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Metals Outlookā„¢ – January 2014

Cover Story: ISM’s PMI At 57 Percent, Ends 2013 On A Strong Note
II. North American Perspective
III. U.S. Forging Industry
IV. Manufacturing Talk Radio ā€“ Interview with Brad Holcomb of ISM
V. Euro-Zone
VI. Asia Outlook
VII. South America
VIII. 2014 U.S. Manufacturing Forecast
IX. Global GDP Forecast
X. A Final Word

Publisher’s Statement

We’re baaaackā€¦..

Yes, our regular newsletter, MetalsWatch, established in 1992 has been gone for a few years, due to the unfortunate passing of Tom Stundza, formerly of Purchasing Magazine. Tom wrote our Newsletter for over 15 years and replacing him has been a difficult task. Searching the world, literally, to find someone of equal talent and expertise has been truly a major effort. Fortunately, we discovered Royce Lowe, known as the “Man of Steel.” in the south of France.

Royce has been in the steel industry for 35+ years, both in North America and Europe. He is a metallurgist, a researcher and a freelance writer. I had the pleasure of meeting him in August of 2013 in Paris and we immediately recognized the mutual opportunity. Royce will be contributing to our newsletter, Metals OutlookTM, effective with this first issue of 2014. We will be publishing Metals OutlookTM on a monthly basis and we hope that you will find it to be useful and informative for you and your business.

Now for the news: Institute of Supply Management’s Report on BusinessĀ® for December 2013 recorded the PMI (Purchasing Manager’s Index) at 57.0 (a PMI of 50.0 or higher indicates an expanding manufacturing economy), certainly a strong beginning for 2014. Other reporting entities are expressing very strong indicators that 2014 and 2015 will be very good years for manufacturing in the U.S. and Canada. If you missed our Manufacturing Talk Radio shows with guest Brad Holcomb, chair of the ISM Manufacturing Business Survey Committee who author’s the Report on BusinessĀ®, you can listen to his discussion of the December ISM number from the January 6th show, and the ISM semi-annual forecast for 2014 from the December 16th show atĀ

We hope that you will enjoy and benefit from the Metals OutlookTM newsletter and if you have comments, questions or contributions, kindly email them toĀ

Thank you and have a great 2014,
Lewis A Weiss
Comments to Publisher:Ā

Cover Story: ISM’s PMI At 57 Percent, Ends 2013 On A Strong Note

ismEconomic activity in theĀ manufacturing sectorĀ expanded in January for the eighth consecutive month, and theĀ overall economyĀ grew for the 56th consecutive month, say the nation’s supply executives in the latestĀ Manufacturing ISMĀ Report On BusinessĀ®.Ā  Manufacturing economic activity increased in December for the seventh consecutive month, with the manufacturing sector growing for the 55th consecutive month, but at a slightly slower rate than in November.

U.S. crude steel production for the month of November 2013, the last month for which full results are available, was at 7.1 Mt, up 5.3 percent from the same period last year.Ā  After growing by 7.8 percent in 2012 due to strong consumption activity, steel consumption in the U.S. is expected to grow by only 0.7 percent in 2013 to 96.9 Mt.

The outlook for 2014 however is for a 3.0 percent increase aided by an improving global economy and surging automobile, energy and residential construction sectors in the U.S.. For NAFTA as a whole, apparent steel consumption will grow by 0.2 and 3.2 percent in 2013 and 2014 respectively.

The U.S. Automobile sector is particularly strong, with Decemberā€™s sales being the best in a month since pre-recession 2007. Some 15.6 million cars and light trucks will be sold in 2013, an 8 percent increase over 2012. Sales for 2014 are forecast at 16.2 million cars and light trucks.Ā  In Canada, Ford is investing $ 700 million in its plant in Oakville, Ontario. The Federal and Provincial Governments are each contributing some $ 70 million. This plant produces the Edge, Flex, and the Lincoln MKX and MKT. This expansion is forecast to create some 2800 jobs.

The healthy state of the auto industry augers well for suppliers of forgings to the industry, particularly for suppliers of alloy steels and aluminum and its alloys. The aluminum producers are pushing hard to increase the amount of the metal in the average vehicle, while at the same time steel producers are working together to produce a much lighter vehicle by the use of stronger, lighter-gauge materials.

Gallup says that US consumer spending in December 2013 was the highest since 2008, quite a strong comeback from ā€œThe Great Recessionā€ of 2008.

II.Ā  North American Perspective

North-AmericaThe Institute of Supply Managementā€™s Report on BusinessĀ® for the month of December 2013 gives an optimistic outlook on conditions in most US manufacturing sectors, with thirteen of eighteen manufacturing industries reporting growth for the month. The year 2014, particularly its second half, looks very positive from a global manufacturing growth viewpoint.

Strength coming from the North American Auto Industry in 2014 bodes well for the U.S. forging industry. The Energy and Residential Construction sectors will ensure further growth in the U.S. economy.

Thirteen of the eighteen manufacturing industries reported growth in December, including Fabricated Metal Products, Primary Metals, Paper Products, and Transportation Equipment. Chemical Products and Machinery reported a contraction in December. Comments coming from the various industries are generally very positive, with a respondent from the Fabricated Metals sector experiencing the ā€˜Largest backlog ever, with most orders awaiting customer approval.ā€™ A respondent from the Paper Products sector said ā€˜orders and prices continue strong.ā€™

The following 5 components of the ISMā€™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.Ā  The New Orders Index for December was up by 0.6 percentage points to 64.2 percent, with the Production Index down from Novemberā€™s reading by 0.6 percentage points to 62.2 percent. New Orders and Production have registered over 60 percent for five consecutive months. The Employment Index, at 56.9 percent, was up by 0.4 percentage points from Novemberā€™s 56.5 percent reading.Ā  Primary Metals, Chemical products, Transportation Equipment and Machinery all reported growth in December. This represents growth for the seventh consecutive month, and at a faster rate than in November.

2.Ā  The Production Index showed a decrease of 0.6 percentage points in December, down from Novemberā€™s 62.8 percent, to 62.2 percent.Ā  The December reading indicates growth in production for the seventh consecutive month, but at a slower rate than in November. Growth was noted in Fabricated Metal Products, Primary Metals, Paper Products and Transportation Equipment, among other industries.

3.Ā  The Employment Index for December, at 56.9 percent, is 0.4 percent up on Novemberā€™s reading, and is at its highest level since June 2011. This represents an increase in employment for the sixth consecutive month and at a slightly higher rate than in November.Ā  Growth in employment in December was reported in 9 industries, including Primary Metals, Fabricated Metal Products, Paper Products and Transportation Equipment. A decrease in employment was noted in Machinery and Chemical Products.

4.Ā  The Supplier Deliveries Index – to manufacturing companies – slowed in December at a faster rate relative to November with the Supplier Deliveries Index registering 54.7 percent, or 1.5 percentage points higher than Novemberā€™s reading of 53.2 percent. This represents a slowdown in deliveries to manufacturing organizations. Slower supplier deliveries were noted in Paper Products and Transportation Equipment, and faster deliveries in Primary metals, Machinery and Chemical Products.Ā  At the moment, this would indicate that suppliers are unable to keep up with their manufacturing customersā€™ demand.

5.Ā  The Inventories Index, at 47 percent, is 3.5 percentage points lower than the 50.5 percent registered in November. This represents a contraction in inventories following two months of increases in raw material inventories. Industries reporting higher inventories in December are: Paper Products and Transportation Equipment. Lower inventories were reported in Chemical Products and Machinery.

The following 5 components of the ISMā€™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.Ā  Customerā€™s Inventories, at 47.5 for December, up from 4.0 for November, are seen as too low for potential marketplace demand.Ā  However, manufacturers are still playing it close to the vest with their inventories since 2013 was less certain than originally anticipated.

2.Ā  Prices are increasing faster although most companies are still unable to pass price increases through to their customersā€™ which is eroding operating income and margins.Ā  This may keep inflation at bay in the short-term, and provide a limited stimulus to sales, but raw material and component prices to manufacturers and product prices to end users will likely rise in 2014 as companies move to protect their income statements.

3.Ā  The Backlog of Orders Index decreased by 2.5 percentage points in December to 51.5 percent from Novemberā€™s 54 percent reading. This is the third consecutive month of expanding order backlogs. Primary Metals, Fabricated Metal Products, Paper Products and Transportation Equipment all reported increased Order Backlogs in December, with Chemical products and Machinery reporting a decrease.

4.Ā  The New Export Orders Index at 55 percent is 4.5 percentage points lower than Novemberā€™s 59.5 percent reading. The monthā€™s reading represents growth in exports for the 13th consecutive month. No industries reported a decrease in New Export Orders, with Fabricated Metal Products, Transportation Equipment, Machinery and Chemical Products all showing an increase.

5.Ā  Imports remained constant at 55.0 for the 11th consecutive month and include components for manufacturing and finished goods for assembly or immediate retail sale.

III.Ā  U.S. Forging Industry

round-bar-1Forging Magazine gives a good overall forecast for 2014. Confidence is high for the new year, with 46.6% of respondents looking for increased tonnage over 2013, 46.6% expecting tonnages to match those of 2013 and 6.9% expecting a decline over 2013 tonnages. To break things down a little further, 54.2% of Open Die Forgers forecast about the same tonnages for 2014 as for 2013, 41.7% forecast increased tonnages and 4.2% forecast decreased tonnages. Ring Rollers forecast a 50% split of increased and no-change tonnages over 2013 figures

Respondents state that those markets with most growth potential are:

31.4% say aircraft/aerospace,

23.5% say automotive market,

9.8% say fuel efficient engines in particular,

7.9% say alternate energy and

5.9% say nuclear energy

There is concern on the part of more than 50% of respondents about the availability of qualified workers for the forging industry. A lack of continuing education and training for the existing workforce, combined with a lack of programs to grow the incoming workforce, are a concern for over 28% of respondents.

The Forging Industry Association forecasts a 7 to 8 percent increase in North American shipments of forgings in early 2014.

IV.Ā  Manufacturing Talk Radio ā€“ Interview with Brad Holcomb of ISM

mfgtalkradio1steelforgeManufacturing Talk Radio ( was launched November 4th, 2013 as a bi-monthly live talk radio show broadcasting to listeners in the manufacturing industry from the C-Suite to the shop floor. Mr. Brad Holcomb chair of the Institute of Supply Management Manufacturing Business Survey Committee appeared on Manufacturing Talk Radio on January 6 2014 to discuss the December Purchasing Managerā€™s Index figures.

As a wrap up to 2013, Mr. Holcomb noted that the first half was satisfactory but that the second half was better. Decemberā€™s PMI number, at 57 percent, was a good number on which to end the year, pointing to strong, continuing momentum. Highlights of the month were New Orders and Employment.

Suppliers are having a hard time keeping up inventories and customers are asking for their goods faster.Ā  It is worthy of note that some heavier industries such as Auto and Transportation Equipment are moving to the top of the New Orders list.

Mr. Holcomb explained that the monthly PMI figure is a composite of the New Orders, Production, Employment, Supplier Deliveries and Inventories segments, with each category representing 20 percent of the overall PMI figure. The highest PMI noted of late was four consecutive months over 60 in the first half of 2011. This was in fact a case of some overheating as the second half of that year fizzled out.

Mr. Holcomb stated that the non-manufacturing sector was looking good: it is interesting to note that manufacturing represents some 11-12 percent of the US economy, with non-manufacturing or service industries representing the balance.

Mr. Holcomb had appeared on the program on December, 2013, to discuss Novemberā€™s PMI figures, when he opened by stating that ā€˜Manufacturing is on a roll.ā€™ Novemberā€™s PMI figure was at 57.3 percent. Mr. Holcomb mentioned that the Production PMI for November beat even Wall Street estimates. Production is, of course, a consequence of New Orders and Backlog of Orders figures. Mr. Holcomb further commented on the jump in New Orders that drives the whole manufacturing system, and commented favorably on the increase in New Export orders, the best in two years, suggesting a love for US-made goods, as exemplified by a new pair of jeans he just bought ā€“ made in the USA.

Mr. Holcombā€™s comments on Novemberā€™s Employment point to several months of strength, with the PMI up month after month, so there is more confidence, more hiring of sufficient people to meet future demands. This must all be balanced, of course, as discussed in an earlier segment of Manufacturing Talk Radio, by the issue of the hundreds of thousands of unfilled jobs in manufacturing in the US. There doesnā€™t seem to be enough qualified people to take these jobs on. This raises the question, ā€œIs manufacturing cool?ā€ which will be discussed in a future Metals OutlookTM.


eurozoneMarkitā€™s Eurozone manufacturing PMI rose to 52.7 in December from Novemberā€™s 51.6 reading, representing the best performance in 31 months. Germanyā€™s figure was the best since June 2011, whereas Franceā€™s performance dropped to a seven month low.Ā  Overall growth in the quarter for the Euro-zone was 0.2 percent.Ā  New orders rose for the fifth month to 52.2 from 51.8 in November.Ā  Crude steel production in the major Euro-zone economies was as follows:

  • Germany, at 3.7 Mt was up 5.7 percent year on year
  • Italy at 2.1 Mt was down 4.5 percent year on year
  • France at 1.3 Mt was up 3.5 percent year on year
  • Spain, at 1.2 Mt was up 15.5 percent year on year.

Apparent steel consumption in the EU-27 is expected to fall by 3.8 percent to 134.9 Mt in 2013, after falling by 9.5 percent in 2012. Some stability of real steel consumption returned in the second half of 2013, suggesting a recovery for 2014, albeit a fairly weak one, with consumption forecast to increase by 2.1 percent to 137.8 Mt.

VI.Ā  Asia Outlook

ChinaA recent preliminary private survey, together with other data, showed that growth in activity in China’s manufacturing sector decreased to a three-month low in December as reduced production offset a pickup in new orders, This points to a strong but slowing economy.

The flash Markit/HSBC Purchasing Managers’ Index (PMI) fell to 50.5 from November’s final reading of 50.8, but for a fifth consecutive month remained above the 50 line which separates expansion of activity from contraction.

There was a slowdown in Chinaā€™s manufacturing sector in the first two weeks of December, with the PMI falling to 50.5 from Novemberā€™s 50.8 reading. The economy is healthy but slowing. For the fifth consecutive month the PMI remained above 50.

Factory activity in China in fact expanded at its slowest pace in three months in December, as witnessed by the final reading of HSBCā€™s Purchasing Managersā€™ Index.

Export orders were found to be at a four-month low, confirming evidence that Chinaā€™s economy lost some strength in last yearā€™s final quarter.

Chinaā€™s crude steel production in November 2013, at 60.9 Mt, was up 4.4 percent year on year, Japan at 9.3 Mt was up 8.9 percent year on year, and South Korea was down 0.2 percent year on year at 5.6 Mt.

Apparent steel consumption in China is expected to grow by 6 percent in 2013 to 699.7 Mt, but demand in 2014, due to the Chinese Governmentā€™s attempts to rebalance the economy is expected to slow to a 3 percent growth rate.

Chinaā€™s auto sales could top 30 million sales by 2020, according to GM Chinaā€™s president.

Japanā€™s steel consumption in 2013 is expected to show a 0.1 percent growth rate to 64.0 Mt, but the outlook for 2014 is less positive, due to a consumption tax and rapidly increasing energy prices, ,thus steel consumption is forecast to fall by 1.6 percent.

VII.Ā  South America

south-americaAt 2.7 Mt of crude steel production, Brazil was down 2.8 percent year on year.Ā  Apparent steel consumption in the region is expected to show a 2.8 percent growth in 2013 to 48.5 Mt from 3.1 percent growth in 2012.Ā  Steel demand is forecast to grow by 5 percent in 2014 to 51.9 Mt.

Brazilā€™s economic performance has been slower than expected to date, but some moderate restocking and capital investment should lead to growth in apparent steel consumption of 3.2 percent to 26.0 Mt in 2013 and 3.8 percent to 27.0 Mt in 2014.

However, with Brazilā€™s oil industry coming on strong, large reserve discoveries, and an aggressive oil export policy, look for Brazil to grow into a major economic powerhouse.

VIII. 2014 U.S. Manufacturing Forecast

heat_treatingMr. Brad Holcomb chair of the ISM Manufacturing Business Survey Committee also appeared on Manufacturing Talk Radio on December 16, 2013 to discuss the December 2013 Semiannual Economic Forecast that was published on December 10, 2013.

In the forecast for 2014, Mr. Holcomb stated that economic growth will continue in the U.S. in 2014, according to the Nationā€™s Purchasing and Supply Management Executives in their December 2013 Semi-Annual Forecast. The manufacturing sector is optimistic for 2014 growth with increased revenues expected in 16 manufacturing industries. Highlights include:

  • Revenues are forecast to increase 4.4 percent
  • Capital expenditure is to increase 8.0 percent
  • Capacity utilization is currently at 80.3 percent

There is a general optimism for the first half of 2014, with even more optimism for the second half of the year. Inventories will increase by 0.9 percent to support the planned 2014 sales levels.Ā  Employment is expected to increase by 2.4 percent in 2014, with labor and benefit costs increasing by an average 2.3 percent.Ā  Raw material costs will rise by 1.6 percent, compared with a 0.9 percent increase in 2013 over 2012.

Of those respondents who export, 50 percent foresee an increase in export orders for the first half of 2014, 7 percent a decrease and 43 percent no change.

IX. Global GDP Forecast

earthThe I H S predictions for 2014 point to a gradual world growth acceleration with a growth rate of 3.3% compared to a rate of 2.5% in 2013. The quarterly annualized global growth in the second and third quarters of 2013 is estimated by I H S at 3.3% and 3.4% respectively. This suggests global growth has already reached the rate predicted for 2014.

U.S. growth will slowly speed up. Its strong housing market and the effects of an oil and gas boom are expected to push the growth rate to 2.5% in 2014 compared to the 1.7% figure in 2013.

Europe will go through a sluggish recovery, with an expected growth rate of 0.9% in 2014.Ā  Some countries ā€“ Greece, Italy and Spain ā€“ will struggle to achieve positive growth, but both Germany and the U.K. will grow faster in 2014 than in 2013.

Chinaā€™s growth rate will be sustained, as the 7.8% growth figure in 2013 expands to 8.0% in 2014.

The global forging industry is expected to show a compound annual growth rate over 9 percent between 2012 and 2016.

Unemployment in the developed world will remain high and is forecast to drop from 8.1% in 2013 to 7.9% in 2014. The U.S. rate should drop from 7.4% in 2013 to 6.6% in 2014. Europeā€™s rate will stay near its record highs.

Crude steel production in the 65 countries reporting to the World Steel Association ( was at 127 million tonnes (Mt) in November 2013, a 3.6 percent increase over November 2012. Crude steel capacity utilization was at 75.8 percent, up 0.3 percent on November 2012, but down 1.7 percent on October 2013.Ā  Apparent steel consumption for the year 2013 is estimated at 1,475 Mt, a 3.1 percent increase over 2012. The forecast for 2014 is further growth of 3.3 percent to 1,523 Mt.

The Economist, 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 worldā€™s major economies. The following table lists percent change on a year ago of a number of the more significant 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.

GDP Ā  Industrial Consumer prices Unemployment

% increase Production % increase percent % increase

United States + 1.7 + 3.2 + 1.5 7.0

Canada + 1.7 + 3.1 + 1.0 6.9

China + 7.7 + 10.0 + 2.7 4.0

Japan +1.8 + 5.0 + 0.3 4.0

Britain +1.4 + 3.2 + 2.6 7.4

Euro area – 0.4 + 0.2 + 1.4 12.1

France +0.2 nil + 1.0 10.9

Germany + 0.5 + 1.1 + 1.6 6.9

Spain – 1.3 +1.8 + 1.5 26.7

India + 4.9 – 1.8 + 9.8 9.9

Brazil + 2.2 + 0.9 + 6.2 4.6

Argentina + 5.1 – 4.7 – 6.8

Mexico + 1.2 + 0.1 + 3.7 4.6

In an appended comment to this latest economic review, The Economist goes on to say that the world economy grew at its fastest rate in eighteen months in the third quarter of 2013 after earlier appearing to be on a decrease. The Economist has calculated, based on 90% of world GDP, that output increased by 2.76% compared with the same period a year ago.

Again, according to The Economist, the world remains dangerously dependent on China, this country accounting for almost half of GDP global growth. Since the end of the recession, the emerging world has led the recovery, contributing 80% of global growth. The developed ā€“ or rich ā€“ world, however, after five debt-laden years, quickened its output in the third quarter.

A note on aluminum –
There is a large over-capacity in the aluminum industry, caused mainly by Chinaā€™s continued capacity expansion. China is presently producing at a rate of some 24 million tons from installed capacity of 28 million tons, figures that will continue to increase to the point where China may produce over 50 percent of the worldā€™s aluminum by the end of the decade. Alcoa, along with Russiaā€™s Rusal, are both planning significant capacity cuts to reduce global inventories and prop up prices.

X. A Final Word

look-aheadThe outlook for 2014 is very positive, with a large majority of respondents looking to significant increases in business revenues. A word of caution has to be the worldā€™s dependence on the Chinese economy, but that being said, it doesnā€™t seem likely thereā€™s a bubble about to burst in the near future.

All of this good news may be tempered by recent shifts in news reports that January didnā€™t turn out as well as predicted.Ā  The DOW is correcting on the slowest January in recent years.Ā  This does not mean the forecasts are wrong, but expect to see some mild downward revision as we progress through the first quarter.

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