Northeast, the first in a four-part series on aerospace across the country.  April and May will cover the Southeast, the Northwest and the West.  These in-depth panel discussions are full of information for aerospace and every conceivable supply to the industry.  Be sure to listen to the entire series if you have customers or potential customers in aerospace for your business.

Become one of the thousands of listeners each week who keep abreast of the manufacturing industry by listening to the live broadcast or podcasts at www.mfgtalkradio.com.

V. EUROZONE


euro-zoneMarkit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) for March was up at 52.2 percent from February’s 51.0 reading, a 10-month high. Growth of Eurozone manufacturing was also at a 10-month high, and accompanies an increase in growth in Germany, Spain, Italy and the Netherlands. In March the Eurozone saw the fastest expansion in new orders since April 2014, and companies raised employment at the fastest pace for over 3-1/2 years. France, Greece and Austria continue to struggle, although France and Greece did see their respective contraction rates ease during the month of March. Export performance in the eurozone – undoubtedly helped by the weak euro – was at its best since April 2014. The ongoing job creation suggests optimism that the improvement noted in March will be maintained. Some country PMIs are shown in the table, with last month’s PMIs in parentheses.

PMI High/low
Ireland 56.8 (57.5) 2-month low
Spain 54.3 (54.2) 2-month high
Italy 53.3 (51.9) 11-month high
Germany 52.8 (51.1) 11-month high
Netherlands 52.5 (52.2) 2-month high
Greece 48.9 (48.4) 3-month high
France 48.8 (47.6) 2-month high
Austria 47.7 (48.7) 4-month low

 

Crude steel production in Germany in February 2015 was at 3.5Mt, down 1.6 percent y-o-y; in Italy 2.0Mt down 9.7 percent y-o-y; in France 1.3Mt, down 1.6 percent y-o-y and in Spain 1.1Mt, down 4.4 percent y-o-y.

Russia’s crude steel production for February, at 5.7Mt, was up 5.6 percent y-o-y while Ukraines’s was 1.6Mt, down 33.2 percent y-o-y.

Western European car sales continue to show good gains, with Germany’s sales up 9 percent last month to 323,029 units. France’s up 9.3 percent to 196,572 units, Italy’s up 19 percent to 161,303 units and Spain’s, still on a scrappage program, up 41 percent to 112,299 units. The four countries are optimistic about the automotive industry for the near future.

The UK saw its Markit PMI move up to 54.4 percent in March from February’s 54.1 figure. Things are ticking along nicely, with production and new orders showing nine-month highs. Demand is mostly for domestic consumer goods, but some improvement in exports was noted in March. It was noted that some suppliers are struggling to keep pace with production demands, adding weight to recent claims that productivity in the UK leaves something to be desired.

The JP Morgan Global Manufacturing PMI – a composite index produced by JP Morgan and Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – was at 51.8 in March, very slightly down from February’s 52.0 figure, showing the Global manufacturing sector expanding for the 28th consecutive month.

VI ASIA OUTLOOK

china Crude steel production in Asia for February 2015 was at 87.3Mt, with China producing 65.9Mt, up 3.2 percent y-o-y; Japan 8.2Mt down 0.2 percent y-o-y; India 6.9Mt, up 5.6 percent y-o-y and  South Korea 5.10Mt, down 4.4 percent y-o-y. Taiwan produced 1.79MT in February, up 2.2 percent.

The HSBC China manufacturing PMI for March took a dip from February’s reading of  50.7 back to 49.6 percent. Operating conditions in the manufacturing sector took a backward turn as production growth eased and total new orders declined slightly. Employment layoffs intensify with company downsizing, and a job shedding rate at its highest since summer 2014.

Domestic and export demand remain subdued under weak market conditions.

In February 2015, 1.4 million passenger cars and 200,000 commercial vehicles were sold in China. This represents a 6.4 percent increase in sales over February 2014. For the two months, January and February 2015, 3.4 million cars and 480,000 commercial vehicles were sold. Chinese brand SUVs saw a 94.7 percent increase in February to 187,000 units, whereas Chinese brand sedans declined to 174,000 vehicles.

In Japan, the Markit manufacturing PMI is at 50.3 percent in March, down from February’s figure of 51.6 percent. The month saw production easing back following February’s significant improvement. Some respondents experienced a stronger export demand, but in general there was a slight decrease in total new orders.

India’s manufacturing (HSBC) PMI picked up from February’s  51.2 percent reading to 52.1 percent in March. The month saw significant growth in production and a stronger increase in new orders. Production rose for the 17th consecutive month.

The capacity of many manufacturers’ operations is a cause for concern, with unfinished work increasing for the 32nd consecutive month in March and at a faster pace than in February.

Employment has not changed for 14 months, but if new orders and work backlogs continue to increase – as they probably will  – there should be an upturn in employment in the coming months.

VI  SOUTH AMERICA

south-americaBrazil’s crude steel production for the month of February 2015 was 2.7Mt, a 2.3 percent y-o-y increase.

The  manufacturing PMI in Brazil dropped further from February’s  49.6 reading to 46.2. The month saw the most severe contraction in Brazilian manufacturing production for 3.1/2 years. The whole situation is aggravated by general economic conditions, a high inflation rate and a weak real, the latter leading to high import costs and an underlying inability to be globally competitve. Hence there is no increase in export orders, despite the weak real. There has been a sharp drop in new orders and the greatest drop in employment since July 2012.

The outlook for Brazilian manufacturing in the short term is not good.

VII  THE MANUFACTURING SCENE : WHO IN THE WORLD’S MAKING WHAT? or ”FACTORY ASIA”, THE WORLD’S WORKSHOP.

Asia OutlookA Rolls Royce factory in Indianapolis produces ”LiftFans”, gadgets that help fighter planes take off and land without needing much of a runway. The plant is not at all the hot, smelly, noisy place that people   associate with manufacturing. Workers wearing nice clean uniforms and goggles hand assemble the LiftFans-which sell for small fortunes, helped by state-of-the-art machinery. This is an example of a product coming out of one of the US’s most impressive manufacturing facilities.

In faraway Myanmar, in Southeast Asia, women sit at sewing machines stitching sweater arms to bodies and attaching labels. The facility is Chinese run and is just one case in many where manufacture has been transferred from China to other parts of Asia.

Asia started its impact on world trade back in the 1960s when Japan, followed by Taiwan and South Korea, started exporting electronics and consumer goods. By the 1980s Japanese firms were building plants across Southeast Asia. But it was China that had the biggest impact. Back in 1990, China produced, in value terms, almost 3 percent of global manufacturing output. Today it produces almost 25 percent. China produces about 80 percent of the world’s air-conditioners, 70 percent of its cell phones and 60 percent of its shoes. China’s preponderance on the manufacturing scene has been responsible for the setting up of supply chains that penetrate deep into Southeast Asia. This ”Factory Asia” now makes almost half the world’s goods.

China has excellent infrastructure that’s getting better. It plans to build ten new airports a year until 2020.

China’s economy is not as strong as it was, with an over-supplied property market, rising debt and a  government growth aim of only 7 percent this year, which would be its lowest for over two decades. This isn’t going to stop China being the manufacturing powerhouse it is. China built its position on cheap labor and a willingness to manufacture just about anything that could, at the time, be exported or become a part of some other product that could be exported. In 1990, Asia as a whole accounted for 26.5 percent of global manufacturing output, and by 2013 this was up to 46.5 percent. Today China accounts for half of Asia’s output. In the past it was primarily involved in assembly, with the more profitable design and marketing aspects of the operation being left in the West and Japan. As recently as 2010 a study found Chinese workers contributing just 3.6 percent to the cost of an Apple Iphone. China is presently having more of a say in design and early production, as witnessed, for example, by Xiaomi, its smartphone giant.

Wages have risen appreciably in China, by an average of 12 percent a year since 2001, but are still appreciably less than those in the richer parts of the world. Many companies pay their employees just above the minimum wage, or about $270 per month. And Chinese factories are more efficient than most in the developing world, with larger increases in productivity than seen in other parts of Asia. China is a huge market for robots, and bought 20 percent of all those made in 2013, but it still has just 30 robots per 10,000 workers, compared with over 300 in Japan. Hence the huge potential in the Chinese market for robot manufacturers, and for productivity improvements in China.

Firms are chasing lower wages deeper into China, away from the relatively expensive coastal areas. These decreased costs, together with a supply chain stretching across Southeast Asia, ensure a secure future for both China and Southeat Asia.

China is involved more and more in Advanced Manufacturing, (involving lots of science), and as such has let a lot of its ‘less technical’ work go to other parts of Southeat Asia, some of whose member countries, Vietnam, Thailand  and Indonesia for example, have taken up electronics work themselves.

No one country will replace China in the foreseeable future, and with a tight supply chain and increasing domestic consumption, China will continue in its role as the world’s number one manufacturer.

Meanwhile, back in the USA, things could be a lot better on the manufacturing front, and a hoped-for reform to the tax system, as suggested in the 2015 Economic Report of the President, would be a good starting point, as would more government money in research and development. No one doubts the US ability to provide high quality manufactured goods, as no one can deny the hit that the US manufacturing industry took from Chinese imports, starting in the nineties. The whole concept (of manufacturing) needs to trickle down to schools and colleges.

China is in the driver’s seat and it will take a lot of hard work on each and everyone’s part, to unseat it. Factory Asia is here to stay.

Thanks to The Economist for most of the facts and figures in this article.

Correction, to March Manufacturing Scene article: Line 1 states that Advanced Manufacturing is 3D printing: in fact  Additive Manufacturing is 3D Printing.

The first line of the penultimate paragraph states that North American Welding is Advanced manufacturing. It should of course state American Forging.  Apologies for these errors.

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.

DATA FOR TAIWAN HAVE BEEN SUBSTITUTED FOR THOSE FOR ARGENTINA.

 

GDP Indl Prodn Cons prices Unemployt
United States +2.2 (qtr) +3.5 (Feb) nil (Feb) 5.5 (Feb)
Canada +2.4 (qtr) +4.1 (Jan) +1.0 (Feb) 6.8 (Feb)
China +6.1 (qtr) +6.8 (Feb) +1.4 (Feb) 4.1 (Qtr 4)
Japan +1.5 (qtr) -2.6 (Feb) +2.2 (Feb) 3.5 (Feb)
Britain +2.5 (qtr) +1.2 (Jan) nil (Feb) 5.7 (Dec)
Euro Area +1.3 (qtr) +1.2 (Jan) -0.1 (Mar) 11.3 (Feb)
France +0.5 (qtr) + 0.6 (Jan) +0.3 (Feb) 10.6 (Feb)
Germany +2.8 (qtr) +0.8 (Jan) +0.3 (Mar) 6.4 (Mar)
Spain +2.7 (qtr) +2.0 (Jan) – 0.7 (Mar) 23.2 (Feb)
India + 4.0 (qtr) +2.6 (Jan) + 5.4(Feb) 8.8 (2013)
Brazil + 1.3 (qtr) – 5.2 (Jan) + 7.7 (Feb) 5.9 (Feb)
Taiwan +4.8 (qtr) +3.3 (Feb) – 0.2 (Feb) 3.7 (Feb)
Mexico + 2.7 (qtr) + 0.3 (Jan) + 3.0 (Feb) 4.5 (Feb)

 

VIII THE FINAL WORD


economicPic The US and the UK economies are still doing pretty well. The Chinese and Japanese economies are going through periods of correction, whereas India’s is presently on the up. Europe came out of the doldrums in March and a few months of forward progress seem to be in the cards.

  • It is hoped that the tentative agreement on the West Coast port situation will be accepted by the rank-and-file and that the job of clearing the port congestion will proceed in an orderly fashion.
  • GALLUP’s USEconomic Confidence Index averaged -4 forthe last full week of March, a reading similar to most weekly readings since late February, but below those from December to mid-February.  The Job Creation Index stayed at +29 in the month of March, where it has been for several months, albeit at the upper end recorded by Gallup since 2008.

Still optimistic, but a little caution might be creeping in.

 

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