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Metals & Manufacturing Outlook – October 2015
I. Cover Story: THE MIGHTY HAVE FALLEN, BUT HOW FAR?
II. NORTH AMERICAN PERSPECTIVE
III. U.S. FORGING INDUSTRY
IV. MANUFACTURING TALK RADIO
VI. ASIA OUTLOOK
VII. SOUTH AMERICA
VIII. THE GLOBAL SUMMARY
IX. THE MANUFACTURING SCENE
X. THE FINAL WORD
If you haven’t been following this newsletter, it is time to pay close attention, especially on Monday, November 2 just after 10:00 a.m. when the Manufacturing Report of Business® comes out for October 2015, and on Tuesday, November 3 when Brad Holcomb, chair of the Institute for Supply Management’s committee for this report joins the hosts of Manufacturing Talk Radio (mfgtalkradio.com) to discuss the most recent results. In addition, this newsletter covers 18 business surveys with Senior Correspondent, Norbert Ore, and the scattergram showing what’s growing and what’s not so hot.
Overall, the economic world appears to be spinning slower with few countries boasting booming growth. Each month, another economy seems to slip over the line into the ‘not growing’ realm as various market forces slow manufacturing output. The bloom is off the China rose and a number of analysts are questioning the forecasts coming from their manufacturing sector. While the world isn’t in economic collapse, we are hoping the current ‘soft patch’ isn’t quicksand.
The big question is the New Orders number. We’ve heard it going both ways, but confirmation will come in the Manufacturing Report on Business® next week. As readers may know, New Orders are a leading indicator because the production of those goods takes months to complete, so they are a glimpse of the economy 6 to 12 months out. Manufacturers order raw materials and manage human resources based on upcoming production demand.
Also keep an eye on the ISM Non-Manufacturing Report on Business® prepared by the committee chaired by Tony Nieves. The services sector is 80% of the U.S. economy, and a number above 55 continues to support employment in that sector as long as the manufacturing sector is running above 50 in the ISM report.
So, we are clearly at or very near an inflection point in the economy. Please read the following newsletter information and stay tuned to mfgtalkradio.com in the coming weeks to learn if this really is a soft patch or a bad spot in the floor and our economic foot is about to go right through what appeared to be solid just moments before.
And we’ll also address the House reauthorization of the ExIm Bank in Section II – The North American Perspective below.
Lewis A. Weiss, Publisher
Tim Grady, Editor-in-Chief
I. COVER STORY: THE MIGHTY HAVE FALLEN, BUT HOW FAR?
by Royce Lowe
By now you’ll have heard that Volkswagen (VW) duped the automotive world and millions of its customers, by putting software in their (diesel) cars that would get them through America’s stringent NOX (nitrogen oxide) emissions tests. Worldwide it’s said some 11 million cars are involved. Once the cars left the emissions testing laboratory, this software deactivated the emission controls and it was open season on the atmosphere as the cars emitted fumes at up to 40 times the permitted level. In ordinary, uncluttered language, VW had been cheating, seriously cheating. They’ve come out and admitted the crime. One study suggests that nitrogen oxide emissions cause 58,000 deaths a year in the U.S. alone.
VW had wanted to become the world’s biggest automobile company. To do this, by overtaking Toyota, it had to conquer the U.S. market, and it wanted to do it with diesel models, ‘clean’ diesels in fact. Just over one percent of vehicles on U.S. roads are diesel, compared with around 50 percent in Europe. What’s come to light has certainly put paid to these plans. The stock market reacted as it would; the CEO, Martin Winterkorn resigned, and VW are setting aside billions to cover the inevitable upcoming claims. They won’t get off nearly as lightly as GM did recently with a $900mn settlement for the ignition-switch defect that killed at least 24 people and injured 275.
VW were apparently warned about all this back in 2007. It’s been going on that long. Mr. Winterkorn is an engineer who was in fact responsible for R&D, so he should have known about all this. This is a story that will go on, as other car companies become more and more involved. There is an unending source of media fodder here, so no company is safe. Claims are being made that other companies are spewing out even more nasty stuff than are VW.
Who’s laughing? Tesla, that’s who; Elon Musk, with his electric car that goes from 0 to 60 in no time at all.
VW are very well connected politically and will surely come through this, albeit at a huge cost in time and money. They sent a board member to be interviewed on one of the BBC’s highly respected TV programs. His name is Olaf Lies.
China is still in relative doldrums, but the U.S. and the Eurozone., made up of 8 countries are keeping their heads above water, as are Japan and India. The World Bank is cutting its forecast for growth in China’s economy to 6.9 percent in 2015, 6.7 percent in 2016, from earlier forecasts of 7.1 and 7 percent respectively.
For the U.S., the PMI figure from the Institute of Supply Management was at 50.2 percent in September, 0.9 percentage points down on August’s 51.1 figure, representing manufacturing expansion for the 33rd consecutive month and growth in the overall economy for the 76th consecutive month.
The Markit PMI for the US manufacturing sector increased very slightly to 53.1 in September from August’s 22-month low of 53.0. The U.S. manufacturing sector went through another month of relatively subdued growth in September. Production and new orders expanded at a slower rate than seen earlier in 2015. This contributed to a marked slowdown in job creation. A slowdown in employment growth since August was the main negative influence on the PMI reading.
There is a reason for the ongoing difference between the ISM and Markit PMIs. The five ISM components are equally weighted –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 second quarter of 2015, placing it at 3.9 percent, a slight increase on its ‘second’ estimate of 3.7 percent. The corresponding figure for the first quarter of 2015 was 0.6 percent. The Real GDP is the value of goods and services produced by the nation’s economy, less the value of the goods and services used in production, adjusted for price changes.
The Dun and Bradstreet Economic Health Index for September showed that 194,000 new non-farm jobs were added to U.S. payrolls in the month, with Business Services leading the pack and some losses in Manufacturing. According to D and B the Small Business Health Index continued on a sluggish course. D and B says their Business Health Index recorded an all-time high since its inception in December 2010. It will be noted that this index takes account of service industries.
GALLUP’s U.S. Economic Confidence Index rose to -13 at the end of September, whereas the Gallup Job Creation Index for the month stayed at the record high figure of +32.
World crude steel production for the 65 reporting countries for the month of August 2015 was 132Mt, down 3.1 percent from the August 2014 figure.
U.S. crude steel production for August 2015 was 6.999Mt, down 9.8 percent y-o-y.
Primary Global Aluminum Production in August 2015 was 4.95 million tonnes. Of this total, 2.734 million tonnes, over 55 percent, was produced in China. The Gulf Corporation Council (GCC) produced 433,000 tonnes, North America 377,000 tonnes.
Here are the latest figures for US new car and light truck sales for ‘the big eight’ for September 2015. A bumper month.
|The ‘Big Eight’||September ’15||September ’14||YTD % change|
|Total new cars and light trucks||1442460||1246006||15.8|
THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Industrial Production, Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month.
The figures for GDP represent the % change on the previous quarter, annual rate. The industrial production figures represent year-on-year changes, as do the consumer prices increases. The unemployment figures, %, are for the month as noted.
DATA FOR TAIWAN HAVE BEEN SUBSTITUTED FOR THOSE FOR ARGENTINA.
|GDP||Indl Prodn||Cons prices||Unemployt|
|United States||+2.4 (2015)||+0.9 (Aug)||+0.2 (Aug)||5.1 (Aug)|
|Canada||+1.4 (2015)||– 2.7 (June)||+1.3 (Aug)||7.0 (Aug)|
|China||+6.9 (2015)||+6.1(Aug)||+2.0 (Aug)||4.0 (Qtr 2)|
|Japan||+0.8 (2015)||nil (July)||+ 0.3 (July)||3.3 (July)|
|Britain||+2.5 (2015)||+0.8 (July)||nil (Aug)||5.5 (June)|
|Euro Area||+1.4 (2015)||+1.9 (July)||+ 0.1 (Aug)||10.9 (July)|
|France||+1.1 (2015)||-0.8 (July)||nil (Aug)||10.4 (July)|
|Germany||+1.7 (2015)||+0.4 (July)||+ 0.2(Aug)||6.4 (Aug)|
|Spain||+3.0 (2015)||+5.9 (July)||-0.4 (Aug)||22.2 (July)|
|India||+ 7.5 (2015)||+4.2 (July)||+ 3.7(Aug)||4.9 (2013)|
|Brazil||– 1.9 (2015)||– 9.0 (July)||+ 9.5 (Aug)||7.5 (July)|
|Taiwan||+3.4 (2015)||– 5.5 (Aug)||– 0.4(Aug)||3.7 (Aug)|
|Mexico||+ 2.5 (2015)||+ 0.7 (July)||+2.6 (Aug)||4.3 (July)|
MEANWHILE, THE IMF has told CHINA to improve its economic data. The IMF finds China’s 7 percent growth figure high. The 188 member nations of IMF are required to provide reliable economic data.
II. NORTH AMERICAN PERSPECTIVE
by Royce Lowe
The Institute of Supply Management PMI figure registered 50.2 percent in September, 0.9 percentage points below August’s reading of 51.1, representing expansion in manufacturing for the 33rd consecutive month and growth in the overall economy for the 76th consecutive month. Seven of the eighteen industries reported growth in September, in order, Printing & Related Support Activities; Textile Mills; Furniture & Related Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Paper Products; and Nonmetallic Mineral Products. Eleven industries reported contraction in September. They are, listed in order: Primary Metals; Apparel, Leather & Allied Products; Petroleum & Coal Products; Wood Products; Electrical Equipment, Appliances & Components; Machinery; Computer & Electronic Products; Fabricated Metal Products; Plastics & Rubber Products; Transportation Equipment; and Chemical Products.
Comments on the month: Food, Beverage & Tobacco Products respondents voice concern re Avian Flu for poultry once bird migration begins. Fabricated Metal Products personnel are concerned about the China downturn and its influence on consumer confidence. Chemical Products respondents say North American business is steady, but that international business is set for a downturn. Computer and Electronic Product respondents say the high dollar value is affecting global procurement costs. Furniture and Related Products respondents say that business is picking up. Petroleum and Coal Products personnel say that low crude and gas prices are adversely affecting revenues and profits. Primary Metals respondents continue to feel the impact of the oil and gas market slowdown, and report that aerospace demand is lower than expected.
Electrical Equipment, Appliances and Components respondents see a slow improvement in sales and profit, with no consistent up or down trends seen. Nonmetallic Mineral Products personnel say customers are slow to place orders.
The following 5 components of the ISM’s PMI, New Orders, Production, Employment, Supplier Deliveries and Inventories are equally weighted and used to calculate the PMI number. A monthly PMI over 50.0 indicates an expanding economy; a number over 60.0 indicates strong manufacturing output, although overheating may occur.
- 1 The ISM New Orders Index for September, at 50.1 percent, was down by 1.6 percentage points from August’s 51.7 percent reading, representing growth in new orders for the 34th consecutive month, but at a slower rate than in August. Seven industries reported growth in new orders in September. They are, in order: Printing & Related Support Activities; Textile Mills; Furniture & Related Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Chemical Products; and Miscellaneous Manufacturing. Nine industries reported a decrease in new orders in September, namely Apparel, Leather & Allied Products; Primary Metals; Wood Products; Transportation Equipment; Petroleum & Coal Products; Nonmetallic Mineral Products; Machinery; Fabricated Metal Products; and Electrical Equipment, Appliances & Components.
- 2 The ISM Production Index is at 51.8 percent in September, down 1.8 percentage points from August’s 53.6 percent reading, representing growth in production for the 37th consecutive month. The nine industries reporting growth in production during the month of September are, listed in order: Printing & Related Support Activities; Nonmetallic Mineral Products; Furniture & Related Products; Food Beverage & Tobacco Products; Miscellaneous Manufacturing; Paper Products; Plastics & Rubber Products; Chemical Products; and Fabricated Metal Products. The seven industries reporting a decrease in production during September are: Primary Metals; Apparel, Leather & Allied Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Machinery; Transportation Equipment; and Computer & Electronic Products.
- 3 The ISM Employment Index for September, at 50.5 percent, is down 0.7 percentage points on August’s 51.2 reading, representing growth in employment for the fifth consecutive month. Eight industries reported employment growth in the following order: Printing & Related Support Activities; Furniture & Related Products; Paper Products; Nonmetallic Mineral Products; Machinery; Food, Beverage & Tobacco Products; Transportation Equipment; and Miscellaneous Manufacturing. The nine industries reporting a decrease in employment in September, listed in order are: Wood Products; Apparel, Leather & Allied Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Fabricated Metal Products; Primary Metals; Plastics & Rubber Products; and Chemical Products.
- 4 The ISM Supplier Deliveries Index indicates that the delivery performance of suppliers to manufacturing organizations was slower in September as the Supplier Deliveries Index registered 50.2 percent, which is 0.5 percentage points lower than the 50.7 percent reported in August. This is the second month of slower deliveries, following two consecutive months of faster supplier deliveries. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.
The five industries reporting slower supplier deliveries in September are: Textile Mills; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Primary Metals; and Miscellaneous Manufacturing. The six industries reporting faster supplier deliveries during September are: Petroleum & Coal Products; Paper Products; Chemical Products; Machinery; Transportation Equipment; and Fabricated Metal Products. Seven industries reported no change in supplier deliveries in September compared to August.
- 5 The ISM Inventories Index, at 48.5 percent for September, is the same reading as for August, indicating that raw material inventories are contracting in September for the third consecutive month. The six industries reporting higher inventories in September, listed in order are: Textile Mills; Apparel, Leather & Allied Products; Transportation Equipment; Paper Products; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products. The nine industries reporting lower inventories in September, listed in order are: Plastics & Rubber Products; Primary Metals; Furniture & Related Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Machinery; Fabricated Metal Products; Computer & Electrical Products; and Chemical Products.
The following 5 components of the ISM’s PMI, Customer Inventories, Prices, Backlog of Orders, Exports and Imports are not used to calculate the PMI number but are tracked for trends in the marketplace
- 1 The ISM Customers’ Inventories Index registered 54.5 percent in September, 1.5 percentage points higher than August’s 53.0 reading, meaning that customers’ inventories are considered to be too high for the second consecutive month. The nine manufacturing industries reporting customers’ inventories as being too high during the month of September, listed in order are: Primary Metals; Furniture & Related Products; Nonmetallic Mineral Products; Chemical Products; Computer & Electronic Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Machinery; and Transportation Equipment. The two industries reporting customers’ inventories as too low during September are: Apparel, Leather & Allied Products, and Plastics & Rubber Products. Six industries reported no changes in customers’ inventories in September compared to August.
- 2 The ISM Prices Index registered 38.0 percent in September, 1.0 percentage points lower than in August, indicating a decrease in raw material prices for the 11th consecutive month. In September 6 percent of respondents reported paying higher prices, 30 percent lower and 64 percent the same prices as in August. Of the 18 manufacturing industries, no industries are reporting paying increased prices for their raw materials in August. The 14 industries reporting paying lower prices during the month of September, listed in order are: Textile Mills; Electrical Equipment, Appliances & Components; Primary Metals; Plastics & Rubber Products; Chemical Products; Transportation Equipment; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Furniture & Related Products; Nonmetallic Mineral Products; Machinery; Computer & Electronic Products; and Fabricated Metal Products.
Up in Price in September were: Aluminum * and Steel*
Down in Price in September were:
Aluminum (10)*; Copper (3); Corn; HDPE Resin (2); Nickel (3); Oil
(2); Plastic Products (2); Resin; Stainless Steel (11); Steel (3).
In Short Supply in September:
Note: The number of consecutive months the commodity is listed is indicated after each item.
*Reported as both up and down in price
- 3 The ISM Backlog of Orders Index was at 41.5 percent in September, 5.0 percentage points lower than the August reading of 46.5 percent. Of the 88 percent of respondents who measure their backlogs, 13 percent reported greater backlogs, 30 percent smaller backlogs and 57 percent no change from August. The only industry to report increased order backlogs in September is Furniture & Related Products. Sixteen industries reported a decrease in order backlogs in September, namely, in order: Primary Metals; Apparel, Leather & Allied Products; Textile Mills; Nonmetallic Mineral Products; Petroleum & Coal Products; Paper Products; Wood Products; Transportation Equipment; Plastics & Rubber Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Machinery; Computer & Electronic Products; Fabricated Metal Products; Chemical Products; and Food, Beverage & Tobacco Products.
- 4 The ISM New Export Orders Index was at 46.5 percent for September, the same reading as for August. This is the fourth consecutive month of decrease in new export orders. Five industries reported growth in new export orders in September, namely Furniture & Related Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Chemical Products; and Fabricated Metal Products. Eleven industries reported a decrease in new export orders in September, namely, in order Wood Products; Petroleum and Coal Products; Paper Products; Apparel, Leather & Allied Products; Primary Metals; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Machinery; Transportation Equipment; Food, Beverage & Tobacco Products; and Computer & Electronic Products.
- 5 The ISM Imports Index, is at 50.5 percent in September, or 1 percentage point lower than August’s 51.5 reading. This represents the 32nd consecutive month of growth in imports. Six industries reported growth in imports during the month of September, namely, in order: Textile Mills; Furniture & Related Products; Plastics & Rubber Products; Machinery; Computer & Electronic Products; and Chemical Products. The six industries reporting a decrease in imports during September are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Fabricated Metal Products; Miscellaneous Manufacturing; and Transportation Equipment.
The U.S. aluminium giant, Alcoa, is splitting into two companies, one to do business in upstream mining and smelting, the other to concentrate on the manufacture of aluminum products to supply such industries as aerospace and automotive. The price of aluminum has fallen by 40 percent over the past four years, by 25 percent in the past 12 months alone.
Meanwhile Alcoa is working with Danieli, an Italian mill equipment manufacturer, on what it calls Micromill Technology. This technology is designed to convert molten aluminum into coil in 20 minutes, a process that traditionally takes 20 days. The ensuing product will be more formable and much stronger than today’s automotive aluminum, and at least 30 percent lighter than high-strength steel. Ford is projecting use of this material on its 2016 F-150 truck, and of even more on its 2017 models. The Micromill Technology will be taken around the world.
U.S. machine tool orders fell 11.8 percent in July from June, and 11.1 percent y-o-y. YTD orders, at $2.48bn were down 8.7 percent from the seven months for 2014.
On the U.S. Aerospace front, Boeing is planning a factory in China, after a 300-plane order and a Chinese market that is projected to need, over the next 19 years, 6,000 new aircraft worth almost $ 1 trillion. The factory will be built in Zhoushan in Zhejiang province. Final assembly of Boeing’s first 737 max is underway. Alcoa and Pratt and Whitney are partnering on a jet engine fan blade made from a very new aluminum – lithium alloy. Boeing rolled out its first 747 on September 30 1968: it just completed its 1,527th. Each 747 contains 66,000 kilos of aluminum and alloys.
GE is responding to the EXIM saga by seeking alternative financing and by transferring production to Canada and Europe. The company announced that 350 jobs would move from Waukesha, Wisconsin to a brand new ‘brilliant factory’ in Canada, for the production of gas engines. There will be extra support from Canada’s Export Development Canada (EDC) for this project. GE is currently bidding on projects worth $11bn that require export financing. The company has further signed an agreement with UK Export Finance (UKEF) in export credit financing for both confirmed and potential orders that will result in up to 1,000 UK jobs.
The U.S. House of Representatives recently voted 313-118 to reauthorize the ExIm Bank after using a discharge petition to force it out of the committee chaired by Rep. Hensarling (R., Texas) where it had been held up because not enough committee members were in favour of reauthorization and opposing Republicans fell in love with the phrase ‘Crony Capitalism’ to signify that the bank helped mostly large OEM’s like Boeing and GE. What they completely failed to acknowledge is that the big OEM’s use hundreds of smaller companies for component part manufacturing and without the big contract the little guys take the hit. Now the reauthorization moves to the Senate where Republican Party Chairman Mitch McConnell is not inclined to bring it to a vote unless it is attached to other legislation like the highway bill.[Editor’s note]: So, if you get the sickening feeling in the pit of your stomach that politics is more about political party and almost nothing about We, the People, you would be right. Whatever party holds the majority wants to make themselves look good, the other party look bad, and the American people are merely victims of the political gamesmanship. By the way, the discharge petition isn’t something new – it was created just over 100 years ago. Guess things haven’t improved much, huh?
Financing has also been agreed with Coface, the French export agency, to execute a series of power plant projects worth around $11bn. The operation is in Belfort, France at a ‘unique center of excellence’ where production of 50-Hz heavy-duty gas turbines will draw manufacturing business and around 400 jobs from Greenville SC, Schenectady NY and Bangor Me.
Mercedes is conducting a $1.3bn upgrade to its Tuscaloosa, Ala plant that will add 300 jobs. The upgrade is to allow SUV production in what has been termed a fully digitalized, smart factory, which will produce up to 300,000 units annually.
The U.S. branch of France’s Alstom is due to win a big piece of Amtrak’s $2.5bn next-generation high-speed rail project that will serve the northeast corridor. Alstom already employs some 1,000 people in Hornell, NY state and this project will bring a further 750 jobs.
CANADA’S RBC (Royal Bank of Canada) Manufacturing PMI saw its second consecutive month below the 50 mark. September’s 48.6 percent reading, down from August’s 49.4 figure, was in fact the lowest reading recorded in the survey’s five-year history. Weaker overall demand resulted in lower production, new orders and employment figures, and work backlogs reduced at the fastest pace since April. In spite of a weak dollar, export sales are stagnating. Steep drops in production and new orders were noted in Alberta and British Columbia, with solid growth maintained in Ontario. There was job creation in Ontario, with lower employment elsewhere.
Canada produced 1.10Mt of crude steel in August, effectively unchanged y-o-y. In spite of all this, Canadian auto sales increased 3.7 percent y-o-y in September, with light vehicle sales of 174,337 units. Ford, Fiat Chrysler, GM, Toyota Canada and Honda Canada all saw increased sales.
SNC-Lavalin, a Montreal consulting engineering company, will be part of a consortium, LINEOV, made up of Algoé, Transamo and itself, to fulfil a contract for the Société du Grand Paris (SGP). This contract will involve the construction and project management of line 18 that will link Orly airport with Versailles. Completion of the overall project is scheduled in two parts, one for 2024, one for 2030. The contract will involve 10 stations in a network of 200 kilometers and 68 stations.
Mexico’s PMI for September was at 52.1, down slightly from August’s 52.4 reading. This is the lowest reading for three months. Production growth was the second-lowest for almost two years, with new order growth also slowing on the back of lower export figures, and employment growing at a slower rate than in August.
The lower exchange rate against the U.S. dollar is leading to higher imported raw material prices. But overall, things are looking quite good at the moment in the Mexican manufacturing sector. Mexico produced 1.52 Mt of crude steel in August 2015, down 7.1 percent y-o-y.
III. U.S. FORGING INDUSTRY: ALCOA’S NEW PROCESS
by Royce Lowe
Alcoa is putting $60mn into expanding its R&D facilities outside Pittsburgh. Alcoa’s trademarked, recently introduced Ampliforge process will be pioneered here. The process combines advanced materials, designs and both additive and traditional manufacturing processes. It involves 3-D printing a nearly complete part, then finishing with a traditional process. Better toughness and strength than those obtained through 3-D printing alone are claimed.
Air Industries of Long island NY, an aerospace precision parts specialist, agreed to buy ‘certain assets’ from an unnamed source that are used to produce landing gear and landing gear components for Black Hawk and Chinook helicopters. This is the company’s path to new business with OEMs and after-market manufacturers.
IV. MANUFACTURING TALK RADIO
by Tim Grady
Hosts Lew Weiss and Tim Grady are conducting more interviews about the state of the economy, beginning with Mr. Brad Holcomb, chair of the Institute for Supply Management’s Manufacturing Report on Business® kicking off the first show each month. Later in the month, Norbert Ore, Senior Correspondent for Business Surveys Globally, provided his analysis of the 18 surveys he follows on economies around the world.
Other topics tackled in September were the Baby Boomer’s decision of what to do with their business – sell, merge, or shut it down, the growing positive impact of Women in Manufacturing who now only represent 25% of that workforce when they represent 50% of the general population, MAPI’s quarterly manufacturing economic outlook and all the events of Manufacturing Day.
The October shows again hosted Brad Holcomb and Norbert Ore on the economy, along with shows on several untapped talent pools within the U.S. population that manufacturers should not overlook, along with the reauthorization of the ExIm Bank in the House of Representatives.
by Royce Lowe
Markit’s eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) for September was 52.0, a five-month low, and slightly down from August’s 52.3 reading. The manufacturing sector showed steady progress at the end of the third quarter with both production and new orders showing modest expansion.
The average PMI for the third quarter, at 52.3, was unchanged from that of the second quarter. Manufacturing production was up for the 27th consecutive month in September as companies scaled up production in response to new incoming orders and further backlog accumulation.
New export orders were up again in September for the 27th consecutive month and there was job creation for the 13th straight month. In short, the Eurozone manufacturing sector is showing only very steady growth, and is likely to contribute only a minimum boost to the economy in the third quarter.
|Ireland||53.8 (53.9)||2-month high|
|Netherlands||53.0 (53.9)||6-month low|
|Italy||52.7 (53.8)||7-month low|
|Austria||52.5 (50.5)||19-month high|
|Germany||52.3 (53.3)||2-month low|
|Spain||51.7 (53.2)||21-month low|
|France||50.6 (48.3)||3-month high|
|Greece||43.3 (39.1)||3-month high|
Airbus has chosen Rolls Royce to supply Trent 700 engines for five new Beluga XL air transport aircraft. This is a $700mn contract, including long-term engine service. Airbus is opening its first U.S. production plant in Mobile, Alabama, in a $600mn project that will provide 1,000 jobs. This will help Airbus cut costs: at $7.25 per hour Alabama has one of the lowest minimum wages in the U.S., strikes are rare and employment benefits are 30 percent lower than in Europe. The project was three years in the making, and since announcing its plans for this plant Airbus has seen its share of the U.S. market double from 20 percent to 40 percent. The Mobile plant will assemble single-aisle A319, A320 and A321 aircraft starting in 2017, and will also move onto the A320 Neo, a new, more fuel-efficient version. Plans are for four aircraft per month, with a future capability of eight per month.
New passenger car registrations in Germany were up 4.6 percent in September to 272,479 units, with 2.4 million cars being sold in the first nine months, up 5.5 percent y-o-y. Similar figures for France were up 9.1 percent to 164,774 units and up 6.3 percent to 1.4 million units; for Italy up 17 percent to 130,071 units and up 15 percent to 1.2 million units; and for Spain up 23 percent to 69,826 units and up 22 percent to 784,000 units.
Crude steel production in Germany in August 2015 was at 3.43Mt, up 10.6 percent y-o-y; in Italy 1.0Mt up 1 percent y-o-y; in France 1.04Mt, down 1.4 percent y-o-y and in Spain 1.0Mt, down 2.3 percent y-o-y.
Russia’s crude steel production for August was at 6.05Mt, down 3.2 percent y-o-y, Ukraine’s was 1.92Mt, up 8.6 percent y-o-y.
The UK’s manufacturing performance remained sluggish, in spite of the strength of the consumer goods sector. The PMI was steady at 51.5 percent in September, the same reading as August. The level of new export business rose very slightly, but this was cold comfort as performance in the intermediate goods segment led to a fall in employment, in fact there were manufacturing job losses for the first time since April 2013.
The pace of growth seen in quarters two and three this year was weaker than that seen earlier in the past two-and-a-half years. The U.K. produced 0.93Mt of crude steel in August, down 16 percent y-o-y.
The JP Morgan Global Manufacturing PMI – a composite index produced by JP Morgan and Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – was at 50.6 in September, very slightly down from August’s 50.7 reading and at its lowest level since July 2013.
Global manufacturing showed tepid growth at the end of the third quarter, with falling rates of expansion in production and new orders. The U.S. and Europe contributed positively to global manufacturing growth in September, and all nations in the EU covered by PMI surveys, with the exception of Greece, reported expansions – even France, which returned to growth after two months of contraction. Greece has voted again and Prime Minister Alexis Tsipras has been returned to power.
Asia remained weak, with China’s PMI slipping to a six-and-a-half-year low of 47.2. Along with this were contractions in South Korea, Taiwan, Indonesia, Vietnam and Malaysia. Japan and India were more positive, but expansion rates slowed slightly.
Export orders were up in the U.S., the Eurozone, the UK and Mexico, while overall global manufacturing employment dropped for the first time since 2013. In spite of employment being up in the U.S., the Eurozone, Eastern Europe, Taiwan, Turkey, Vietnam and Malaysia, there were job losses in Japan, China, India, South Korea and the UK.[Editor’s Note]: Keep an eye on the job numbers. In manufacturing, shifts in economic currents happen much more quickly than in the non-manufacturing sector, so if job gains begin to turn into negative employment numbers, 2016 may not see 2% GDP growth. So, job losses become a leading indicator in the manufacturing sector, not a lagging one.
VI. ASIA OUTLOOK
by Royce Lowe
China produced 66.94Mt of crude steel in August 2015. down 3.5 percent y-o-y; Japan 8.8Mt down 5.9 percent y-o-y; India 7.66Mt, up 2.7 percent y-o-y and South Korea 5.92Mt, up 4.8 percent y-o-y. Taiwan produced 1.85Mt in August, down 5.7 percent y-o-y.
The Caixin China manufacturing PMI for September fell very slightly from August’s 47.3 reading to 47.2, representing seven months below the 50 mark, during which time the overall health of the Chinese manufacturing economy has suffered a little more each month. Production and employment dropped at the fastest rate in six-and-a-half years and total new work dropped at the quickest rate in 3 years, in part due to a heavier fall in new export orders.
There isn’t much good news from the automotive sector either, where passenger car sales in August were down 3.4 percent to 1.42 million vehicles, following a 6.6 percent drop in July and a 3.4 percent drop in June. Combined sales of passenger cars and commercial vehicles dropped 3 percent to about 1.66 million vehicles. Automotive associations and manufacturers are busy adjusting their forecast figures for the balance of the year.
In Japan, the Nikkei manufacturing PMI went from August’s 51.7 – which was a seven-month high – to 51.0 in September. There was a slower expansion in the manufacturing sector and exports declined for the first time in 15 months. Employment was down.
Growth was at its weakest rate in the current five-month expansion sequence, and new export orders were down at the fastest rate in over two-and-a-half years.
In India, the Nikkei PMI reading eased further from August’s 52.1 reading to 51.2 in September, a seven-month low. There were slower increases in new orders and production, triggering a reduction in employment. There was a softer pace of export business expansion.
PMI data suggest that the Indian manufacturing sector will provide a better contribution to GDP in the third quarter than it did in the second. Meanwhile, Prime Minister Modi took a trip to Silicon Valley to meet with Apple, Facebook, Google and Tesla. He seems to want the whole world to invest in India.
Several U.S. companies have been very successful in India. Abbott, Chicago-based, recently built a manufacturing facility in Jhagadia, Gujarat. They are in the nutrition business and in 2014 had 14,000 employees in India, for $1.09bn sales. Its products are based on the nation’s nutritional needs.
GE has ten factories in India, including a new one in Pune. Its business is diverse and ranges from aviation and turbo machinery to wind turbines and diesel locomotives. Half its production goes to global factories, half to India. Cummins manufactures its engines, generators and turbochargers for global export.
VII. SOUTH AMERICA
by Royce Lowe
Brazil’s crude steel production for the month of August 2015 was 2.8Mt, a 5.4 percent y-o-y decrease. The manufacturing PMI in Brazil in September recovered slightly to 47.0 from August’s 45.8 figure, but things are still not good in Brazil’s manufacturing sector, and a few more months of better stuff are required before we even start to think of the word recovery.
Brazil was downgraded by Standard and Poors for corruption, inflation, loss of commodities markets and price drops in these same markets. Brazil’s jet builder, Embraer, is looking at the Chinese commercial aircraft market – as is every other aircraft manufacturer – and sees an excellent opportunity in the 70-130 seat segment of the business.
VIII. THE MANUFACTURING SCENE : WHERE’S YOUR CAR GOING NOW?
by Royce Lowe
The automotive business is said to be, after, ironically enough, the oil and gas business, the second largest business in the world. There are, for example, about one billion cars currently in use on the world’s roads, and approximately 165,000 new vehicles are produced every day.
The industry has always run on oil, and for years the world has known that the combustion of petroleum products in automobiles and other vehicles is not good for the planet and it’s not good for human health. So for quite some time now the scientific community has been trying to find ways to use petroleum products more efficiently, i.e. to reduce gas consumption, but particularly to find alternate sources of energy to propel these vehicles.
The recent Volkswagen scandal, which is spreading to other companies, has brought to light the fact that even though diesel vehicles can be very economical on fuel (and thus emit relatively little carbon dioxide) this is often at the cost of increased nitrogen oxide (NOX) emissions. In Europe, testing methods are more lax, and NOX emissions standards more lenient, than in North America. This seems to be the crux of the problem.
More stringent standards in Europe might not even allow diesel cars on the road. Certain countries have in fact talked about banning them. There is still room to improve the good old gas motor, and to further develop cleaner cars that run on methane, hydrogen and electricity, or are hybrids.
Along with efforts to render motors cleaner and more efficient is ongoing research that results in stronger, tougher steels and other metals and materials that will allow the use of thinner materials, hence lighter, more fuel-efficient vehicles. To illustrate this, ArcelorMittal, the world’s largest steelmaker, says that over 50 percent of the steels in today’s new cars didn’t exist ten years ago, and that vehicles using AHSS (advanced high-strength steels) weigh up to 39 percent less than those that were made with conventional steels.
The average car, so it is said, has more than 30,000 parts. It is made up of 57 percent steel – 44 percent flat products, 13 percent long; 22 percent plastic, glass and other products; 8 percent iron; 4 percent various metals, copper, zinc and 9 percent aluminum. A large percentage of the flat-rolled steel will be galvanized.
Aluminum is putting its hat in the ring to increase even further the part it plays in an automobile. The amount of aluminum in the average North American vehicle has increased markedly over the past couple of decades and is projected to continue to do so.
As mentioned elsewhere in this issue, Alcoa is working on a Micromill Technology project with Danieli that will result in stronger, more formable materials, twice as formable and 30 percent lighter, it is claimed, than high-strength steels. Where this will lead we won’t know for a goodly time.
At least one small French car, the Renault Twingo, which is rear-engined, has a plastic hood and fenders.
The new kid on the block though is Tesla’s Elon Musk, a South African who wants to change the way we think about cars. He recently unveiled his Model X SUV, it’s electric by the way, by stating – and this could become part of the language – ‘This 4 x 4 goes so fast it’s wrong.’ The X does from 0 to 60 in 3.2 seconds, has a range of 250 miles (400 kilometers) on a single charge, and has a price tag of $130,000, a little rich for most people. It is cheaper though than the Porsche Cayenne Turbo S, which costs $157,000 and takes a whole 3.8 seconds to go from 0 to 60.
There is a Model S sedan that costs $70,000. Tesla plans to sell 50-55,000 cars this year, and 500,000 by 2020. A Model 3 is planned in two years, with a price tag around $35,000. Hopefully, Telsa won’t suffer the same fate as the Tucker, a car full of modern improvements in its day but crushed by competitive and political forces beyond its control.
Before the VW mess, BMW, VW, Audi and Daimler were all gunning for Tesla, with Audi up front with what it called a Tesla Killer, with an expected range of 300 miles (almost 500 kilometers).
At 500,000 units a year we’re talking a very small percentage of the market, but it’s a start. The diesel problem, and it certainly seems to be that, will likely open up a whole vista of new ways to propel these cars we love so much. Who knows, we might even get real clean diesel.
IX. GLOBAL SUMMARY
by Norbert Ore
Global growth remains positive for September 2015 in business surveys. The global business surveys measure change from month to month and have historically provided the earliest look at economic performance. Of the 18 surveys that we follow, 10 are growing and 8 are declining. The 10 that are growing have an average PMI of 52.0, while the 8 in decline average 46.9 percent. Based on the JP Morgan Global PMI (50.6, -0.1), the rate of change globally is at best meager.
With the rate of contraction slowing in Greece (43.3, +4.2), the rest of the Eurozone (52.0, -0.3) continues to grow. Germany (52.3, -1.0) is growing for the tenth consecutive month. The remaining six Eurozone countries average 52.4 percent and were again led by Ireland (53.8, +0.2), Netherlands (53.0, -0.9), and Italy (52.7, -1.0). The UK (51.5, -0.1) registered its 30th consecutive month above the 50 mark.
Once again, consumer goods for domestic production and consumption are apparently the strength of the economy as opposed to the export market that is struggling due to the strength of the pound.
As for North America, Canada (48.6, -0.8) failed to grow for the month and for the year as it has averaged 49.7 since January. Mexico (52.1, -0.3) saw new export sales slowing as the strong USD results in higher imported raw material prices.
And then there is China, the official data shows the pace of manufacturing to be similar to August as the CFLP PMI (49.8, +0.12 shows minimal change. However, the Caixin China General Manufacturing PMI (47.2, -0.1) registered continuing contraction. The Caixin seems to be more sensitive to change.
The following scattergram summaries where various economies stand in relation to growth or retrenchment.
X. THE FINAL WORD
by Royce Lowe
We consumers are ever at the mercy of those who supply us. What just happened in the car industry will affect some of us for quite some time, but it is more than likely that good will come out of it. Those who are guilty should be rooted out, not just the companies but also the individuals.
Never a dull moment, is there?