Manufacturing Outlook April 2022

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PAGE 34

FEATURE STORY: WOMEN IN POWER: LUCIA FALEK INNOVATION IN THE FOOD MANUFACTURING SECTOR STARTS WITH CULTURE PAGE 34

THE CASS TRANSPORTATION INDEX PAGE 14

NORTH AMERICA OUTLOOK PAGE 20

AFRICA OUTLOOK PAGE 36

AUTOMOTIVE OUTLOOK CYBER SECURITY OUTLOOK PAGE 46

[

PAGE 44

MARCH ISM PMI: 57.1%

Released April 1st -The Full Executive Summary Report On Business - Page 16

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Manufacturing Outlook / April 2022

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TABLE OF CONTENTS

Publisher LEWIS A WEISS Editor in Chief TIM GRADY Creative Director CRAIG ROVERE Contributing Writers ROYCE LOWE NORBERT ORE CHRIS KUEHL THOMAS R. CUTLER AMELIA ROY JEANNE-MARIE LOWRIE JOCELYN BRIGHT CHRIS ANDERSON LAWRENCE MAKAGON CHRISTINE CASATI KEN FANGER Production Manager LINDA HOPLER Advertising ADVERTISE@MFGTALKRADIO.COM Editorial Office JACKET MEDIA CO. 75 LANE ROAD FAIRFIELD, NJ 07004 (973) 808-8300

5

PUBLISHER’S STATEMENT And The Good News Is...

6 MANUFACTURING OUTLOOK Global Expansion With Few Exceptions

by Royce Lowe

MANUFACTURING TIDBITS

Insights from inside manufacturing in action

10 FEATURE STORY: WOMEN IN POWER: LUCIA FALEK INNOVATION IN THE FOOD MANUFACTURING SECTOR STARTS WITH CULTURE by TR Cutler

14 CASS INDEX LOGISTICS REPORT Cass Transportation Systems

16 ISM MANUFACTURING REPORT ON BUSINESS 22nd Month Of Expansion

20 NORTH AMERICA OUTLOOK

U.S. Strong, Canada Getting Better, Mexico Hurting Itself

by Chris Kuehl

22 EUROZONE OUTLOOK Continued Expansion and Strength

by Chris Anderson

23 GLOBAL PMI OUTLOOK Growth Overcomes Obstacles

by Norbert Ore

26 © 2022 Jacket Media Co. No part of this publication may be reproduced or used in any form without the prior written permission of the publisher.

Manufacturing Outlook is a registered trademark of Jacket Media Co.

ASIA OUTLOOK Global Shockwaves And Slowing Economic Growth

by Christine Casati

Open call for...

Contributing Writers for new and existing content. Let’s start a conversation – Contact us at info@jacketmediaco.com or visit mfgtalkradio.com/writer for more information.

30 METALS OUTLOOK The State Of Steel In Europe

by Royce Lowe

34

COVER STORY: BRINGING THE ADVANTAGE OF ADVANCED COMPOSITES TO INDUSTRY AND CONSUMERS

by Advanced Manufacturing National Program O NIST

38 AFRICA OUTLOOK Devastating Impacts of Senseless Russian Aggression: Collateral Damage in Africa and the World

by TR Cutler

40 AEROSPACE OUTLOOK Aerospace Manufacturing’s Headwinds

by Royce Lowe

42 ENERGY OUTLOOK Nuclear Coming Back, Smaller

by Jocelyn Bright

44 AUTOMOTIVE OUTLOOK We Need To Talk About Batteries

by Lawrence Makagnon

46 CYBER SECURITY OUTLOOK “Liance” Is Not “Compliance”, So Go All The Way

by Ken Fanger

48 ISSUES OUTLOOK Trading Partners

by Royce Lowe

ES Y

Office,

PUBLISHERS STATEMENT

And The Good News Is… Manufacturing is in the 23rd month of an expansion, which generally lasts 36 months. That would indicate that 2022 will be a very good year. It also might indicate that 2023 could grow slower or slip into recession. But in 2022 – the news is generally good.

According to the Institute for Supply Management’s Manufacturing Report on Business®, this expansion is demanddriven, with new orders consistently above the 50 baseline and on occasion into the low 60’s. This, in turn, has driven backlogs to expand, a healthy sign that production has yet to overcome demand. Customer inventories have been running in the 40’s and recently dipped into the high 30’s, meaning that customer’s don’t have parts, components, or products on the shelf to meet their own production of sell-through needs. Exports are running strong, along with imports, and the biggest head winds are transportation, both ocean and inland, and skilled human resources.

The machine tool report has broken a 23 year upward swing says the Association of Manufacturing Technology. The Services sector has shown similar strength. Demand is high, employees are in short supply, customer inventories are well below demand, and items on order backlog remain stubbornly high. Everyone sees it on store shelves, where empty spaces are apparent in many grocery store aisles. That’s okay, as long as the system continues to produce to catch up to demand.

The concern is inflation. It has breached 8.5% and shows no sign of abating – until – consumers decide to bargain shop and hang on to durable goods as long as possible. A sudden drop in demand triggered by increasing prices that reach the tipping point could leave manufacturers holding goods in process as orders abruptly become canceled. And since substantial price increases continue unabated, that tipping point could crawl back into 2022 around the 4th quarter.

For now, consumer confidence remains strong because of wage increases and demand for qualified employees. Presently, in manufacturing, there are two job openings for every candidate. The Services sector, which is heavily dependent upon labor, has a similar experience. So, although ‘unemployment’ is at 3.6%, it is actually an inadequate measurement of unemployment (it just sounds better on TV for public consumption). The real unemployment measurement is U-6 which is 7.1% for March 2022 and includes the underemployed, marginally attached, and discouraged workers. The rate heard on the news of 3.6% which is U-3 in the Bureau of Labor Statistics reports, only counts those who have looked for a job in the last four weeks. It is as antiquated a measurement tool as an abacus for modern accounting. U-3 is misleading, at best, and needs to be replaced by U-6 which is more accurate and inclusive.

Unfortunately, employers are still experiencing the PPP hangover when employees received income without having to work.

It may have been well-intentioned, just as the $15 an hour minimum wage seemed well-intentioned, but in the present employment environment, neither the end of the PPP nor the $15 an hour minimum wage has driven employees back to work. Even employers offering $25 an hour have job vacancies. Truck drivers are offered even higher rates, and the driver shortage continues.

If employment resistance continues, regardless of wage rates, along with inflation, running at an annual rate of 8.5% (as reported in the mainstream media) which is closer to 20% when fuel and food are included (which is not included in the reported inflation number), the ‘good news’ and consumer confidence could sour suddenly and the Fed rate hikes won’t cool the economy, they might unexpectedly flash-freeze it. Manufacturing Outlook isn’t predicting that, but rather watching the nuances closely. Subscribe for free so you don’t miss the warning signs! n

SUBSCRIBE Lewis A. Weiss, Publisher Contact laweiss@mfgtalkradio.com for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast or any of our podcasts.

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Manufacturing Outlook / April 2022

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MANUFACTURING OUTLOOK

APRIL 2022

MANUFACTURING OUTLOOK GLOBAL MANUFACTURING PMI AT 18-MONTH LOW, BUT NORTH AMERICA ON THE UP. SUPPLY CHAIN DISRUPTION WAS EASING, BUT WAR IS INTERFERING. U.S. STEEL PRICES TICKING UP AGAIN. SHORTAGE OF NEW CARS FOR SALE. By: Royce Lowe continued

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Manufacturing Outlook / April 2022

MANUFACTURING OUTLOOK March saw the creation of 431,000 nonfarm jobs and a further drop in the unemployment rate to 3.6 percent. There were notable job gains in leisure and hospitality of 112,000; professional and business services of 102,000; retail trade of 49,000 and manufacturing of 38,000, of which 22,000 were in durable goods and 11,000 in transportation equipment.

There were 19,000 jobs created in construction, whose figures have returned to their February 2020 levels. Employment in transportation and warehousing is 608,000 higher than in February 2020.

The Bureau of Economic Analysis says the U.S. Real Gross Domestic Product increased at an annual rate of 7.0 percent in the fourth quarter of 2021, according to the “second” estimate. The real GDP increase in the third quarter of 2021 was 2.3 percent.

S&P Global’s (formerly IHS Markit) remarks on U.S. manufacturing for March show that the U.S. saw an easing of supply chain disruption, and production growth increased to its fastest in seven months. Production and new orders rose steeply - both domestic and export - and the U.S. saw the smallest deterioration in vendor performance for 14 months. Cost pressures are increasing. The PMI figure moved up from 57.3 in

February to 58.8 in March. There was increased pressure on capacity and an accompanying increase in Employment. The production expectation outlook is the highest since November 2020.

GLOBAL CRUDE STEEL PRODUCTION WAS DOWN BY 5.7 PERCENT YEAR-OVERYEAR IN THE MONTH OF FEBRUARY for the 64 reporting countries – which represent 98 percent of world crude steel production – to 142.7 million tons (MT).

U.S. crude steel production for February was 6.4 MT, up 1.4 percent year-over-year. In February: China produced 75.0 (estimated) MT, down 10.0 % year-over-year; India 10.1 MT, up 7.6 %; Japan 7.3 MT, down 2.3%; Russia (estimated) 5.8 MT, down 1.4%; South Korea 5.2 MT, down 6.0%; Germany 3.2 MT, up 1.4%, and Brazil 2.7 MT, down 6.9%. The EU (27) produced 11.7 MT, down 2.5%.

Primary Global Aluminum Production in February was reported at 5.114 million tons, with production in China at 2.946 million tons, representing 58 percent of the world total.

Production was 462,000 tons in GCC; 355,000 tons in the rest of Asia; 230,000 tons in Western and Central Europe; 291,000 tons in North America and 314,000 tons in Russia and Eastern Europe.

The seasonally adjusted selling rate for U.S. light vehicles in the U.S. in March is 13.33 million vehicles.

All major producers posted steep sales declines in the first quarter due to chip shortages and the war in Ukraine. High gas prices are steering customers to green technology. Toyota held its number one spot from GM due in large part to its sales of Hybrids.

The JP MORGAN GLOBAL MANUFACTURING PMI – a composite index produced by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – fell from February’s 53.7 to an eighteen-month low of 53.0.

Europe and North America were the bright spots, but there was subdued growth in Asia. Input cost and selling-price inflation were up. The rate of expansion in global manufacturing production was at its lowest in March during the current 21-month period of expansion. Growth in production and demand was fraught with COVID disruptions, stretched global supply chains, created inflationary pressures, and “elevated geopolitical tensions.”

The production slowdown was seen mostly in the intermediate and investment goods sectors.

Consumer goods sectors fared better, but the pace of increase remained slightly below its long-run average. Employment was up for the 17th successive month. Supply chains were stretched in every global area.

THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Consumer Prices, and Unemployment Rates for what continued

Manufacturing Outlook / April 2022

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MANUFACTURING OUTLOOK it considers the world’s major economies. These data are not necessarily good for 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 concerning a given quarter or month. The figures for GDP represent the percent change on the previous quarter, or annual rate. The consumer price increases represent year-over-year changes.

The unemployment percentages are for the month as noted. n Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.

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Manufacturing Outlook / April 2022

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FEATURE STORY

Women in Power: Lucia Falek Innovation in the Food Manufacturing Sector Starts with Culture By: TR Cutler

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continued Manufacturing Outlook / April 2022

FEATURE STORY Lucia Falek is originally from Detroit Michigan. She remembers a childhood excitement and fascination of manufacturing while visiting the Ford Motor Company at the age of six and the Kellogg cereal company at age nine.

Lucia went on to study nutrition for 3 years at Michigan State University before slowly and eventually realizing she preferred to study how to manufacture food instead!

It was at MSU that I met Lucia and have followed her career and passion for innovation in the food manufacturing sector.

She graduated from MSU with a degree in Food Science and Technology and spent the next 16 years with The Big Boy Food Group immersed in the manufacturing of everything from fudge cake, soup, and salad dressing to burger buns, ice cream, and spaghetti sauce.

Big Boy was the ideal place for a young scientist eager to learn a wide variety of processes. It was there she became remarkably familiar with the FDA, the USDA, hundreds of raw ingredients, and hundreds of food service items. By

the time Lucia joined Butterball Farms in 2004, she had 20 years of experience in quality, food safety, and R&D. Butterball Farms is a small Grand Rapids, Michigan company making specialty flavored products for some of the largest companies on earth. Lucia currently finds herself using her experience and her fascination for manufacturing working closely with the Butterball Farms’ sales team and their customers… continually creating, commercializing, and packaging customized flavored food solutions.

Lucia was recently interviewed on the WAM (Women And Manufacturing) podcast. Watch here. An additional interview with her follows.

TRCutler: After more than three decades in the food manufacturing business, what has surprised you most?

Lucia Falek: Food science and food safety have advanced significantly through technology. Operational processes have changed a great deal in 30 years. We eventually

implemented a continuous process improvement mentality that migrated from the automotive industry.

The result has been a greater focus on food innovation and listening to the demands of customers with respect to product performance, flavor, cooking styles, and supply chain considerations.

TRCutler: What has changed most in food manufacturing since COVID? Lucia Falek: What hasn’t changed may be more important to consider.

Food producers were somewhat prepared to meet COVID-19 challenges due to regulatory compliance and occupational health and safety programs already in place.

Establishing new protocols has been part of the industry during my entire career - overall most companies have adapted well.

TRCutler: How has the tight labor market impacted the food manufacturing industry?

Lucia Falek: Most food manufacturers operate on very tight margins, so there is little leeway continued

Manufacturing Outlook / April 2022

11

FEATURE STORY

to increase wages significantly and still turn a profit. The only choice is to pass along some of those costs to customers to absorb the higher wages. There are underserved human resources from former military, second chance citizens, and disabled communities that are eager to work in the food industry. Labor challenges require special attention to inclusivity, professional development, and team building.

TRCutler: What do you think is most misunderstood about the food industry today?

Lucia Falek: Innovation is at the heart of why the food industry is dynamic, interesting, and ever-changing. Corporate executives in the food industry must support

12

a culture of food innovation based on the consumers’ new buying patterns, product performance expectations, flavor palettes, and the increasing desire to experience food differently. During COVID with less restaurant dining, more people stayed home and experimented with food, cooking, and flavors.

TRCutler: Share why the relationship with on-time product delivery and supply chain disruptions have impacted the food industry and customer expectations.

Lucia Falek: Whether constrained by labor issues, ingredient issues, inflationary pressures, supplier limitations, the food industry is being squeezed daily to provide amazing new products in a timely man-

ner. That has never been easy, but supplier diversification, agile supply chains, and production adaptation have been heightened significantly.

Around the world, meeting the ontime delivery expectations continue to be rough. One need only observe empty grocery store shelves to know popular products sell out as hard-to-find food SKUs. Additionally, food products may have simply been discontinued due to various disruptions.

TRCutler: How has the food manufacturing industry encouraged the amazing contribution of women?

Lucia Falek: When I started my career, many of the food quality, safety, and scientists were women.

Now we see women in VP managecontinued

Manufacturing Outlook / April 2022

FEATURE STORY ment levels, but sadly there is still a glass ceiling when one looks at the C-Suite or Board of Directors for most food manufacturing companies. More successful women in the food industry are moving to buy or launch new food product companies ranging from plant-based to organic and gluten-free product lines.

When women are at the top of food manufacturing management there tends to be a cooperative and team building environment encouraging innovation and experimentation.

TRCutler: Do you think there is more or less cultural cohesiveness in your three decades in the food manufacturing industry?

Lucia Falek: That is a tough question to answer. The industry is highly competitive and some in senior management are hanging on to the status quo. It is necessary to create a safety net for creative thinking and for testing new ideas.

Understanding there is tremendous pressure to produce the right product, on-time, every time, success in food innovation requires a “trial and error” approach. Building a great team and encouraging fresh ideas is key.

TRCutler: To what do you attribute the increasing global participation in the food manufacturing industry?

Lucia Falek: This goes back to the supply chain and supplier diversification as well as COVID. Black pepper from China was hard to procure during the height of COVID. Even as the twentieth ingredient in a soup or sauce, many food manufacturers did not have alternative sourcing. A change in the recipe means a change in labeling, and other considerations in the final food preparation and taste.

A simple change is never simple.

As international foods continue to grow in popularity, global food manufacturers are supplying and meeting the increasing demand.

TRCutler: What are you most looking forward to over the next several years for the food manufacturing industry?

Lucia Falek: My great hope for the industry at large would be a steady and significant improvement in innovation of process, people, and products that is culturally supported by food manufacturing management. Allowing a layer of creativity to flourish will result in great food products, happy employees, and delighted customers.

Author Profile: Thomas R. Cutler is the President and CEO of Fort Lauderdale, Florida-based, TR Cutler, Inc., celebrating its 23rd year. Cutler is the founder of the Manufacturing Media Consortium including more than 9000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement.

Cutler authors more than 1000 feature articles annually regarding the manufacturing sector. Cutler has established special divisions including Africa Manufacturing, Gen Z Workforce, and Food & Beverage Manufacturing & Logistics. Cutler was named the Global Supply Chain journalist of the year. Over 5200 industry leaders follow Cutler on Twitter daily at @ ThomasRCutler.

Contact Cutler at trcutler@trcutlerinc.com. n Manufacturing Outlook / April 2022

13

CASS INDEX OUTLOOK

Cass Transportation Index Report

by CASS INFORMATION SYSTEMS, INC.

Cass Freight Index - Shipments U.S. freight volumes slowed further in March, with the shipments component of the Cass Freight Index up just 0.6% y/y, slower than the 3.6% y/y growth in February.

Though the shipments component of the Cass Freight Index rose 2.7% from February, this was 1.0% below the normal seasonal pattern. The y/y growth in shipments slowed to 0.4% in Q1’22 from 4.3% in Q4’21 and 9.5% in Q3’21. While a few points of softness in Q1 were due to Omicron-related absenteeism, freight was slowing even before the war in Ukraine began.

14

Manufacturing Outlook / April 2022

The threat of freight recession has risen recently as services reopen, inflation presses up interest rates, and—though war-related effects are likely to be modest in the nearterm—higher energy prices have an increasingly negative effect over time. We’re certainly seeing a freight slowdown and spot market correction, but in our view, it is too early to call it a freight recession.

Using a normal seasonal pattern from March, the shipments component would be up about 3% y/y in April and down about 3% y/y in May.

Freight Expenditures The expenditures component of the Cass Freight Index, which measures the total amount spent on freight, rose 1.1% m/m in March with shipments up 2.7% and rates down 1.6%. Year over year, freight expenditures were up 33% y/y.

On a seasonally adjusted basis, expenditures fell 0.2% m/m, essentially unchanged, with shipments falling 1.0% m/m and rates still creeping higher.

On a two-year stacked basis, the Expenditures component of the Cass Freight Index was up 70% in March, with shipments up 11% and rates up 53%. continued

This CASS INDEX has been posted with the permission of Cass Information Systems, Inc.

CASS INDEX OUTLOOK This index rose 38% in 2021, after a 7% decline in 2020 and no change in 2019. Tougher comparisons in the coming months will naturally slow these y/y increases, but just using normal seasonality from here, the increase in 2022 will still be about 25%.

Inferred Freight Rates The freight rates embedded in the two components of the Cass Freight Index slowed to a 32% y/y increase in March from 37% in February.

Cass Inferred Freight Rates rose 1.1% m/m on a seasonally adjusted basis in March, setting another new record, but it was the slowest m/m increase in the past seven months.

The m/m increase is mainly as Omicron-related effects on capacity continue to push rates higher, which may continue to impact contract rates for a couple more months, even as downward pressure now emanating from the truckload spot market will have an increasing slowing effect over the course of the year.

Though Class 8 tractor capacity remains limited and could tighten further if the Russia/Ukraine war worsens the chip shortage, we are seeing tangible signs of improvement in driver availability, which is disinflationary.

There have been tentative signs of recovering intermodal network fluidity, as chassis production continues to accelerate and workers return. But intermodal volumes continue to underperform the shipments component of the Cass Freight Index, so rail network congestion continues to add to Cass Inferred Freight Rates via excess miles in the freight network.

Freight Expectations Our outlook for the U.S. freight market, detailed in the ACT Freight Forecast report, seems to have swung from below consensus to above consensus in the past several weeks, as we think recession fears are overdone.

The true increase in freight costs is between the 14% y/y increase in the Cass Truckload Linehaul Index (below) and the 33% y/y increase in the inferred rate. The Truckload Linehaul Index does not include accessorial fees and rising fuel surcharges and does not consider excess miles. The inferred rate includes all costs across all modes.

After rising 23% in 2021, Cass Inferred Freight Rates are on a 23% trend again for 2022, though that seems unlikely to hold up.

Cass Inferred Freight Rates are a simple calculation of the Cass Freight Index data, expenditures divided by shipments, producing a data set that explains the overall movement in cost per shipment.

The data set is diversified among all modes, with truckload representing more than half of the dollars, followed

by LTL, rail, parcel, and so on.

Truckload Linehaul Index The Cass Truckload Linehaul Index® rose 14.2% y/y in March to 163.4 after rising 12.7% y/y in February to 158.0.

We recently refined the data set to improve its reflection of the market, and the March increase is consistent with other contract rate sources.

Just as this index is catching up, the key leading indicators from the truckload spot market have fallen sharply over the past several weeks, which we expect will limit further upside in the Cass Truckload Linehaul Index. Normal contract timing would suggest there’s room for this index to continue to rise for a few more months after the peak in spot rates.

However, the pendulum has begun to swing. In early April, truckload spot rates inflected to y/y declines for the first time this cycle, but not the last. The ACT For-Hire Driver Availability Index has returned to levels where the rate turned down in late-2018 and 2019. Labor has recovered strongly from Omicron, which is deflationary for freight rates. Of course, spot rates are a leading indicator, so most of the effects of this change in the cycle will be felt further in the future. n our view, the combination of inflation, Fed monetary tightening, war in Europe, and substitution back to services from goods are shifting the freight cycle from the early stage to the late stage.

The recovery in labor capacity is again a key feature, though equipment production remains constrained and marginal capacity entering the market by paying nearly new truck prices for three-year-old used trucks will have a high cost base and difficulty competing at lower spot rates.

Supply shortages may still tighten the truckload sector, depending particularly on neon, and will continue to have a big impact on the direction of the U.S. freight cycle.

For now, there is a clear rebalancing happening, which should put us in the peak of the rate cycle. n

Manufacturing Outlook / April 2022

15

ISM REPORT OUTLOOK

THE INSTITUTE FOR SUPPLY MANAGEMENT’S MANUFACTURING REPORT ON ® BUSINESS BREAKING NEWS

ISM PMI at 57.1% for March 2022 Released April 1st ISM PMI for the past 5 years

MARCH 2022 57.1%

Expanding Contracting

continued

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Manufacturing Outlook / April 2022

ISM REPORT OUTLOOK INSTITUTE FOR SUPPLY MANAGEMENT®

Analysis by

reportonbusiness Economic activity in the manufacturing sector grew in March, with the overall economy achieving a 22nd consecutive month of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The March Manufacturing PMI® registered 57.1 percent. This figure indicates expansion in the overall economy for the 22nd month in a row after a contraction in April and May 2020. This is the lowest reading since September 2020 (55.4 percent). The New Orders Index registered 53.8 percent, down 7.9 percentage points compared to the February reading of 61.7 percent.

The Production Index reading of 54.5 percent is a 4-percentage point decrease compared to February’s figure of 58.5 percent. The Prices Index registered 87.1 percent, up 11.5 percentage points compared to the February figure of 75.6 percent.

Fifteen manufacturing industries reported growth in March, in the following order: Apparel, Leather & Allied Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing‡; Machinery; Textile Mills; Transportation Equipment; Fabricated Metal Products; Paper Products; Chemical Products; Computer & Electronic Products; Nonmetallic Mineral Products; Primary Metals; and Plastics & Rubber Products. ISM

Timothy R. Fiore, CPSM, C.P.M.

Chair of the Institute for Supply Management® Manufacturing Business Survey Committee

MANUFACTURING

PMI at 57.1% ®

PMI

Manufacturing grew in March, as the Manu2020 2021 2022 facturing PMI® registered 57.1 percent, 1.5 percentage points lower than the February 57.1% reading of 58.6 percent. The Manufacturing 50% = Manufacturing Economy PMI® continued to indicate strong sector Breakeven Line expansion and U.S. economic growth in 48.7% = Overall Economy March. All five subindexes that directly factor Breakeven Line into the Manufacturing PMI® were in growth territory. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Manufacturing at a Glance INDEX

Mar Index

Feb Index

% Point Change

Direction

Rate of Change

Trend* (months)

Manufacturing PMI®

57.1

58.6

-1.5

Growing

Slower

22

New Orders

53.8

61.7

-7.9

Growing

Slower

22

Production

54.5

58.5

-4.0

Growing

Slower

22

Employment

56.3

52.9

+3.4

Growing

Faster

7

Supplier Deliveries

65.4

66.1

-0.7

Slowing

Slower

73

Inventories

55.5

53.6

+1.9

Growing

Faster

8

Customers’ Inventories

34.1

31.8

+2.3

Too Low

Slower

66

Prices

87.1

75.6

+11.5

Increasing

Faster

22

Backlog of Orders

60.0

65.0

-5.0

Growing

Slower

21

New Export Orders

53.2

57.1

-3.9

Growing

Slower

21

Imports

51.8

55.4

-3.6

Growing

Slower

5

Overall Economy

Growing

Slower

22

Manufacturing Sector

Growing

Slower

22

*Number of months moving in current direction.

Manufacturing ISM® Report On Business® data has been seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.

Commodities Reported

‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

Commodities Up in Price: Adhesives and Paint (4); Aluminum (22); Aluminum Products (3); Brass; Cable Assemblies (2); Caustic Soda; Copper (3); Copper Products; Corrugate (2); Corrugated Packaging (17); Crude Oil (3); Diesel Fuel (15); Electrical Components (16); Electronic Components (16); Energy; Fasteners; Freight (17); Hydraulic Components; Labor — Temporary (11); Logistics Services; Lubricants; Lumber (4); Natural Gas (9); Nickel; Packaging Supplies (16); Pallets (2); Paper; Paper Products (3); Pigments; Plastic Resins (3); Plywood; Polypropylene; Precious Metals; Rubber; Rubber Based Products (8); Semiconductors (14); Solvents (2); Soy Based Products (3); Steel* (20); Steel — Hot Rolled; Steel — Scrap; Steel — Stainless (17); Steel Products* (19); Titanium; and Zinc Compounds (3).

Note: To view the full report, visit the ISM ® Report On Business ® website at ismrob.org

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

continued 14

ISMWORLD.ORG

Manufacturing Outlook / April 2022

17

ISM REPORT OUTLOOK

ISM Report On Business ®

®

Manufacturing PMI®

Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

New Orders (Manufacturing) 2020

March 2022

20

New Orders

2022

2021

ISM’s New Orders Index registered 53.8 percent. Of the 18 manufacturing industries, 13 reported growth in new orders in March, in the following order: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing‡; Textile Mills; Electrical Equipment, Appliances & Components; Transportation Equipment; Paper Products; Chemical Products; Fabricated Metal Products; Furniture & Related Products; Computer & Electronic Products; Plastics & Rubber Products; and Machinery.

53.8%

52.9% = Census Bureau Mfg. Breakeven Line

Production (Manufacturing) 2020

Production

2022

2021

70

54.5% 52.4% = Federal Reserve Board Industrial Production Breakeven Line

The Production Index registered 54.5 percent. The 11 industries reporting growth in production during the month of March — listed in order — are: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing‡; Textile Mills; Transportation Equipment; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Machinery; Chemical Products; and Computer & Electronic Products.

Employment (Manufacturing) 2020

2021

Employment

2022

56.3%

50.5% = B.L.S. Mfg. Employment Breakeven Line

20

Supplier Deliveries (Manufacturing) 53.1% 2020

2021

2022 80

65.4%

ISM’s Employment Index registered 56.3 percent. Of 18 manufacturing industries, 10 industries reported employment growth in March, in the following order: Apparel, Leather & Allied Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Food, Beverage & Tobacco Products; Fabricated Metal Products; Machinery; Paper Products; Miscellaneous Manufacturing‡; and Computer & Electronic Products.

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations was slower in March, as the Supplier Deliveries Index registered 65.4 percent. Fifteen of 18 industries reported slower supplier deliveries in March, in the following order: Apparel, Leather & Allied Products; Paper Products; Textile Mills; Machinery; Furniture & Related Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Primary Metals; Fabricated Metal Products; Computer & Electronic Products; Chemical Products; Miscellaneous Manufacturing‡; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Transportation Equipment.

Inventories (Manufacturing) 2020

2021

2022

55.5%

44.4% = B.E.A. Overall Mfg. Inventories Breakeven Line

‡Miscellaneous

The Inventories Index registered 55.5 percent. The 14 industries reporting higher inventories in March — in the following order — are: Apparel, Leather & Allied Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Textile Mills; Machinery; Nonmetallic Mineral Products; Paper Products; Primary Metals; Chemical Products; Miscellaneous Manufacturing‡; Food, Beverage & Tobacco Products; Computer & Electronic Products; Transportation Equipment; and Fabricated Metal Products.

Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

18

Inventories

Manufacturing Outlook / April 2022

continued

ISM REPORT OUTLOOK

ISM Report On Business ®

®

Manufacturing PMI®

March 2022 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

Customer Inventories (Manufacturing) 2020

2021

2022

Customers’ Inventories ISM’s Customers’ Inventories Index registered 34.1 percent. No industries reported customers’ inventories as too high in March. The 11 industries reporting customers’ inventories as too low during March — listed in order — are: Paper Products; Transportation Equipment; Miscellaneous Manufacturing‡; Fabricated Metal Products; Plastics & Rubber Products; Machinery; Primary Metals; Computer & Electronic Products; Chemical Products; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components.

34.1%

Prices (Manufacturing) 2020

2021

2022

87.1%

The ISM Prices Index registered 87.1 percent. In March, all 18 industries reported paying increased prices for raw materials, in the following order: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Paper Products; Printing & Related Support Activities; Textile Mills; Primary Metals; Transportation Equipment; Machinery; Plastics & Rubber Products; Chemical Products; Miscellaneous Manufacturing‡; Computer & Electronic Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Petroleum & Coal Products; and Wood Products.

52.6% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line

Backlog of Orders (Manufacturing) 2020

2021

Prices

2022

60%

Backlog of Orders ISM’s Backlog of Orders Index registered 60 percent. Eleven industries reported growth in order backlogs in March, in the following order: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Textile Mills; Transportation Equipment; Fabricated Metal Products; Computer & Electronic Products; Paper Products; Plastics & Rubber Products; Chemical Products; Machinery; and Miscellaneous Manufacturing‡.

New Export Orders (Manufacturing) 2020

2021

2022

53.2%

New Export Orders ISM’s New Export Orders Index registered 53.2 percent. The six industries reporting growth in new export orders in March — in the following order — are: Wood Products; Miscellaneous Manufacturing‡; Computer & Electronic Products; Transportation Equipment; Food, Beverage & Tobacco Products; and Fabricated Metal Products.

Imports (Manufacturing) 2020

2021

2022

51.8%

‡Miscellaneous

Imports ISM’s Imports Index registered 51.8 percent. The seven industries reporting growth in imports in March — in the following order — are: Furniture & Related Products; Nonmetallic Mineral Products; Transportation Equipment; Food, Beverage & Tobacco Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; and Machinery. n

Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

Manufacturing Outlook / April 2022

19

NORTH AMERICA OUTLOOK

APRIL 2022

NORTH AMERICA OUTLOOK

U.S. Strong, Canada Getting Better, Mexico Hurting Itself

by Chris Kuehl United States These days the outlook seems to alter every other hour as there are more moving parts than is usually the case.

The Ukraine war is a classic “black swan” event – a term economists coined to describe a situation that is anticipated but where nobody expects the details. The Russian threat has been there for years but the extent of the attack and the resulting sanctions were not figured in to most analysis. The three most important issues to the U.S. involve energy, food and supply chain.

Not that these are the most important

20

overall as there are deep concerns over recession, inflation, wages and so on but the immediate drivers of concern are rooted in higher commodity prices.

Oil and gas prices are stabilizing a little but remain very high and there is no expectation of a significant decline unless and until there is some kind of settlement or ceasefire in Ukraine. Oil production in the U.S. has ramped up but it takes approximately 9 months for new capacity to come on line. Canada is also ramping up (as is Mexico) but the OPEC states are still cautious.

The producers recognize the current demand but they also recognize that this demand is fragile – it could end with a scaling down of the Ukraine war. The real demand issue for the producers is the return of the daily commute and that has yet to happen as 60% of the workforce is still operating from home. There are any number of extraneous issues that have far more to do with politics than energy supply – such as the Keystone pipeline. The energy issue is not one of transportation but of production and the Keystone has no relevance. continued

Manufacturing Outlook / April 2022

NORTH AMERICA OUTLOOK Along with oil and gas there are severe spikes in food prices and other commodities. The rise in the cost of food has been triggered by the war in Ukraine as Russia and Ukraine combined accounted for 25% of the world’s wheat production as well as significant levels of other crops. The rise is over 34% higher than a year ago.

The high costs of energy as well as the continuing issues of pandemic response in China have driven supply chain costs ever higher. The good news is that these higher prices are driving the desire to engage in reshoring but the bad news is that costs are still higher in the U.S. than overseas.

The data right now is mixed. The rate of inflation is still high – 7.9% as measured by the Consumer Price Index and 6.4% as measured by Personal Consumption Expenditures.

The rate of unemployment is 3.6% and that means there is no chance of stagflation at this point (that requires double digit inflation and double-digit unemployment). Growth of GDP has slowed to around 3.0% but is expected to fall further. The good news is that many of the manufacturing numbers are still strong – PMI is at 57.2, industrial production was up for manufacturing and capacity utilization was nearing the ideal zone between 80% and 85%.

Canada The Canadian economy can be far more volatile than the U.S. economy as it hinges more on commodity prices.

With the higher prices for oil and gas and wheat the Canadian economy is expected to see a boost in activity but this will be tempered to a degree by the higher input costs. Farmers will reap a solid benefit with the coming harvest but costs right now are extremely high. The U.S. is very engaged in buying Canadian oil and gas but so are consumers in Europe and Asia. The U.S. continues to have trade issues with Canada. The punitive tariffs that have been imposed on Canadian softwood lumber have contributed to record high

prices in the U.S. and there has been little movement on this dispute. The new duties will be less than the tariffs imposed last year but they will still be significant. The U.S. and Canada are generally on better trade terms than in previous years but there are still plenty of areas of tension. Steel and aluminum tariffs were suspended, however.

At the end of last year, the Canadian economy was growing by 6.7% and that means the Canadian economy is now 0.6% higher than it was prior to the pandemic. The virus has become less urgent in terms of deaths and hospitalization and that has allowed some resumption of normal activity.

The inflation rate is similar to that of the U.S. at 5.7% and has been driven by the same factors (gas prices up by over 32% and food prices up by over 7.0%).

Unemployment rates remain very low – 5.3% and the lowest rate seen since 1976.

Canada saw its PMI hit a surveyrecord high in March, increasing from February’s 56.7 to 58.9 in March.

There was strong growth in production and new orders. There was record stockpiling amid fears of future input shortages. Input costs and selling price inflation were up to series highs.

Capacity pressures brought employment increases, and there was optimism for the next twelve months. There was some relaxation of COVID restrictions, but there were client concerns over future price hikes and shortages. There is port congestion added to freight issues and deterioration in vendor performance, but all in all, Canada had a good month in March.

Desrosiers Automotive Consultants say that March’s light vehicle sales for Canada are down almost 20 percent, year-over-year, to 140,460 units. The Seasonally Adjusted Annualized Rate

is at 1.54 million units. Quarterly figures are down 12.7 percent year-overyear to 330,000 units.

Mexico There are many issues affecting the Mexican economy and the majority of them could be described as selfinflicted wounds. The business community has been on the defensive since the election of Andres Manuel Lopez Obrador (AMLO) and there has been a corresponding dearth of foreign investment. Even the higher oil prices have done Mexico little good as production costs are high. Oil accounts for 54% of the Mexican government’s revenues but Pemex lost $6 billion in the fourth quarter of last year. Trade with the U.S. has been hampered by political disputes that have led to tariff wars. There has been some interest in near shoring as companies seek to move back to North America from China but the issues in Mexico are restricting that interest – most are seeking opportunities in the U.S. and Canada.

The inflation rate in Mexico is 6.0% and this has provoked the central bank to hike rates – a position that AMLO is against. The unemployment rate is 4.7% but that is highly misleading. The vast majority of the unemployed are not in any kind of system – there is no unemployment compensation program and thus no way of really counting those without work. Unofficial estimates hold that nearly 35% of the population lacks any kind of formal job.

Mexico saw cost inflation near the survey peak, at its second-highest in the 11-year survey history. Selling prices were raised accordingly. The PMI for March, at 49.2, was up from February’s 48.0, its 25th consecutive month in contraction territory.

Production, new orders, and employment were all in contraction in March. n Chris Kuehl

Manufacturing Outlook / April 2022

21

EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE

by Chris Anderson IHS Markit’s (Now S&P Global) Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI), fell back from 58.2 in February to 56.5 in March. The suppliers’ delivery time gauge is inverted in the calculation of PMI. The PMI is at a 14-month low, put down to geopolitical tensions. Business confidence is down with it. Import price inflation rose again, amid increasing commodity, fuel, and energy costs. There were Covidrelated staff absences. Invasion and bad news from the auto industry contributed to reduced growth.

Manufacturing employment expanded again in March.

THE UK saw production and new orders slow in March, with business optimism at a 14-month low, and the PMI at a 13-month low of 55.2 in March, down from 58.0 in February.

Inflation strengthened and new export

22

Manufacturing Outlook / April 2022

contracts were down for the second consecutive month.

Energy costs increased, and material shortages and supply chain problems

were in evidence, but delivery delays were at their lowest for almost 18 months. Employment was up for the 15th consecutive month, across all three sectors and at small, medium, and large-sized companies. Despite all, the outlook is positive.

The Western European car sales rate for February was at 10 million units per year, versus 9.7 million units in January. The rate is down 5.4% on February 2021, 20% down in February 2020 and 30% down in February 2019. But EV sales went to a record in February, with pure electric and plug-ins accounting for 20 percent of total sales, Tesla being the bestChris Anderson, selling brand. n Staff Writer

GLOBAL PMI OUTLOOK

GLOBAL PMI OUTLOOK

by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL SURVEYS, STRATEGAS RESEARCH PARTNERS

Growth overcomes obstacles March 2022 BUSINESS SURVEY INSIGHTS According to our scatterplot of 18 surveys, seven economies recorded Expanding-Strengthening; an additional eight reported Expanding-Weakening; two reported Contracting-Strengthening, and one

Norbert Ore, Director, Head Of Industrial Surveys, Strategas Research Partners

reported Contracting-Weakening from the prior month. In March, both China surveys -- CFLP (49.5) and Caixin (48.1) fell slightly below 50.

Mexico (49.2) was the other index under the mid-point.

Given all of the constraints in key industries – namely energy and all of its subsets: coal – both steam

and metallurgical, oil, natural gas, LNG, and nuclear, the safest path forward is to develop all of the industry to guarantee that we have less expensive sources of fuel, food, and critical supplies of steel and other metals. Energy is often 50% of the cost of products that are necessary for us to make advances in industry, agriculture and space.

continued Manufacturing Outlook / April 2022

23

GLOBAL PMI OUTLOOK ISM U.S. Manufacturing PMI™ We focus on key and most active indicators each month as we evaluate the surveys. We look for significant changes in demand and find them this month in New Orders (53.8, -7.1) and Backlog of Orders (60.0, -5.0). When combined with a large catchup move as we see in Production (54.5, -4.0), all three of the indexes are weakening, but remain at levels that under most circumstances appear to be sustainable with current market conditions.

While commodities related to home building still lead the list, energy-based commodities appear to be peaking as higher prices always lead to demand destruction and there are numerous indications of that being the case.

Many global component suppliers, whether by mandate or Covid, shut down operations completely at the early stages of Covid and are still trying to compensate for their lost production time. Factory closures globally are still presenting challenges. The increased energy costs and commodities pricing pressures have spread across many commodities – metals, chemicals, agricultural, energy, and electronics, appear to be among the hardest-hit groups.

This translates into performance for the PMI components and depicts growth in output, weak employment, and

insufficient inventory replenishment across a broad spectrum of products.

We look for these trends to remain in place during 2022.

According to the press release, “The past relationship between the Manufacturing PMI® and the overall economy indicates that the Manufacturing PMI® for March (57.1 percent) corresponds to a 2.9-percent increase in real gross domestic product (GDP) on an annualized basis.”

New Orders Minus Inventories: Drivers: Employment (56.3, +3.4) and Inventories (55.5, +1.9) boosted Manufacturing activity in March.

Supplier Deliveries (65.4, -0.7), a contrarian in that it signals slower delivery times above 50.0 as economically bullish, are still stretched.

New Orders Minus Inventories: This key spread fell to -1.7, signaling Inventories are improving. We like to see New Orders typically outpace Inventories by an average of 6-8 points.

The outlook for growth in supply chains should improve monthly during the year.

Customers’ Inventories: The index (34.1, +2.3) for raw materials, components, and finished goods was

“too low” for the 66th consecutive month. The index has been under 40 percent for the past 20 months. This is an indication that buyers are still struggling to keep plants synchronized with their supply chain. It appears that priorities for 2022 will continue to be unraveling inventory issues in many supply chains.

Prices: The Manufacturing Prices Index (87.1, +11.5) jumped significantly in March. Recovery of costs related to inflation is a major challenge.

Fifteen manufacturing industries reported growth in March, in the following order: Apparel, Leather & Allied Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Machinery; Textile Mills; Transportation Equipment; Fabricated Metal Products; Paper Products; Chemical Products; Computer & Electronic Products; Nonmetallic Mineral Products; Primary Metals; and Plastics & Rubber Products. The two industries reporting a decrease in March compared to February are: Wood Products; and Petroleum & Coal Products.

continued

24

Manufacturing Outlook / April 2022

GLOBAL PMI OUTLOOK A Quick Word On Capacity Nine industries are operating below their pre-pandemic capacity utilization levels in the U.S., contributing to output limitations. Looking at the relative importance, these eleven groups comprise 44% of industrial production.

n

Manufacturing Outlook / April 2022

25

ASIA OUTLOOK

APRIL 2022

ASIA OUTLOOK

by Christine Casati

Global Shockwaves And Slowing Economic Growth Early this month, the World Bank (WB) revised downward its growth forecast for East Asia and the Pacific (EAP) to 5% from 5.4%. It also forecasts China’s growth to be 5% this year, lower than Beijing’s target of 5.5%, and far below last year’s 8.1%. WB analysts have noted that the growth of many smaller economies in the region are tied to trade with China and will be affected by the downturn. Additionally, the War in Ukraine, associated sanctions, and the U.S. Federal Reserve interest rate hikes will also lead to rising food prices and capital outflows.

There could be increasing poverty in countries such as the Philippines,

where a 10% rise in cereals could drive 1.1 million more people into poverty. (World Bank “Braving the Storms” April 2022) Just as the region was slowly recovering from various surges of Covid-19 variants, China was hit with its worst nationwide surge of cases and has locked down entire cities, leaving many unprepared and sending economic shockwaves all over the world. After rising cases in Shandong, Guangdong, and Jilin Provinces, the most recent surge has been in Shanghai, China’s financial center and the location of its deepest seaport. After shutdowns of entire

cities, such as Xi’an, Jilin, and Dongguan for weeks, Shanghai is now under lockdown. Key trucking routes to Shanghai port warehouses are blocked, leading to long lines of truckers sleeping in their trucks and workers sleeping at the port.

Ships are lined up waiting for their goods with increasing congestion.

Sanctioned oil is piling up off China as the outbreak worsens. Originally a phased shutdown was planned in Shanghai beginning March 28, after some localized shutdowns of specific neighborhoods did not curb the spread. Then the entire city was closed down on Friday, continued

26

Manufacturing Outlook / April 2022

ASIA OUTLOOK April 1. Troops from the Nanjing Military District have been called in to help with the response. Bankers in the financial hub have been asked to sleep over in their offices to continue executing trades; in one case a manager has been sharing his single bathroom with 15 colleagues.

(Bloomberg) To put the enormity of this lockdown into perspective, the population of Shanghai Municipality is estimated to be 25 million, including registered migrant workers.

This is over half the entire population of Ukraine!

While the world is busy watching with horror the very dark sides of the war in Ukraine, there are some very dark things happening in China. The government was caught off guard by this rapidly spreading and furiously contagious Ba.2 omicron variant.

There was no citywide planning for

mass distribution of medical care or basic supplies and food. Government workers have not had time to become educated on the science nor on how to treat asymptomatic people or those with “abnormal tests” (no one knows what that means so they send them off on 16-hour bus rides with no food to a quarantine center).

While demanding that provinces, municipalities, cities, and counties all follow China’s Communist Party Zero-Covid containment policy, state leaders have used the media to paint a very scary picture of Covid-19, causing extreme fear of the disease and mental health issues among the local population. At the same time, they justify their severe measures and deflect blame for all the tragedies occurring during citywide lockdowns. There have been hundreds of cases of people who have been left alone and not cared for who

out of despair have jumped to their deaths from high-rise rooftops or out of windows, all captured on video, watched by neighbors. Pregnant mothers are left bleeding on the street waiting for their Covid test to come back negative before being allowed into the hospital. In one case the mother survived but her unborn child did not (CNN).

Also terrifying is when children, even infants, who test positive are separated from their parents who are not allowed to visit them unless the parent, too, tests positive. This has led to some desperate parents trying to contract the disease. The same situation has been documented in Hong Kong, which now has one of the highest daily death rates, mostly among the elderly. What happened in Hong Kong, which at one time was the safest, lowest case city in continued

continued Manufacturing Outlook / April 2022

27

ASIA OUTLOOK

Asia, may well be one of the drivers of China’s continuing vigilant policy enforcement.

There are emerging glimpses of a potential breakdown in the social order that China’s leaders fear most of all and that drives the government to construct its own media universe of false information about the dangers of Covid. Without sharing the science and acting on it, they may be creating a far more dangerous social, political, and economic scenario by keeping everyone “in the dark” about Omicron in one of the world’s most populous international cities. And we are starting to see the dangerous response. On April 7th, China’s ruling Communist Party issued a rare call on the local rank and file party members to “Draw Swords!” in the fight against “the behaviors that may undermine the work of containing the epidemic.” They want a party member available in any situation, anywhere (Bloomberg). The city recorded nearly 20,000 cases that day. As of this writing, residents are still under lockdown. With all under severe strain, frustration is spilling over, anger is mounting and there is no end in sight (CNN Beijing Bureau).

Another very dangerous situation is the Chinese government’s ongoing patience and ‘neutral’ stance toward the war in Ukraine. The longer the war drags on, the more China has to lose. We know that China does not like the war, and President Xi has called President Zelensky of Ukraine urging peace. But China has been put into a very uncomfortable position

by President Xi’s “friend forever”, President Putin, who knows that its neighbor China will never forget that Soviet Russia helped the Chinese Communist Party build China’s industrial and socialist residential infrastructure during the early years after the establishment of the People’s Republic of China. My colleagues in China tell me that China still fears Russia’s military. So it does not want to provoke Russia by openly siding against it. President Xi also does not want to openly say in any way that the war is justified, thereby damaging its relations with European trading partners including Ukraine. So he will continue the official policy line of “non-interference”.

As an autocracy, China can manipulate the media and control the internet to feed the people Russia’s

version of what’s happening and blackout Western news media. China has openly blamed the USA for “provoking” Russia by entertaining consideration of Ukraine joining NATO someday. But China has billions of US dollars of economic interests in Ukraine. It imports all of its corn for animal husbandry from Ukraine, and until recently had over six thousand of its citizens living and studying there. Ukrainian peace and security is important to China for both economic and political reasons.

It also cooperates with Ukrainian scientists on numerous scientific and BRI projects. Unfortunately, in a nod to Putin, Russia’s view of the war is being taught in China’s schools beginning with the primary level, blindsiding an entire nation.

This is deeply disturbing to more globally educated Chinese who have access to international news.

Most disappointing is President Xi’s unwillingness to play a role to influence his “friend”, Putin, to enter peaceful negotiations to immediately cease hostilities and end the war.

One bright spot: China is adhering to financial sanctions and does not want to run afoul of its own critical connections with banking institutions in the West. And indications are that it is also reluctant to succumb to pressure to provide Russia advanced semiconductor chips which Russia needs. But there is no doubt that China’s gas buyers will seek cheap Russian fuel shunned by the West (FT).

The impact of war worries and Covid-19 policies on Chinese manufacturing and spending over the past few months have become even more apparent. The Caixin China Manufacturing PMI SA was 48.10 on March 31, 2022. The PMI has fallen 5 months in a row. continued

28

Manufacturing Outlook / April 2022

ASIA OUTLOOK On April 5, the March Caixin China Services PMI was reported at 42, sharply down from 50.2 in February, its lowest since the lockdown in February 2020 (Bloomberg). The current Covid lockdowns are severely curtailing consumer spending while contributing to rising costs for the government to implement them.

On the bright side, on March 31, as the second half of Shanghai was about to join the first half already under lockdown, in Beijing, China’s Ministry of Finance, State Council Development and Reform Committee (DRC), and the World Bank jointly announced the release of their collaborative report on four decades of China’s Poverty Reduction…to the tune of 800 million people. The DRC said this had been achieved by the end of 2020, but the report was delayed due to Covid. It is the greatest number of people ever officially studied and recorded to have been lifted out of poverty by one nation

during that length of time. And they are proud of it. Their challenge now is to sustain it in a world of rising risks and shockwaves. (Report Released 3/31 Beijing, 4/1 USA World Bank Open Knowledge) In Japan, the PMI increased from 52.7 in February to 54.1 in March on the back of renewed growth in both production and new orders. But Japan saw the sharpest fall in export orders for 20 months, largely due to the China lockdown and the Russian invasion.

There was a record increase in raw material inventories amid higher prices and delays.

Domestic sales increased by easing COVID-19 restrictions, and there was inflation in increased selling prices, along with supply chain disruptions.

There was more pressure on capacity, hence increased backlogs and expansion of employment for the 12th month running. Business confidence

stayed positive.

INDIA saw production and new orders rise at softer but still solid rates in March. There was a quicker increase in input costs and selling prices.

There was a broad stabilization of employment after three months of job shedding. The PMI fell from 54.9 in February to 54.0 in March. Positive sentiment was down significantly in March, with the overall level of sentiment slipping to a two-year low.

Author profile: Christine is cofounder and President of China Human Resources Group, Inc, a management consulting firm based in Princeton NJ. She has provided U.S. companies with strategic development and project implementation services for projects in China since 1986. n

Manufacturing Outlook / April 2022

29

METALS OUTLOOK

APRIL 2022

METALS OUTLOOK

by Royce Lowe The State of Steel in Europe For the past few years, the price and availability of steel have seen ups and downs such as they have possibly never seen. From the imposition of tariffs by the Trump administration, through the ongoing COVID-19 pandemic, to the recent Russian invasion of Ukraine, it seems the

30

alloy’s fortunes have been battered by politics and pestilence. The alloy is not alone, but it is by far the most abundant.

Europe is bearing the brunt of this situation as it depends to a large extent on imports of both finished and semi-finished steel from Russia, Ukraine, and Belarus. The steel market in Europe has been uncertain for some time, with customers

holding off making purchases, not knowing which way the wind may be blowing. The mills were trying to lift prices due to higher costs, particularly for energy, but were reaping limited success due to a lack of demand.

MEPS, the British steel analysis company, has recently taken a serious look at the situation, and this article borrows a goodly part from MEPS. continued

Manufacturing Outlook / April 2022

METALS OUTLOOK

There was a positive demand outlook as imports abated, together with expectations of a pick up in Chinese market activity, following the Lunar New Year.

The start of military activity as Russia invaded Ukraine, saw a significant change in market conditions, and mills held back on their quotes as they tried to figure out how much they could produce and at what price. Faced with unknown costs, mills adopted the policy of releasing limited volumes, for short-term production, before withdrawing from the market. Each time this was repeated, price offers rose significantly. Consequently, most distributors and service centers limited their purchases.

Some customers panic bought; others adopted a “wait and see” approach. In France, for example,

service centers found themselves overwhelmed with orders since their customers had held off ordering because they figured the price was still dropping. Thus there was a surge to buy, fearing supply shortages and their accompanying price increases.

Steelmakers, – particularly those long-product mills in Italy and Spain following the Electric Arc Furnace routing - suspended their steelmaking in recent weeks due to increasing energy costs. Some mills are adjusting their shift patterns, producing when power is cheaper.

There are concerns regarding raw material availability in the coming months. It is expected that these factors will cause a tightening of steel supply in the second quarter and that prices and delivery times will go “out there” and that

allocation will come back. The steel availability problem will hit the flat-rolled, tubing, and hollow structural section sectors too, all of whose prices are currently on a rapid increase.

We must consider the part that Russia, Ukraine, and Belarus play in the European supply chain.

These three countries account for about one-quarter of finished steel exports to the EU and the UK, and 80 percent of the region’s imports of semi-finished steel. Russia is the “bad guy” but also the largest exporter to the EU of merchant bar and hot-rolled coil/sheet in the region, accounting for 30 and 21 percent respectively of imports of these products. It is also the secondlargest supplier of rebar, plate, and wire rod, with a share of 15 to 18 percent. From April 1st, Russia and continued

Manufacturing Outlook / April 2022

31

METALS OUTLOOK There have been unusual offers from the U.S. and Canada, but these will not come to fruition as the N.A. market itself sees price increases.

Belarus will see tariffs raining down upon them from the EU and the UK. Ukraine’s steel production is, of course, suffering from the invasion.

Major steelmakers have suspended production and declared force majeure. Some smaller mills were reportedly continuing to produce, despite the fighting. Production and delivery - fraught with infrastructure, ports, roads, and rails problems - to European customers are difficult.

Ukraine is the largest supplier of hot-rolled plate into the EU and the UK, representing 40 percent of plate imports. Ukrainian mills sell over 450,000 tons per year of rebar, wire rod, steel sections, and merchant bar into Europe, or 6.5 percent of Europe’s annual imports of long products. Belarus saw imports banned from the beginning of March. It is in the top five countries for imports of rebar, wire rod, and merchant bar to the EU and the UK, to the tune of 14, 10, and 7 percent respectively.

32

Manufacturing Outlook / April 2022

Among other countries, India has apparently already sold large tons of hot-rolled coil to Italy, and agreed contracts with buyers in Northern Europe, for the supply of valueadded flat-rolled. India has seen raw material and energy price increases, and supply problems, thus limiting the amount of steel it has for sale in Europe. Turkey is hampered by high energy costs, with the EAF routing being the main steelmaking process in the country.

China is somewhat loathe to do business in Europe and prefers to stabilize its home market. Perhaps South Korea, Taiwan, Japan, Vietnam, and Indonesia may get into the game of supplying Europe.

Semi-finished supply from Russia and Ukraine, which are both major exporters of steel slab, has not been affected by sanctions. Italy is the biggest importer, at 2.5 million tons per annum, of which 75 percent is from Ukraine, and 20% from Russia. Germany imports some 500,000 tons per annum from Russia. Thus, Europe is highly dependent on this slab, and hotrolled plate has been the finished product most affected by the war, with plate prices increasing by 50 percent in recent weeks.

Although not affected by sanctions, payment is impractical since these sanctions prevent Russian banks from using SWIFT, the global financial funds transfer system. Slab prices have been rising since the start of the year, and this will likely continue as more buyers compete for what is available.

Brazil is an alternative, but is committed to U.S. customers. It is considered that the extra volume available from suppliers in these countries will be insufficient to satisfy European rerollers. There will be diminished availability of billet, and this will be particularly hard on Italy. Supplies of ferrous scrap and pig iron, iron ore, and coal, are uncertain in the light of fluctuating Chinese demand.

The price of oil, expected to stay high at over $100 per barrel, will affect the cost of shipping and road continued

METALS OUTLOOK transportation of steel products.

Europe is trying to reduce its dependence on Russian fossil fuels, particularly natural gas. Europe imports 40 percent of its gas requirements and over 25 percent of its oil from Russia. Liquefied natural gas would help, but supplies are limited. Less energy supply from Russia would push power prices up.

Demand for steel products in the automotive industry will be determined by availability of semiconductors, and by certain electrical components, together with a tightening supply of such metals as aluminum and palladium.

If semiconductor availability falls again, steel requirements may fall with it. In the construction sector, which is performing well in Europe, buyers are trying to guarantee steel supply for ongoing projects, but they will pay dearly for it. Uncertainty, war, and energy shortages reign over the European steel market. We can only guess at what the short-term future may bring.

the situation in the month up to early April.

Following the recent chaotic increase in the price of nickel, things have calmed down somewhat on the nonferrous metal front, but price swings from day to day are not, and will not be, uncommon. The following was

Author profile:

Copper: from $4.75 to $4.65 per lb.

Aluminum : from $1.72 to $1.66 per lb.

Nickel : from $13.0 to $15.00 per lb.

Zinc : from $1.80 to $ 1.97 per lb.

Volatility will be the watch-word and norm until the war is resolved.

Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

Manufacturing Outlook / April 2022

33

COVER STORY: INNOVATION OUTLOOK

BRINGING THE ADVANTAGES OF ADVANCED COMPOSITES TO INDUSTRY AND CONSUMERS IACMI (Institute for Advanced Composites Manufacturing Innovation), a Manufacturing USA® institute, accelerates research and development in advanced composites to lower costs and increase efficiencies for all manufacturers.

Manufacturing USA, a public-private partnership with 14 manufacturing institutes across the nation, connects companies, academic institutes, non-profits, and local, state, and federal entities to solve industry-relevant advanced manufacturing challenges in new technology areas with the goals of enhancing industrial competitiveness and economic growth and strengthening national security.

Technology Focus Area Advanced composites are two or more materials fused together to produce tailored properties in a lightweight format. Using composites rather than conventional materials such as steel provides greater potential for weight savings, energy efficiencies, and recycling opportunities. Materials like carbon fiber-reinforced polymer composites are of critical value in delivering high strength-to-weight ratios in vehicles, compressed gas storage, and wind energy/turbines. IACMI members are developing new technologies that lower the cost, time and energy required to produce these composites while increasing the material’s recyclability.

Approach to Innovation and Collaboration IACMI brings together partners in government, industry, and academia to share resources and co-invest in accelerating the development of advanced composites. This is done through:

LEARN MORE

+

CONNECT WITH IACMI Knoxville, Tennessee 865-974-8794 memberinfo@iacmi.org iacmi.org

Access to world-class research and development facilities and resources, including workforce training Providing scale-up research and deployment opportunities: IACMI’s Scale-Up Research Facility (SURF) located in Detroit, MI is focused on developing materials processing for lightweighting and joining of composites to other lightweight materials in vehicle structures that provide enhanced safety and fuel savings for consumers Over 30 Projects that address lowering carbon fiberreinforced polymer costs, reducing energy and improving composite recyclability into useful products Building an Advanced Composites Manufacturing Workforce through workshops, online courses, internships, and community engagements at partner facilities

Advanced Manufacturing National Program Office, NIST | www.ManufacturingUSA.com | 301-975-2830 | amnpo@nist.gov

34

continued Manufacturing Outlook / April 2022

COVER STORY: INNOVATION OUTLOOK

COLLABORATIVE PROJECT EXAMPLES “Tapping into the innovation of small and medium-sized organizations, like Fibrtec, and the forging of public-private partnerships through IACMI’s framework are accelerating the insertion of structural composites in the auto industry. It’s a fantastic opportunity for companies like ours to have access to world-class resources not normally available.” – Robert Davies, CEO, Fibrtec

THERMOPLASTIC COMPOSITES: The first phase of a project led by DuPont in partnership with Fibrtec and Purdue University validated the creation of a new carbon fiber composite manufacturing process that combines flexible coated FibrflexTM with DuPont’s Rapid Fabric Formation technology and a polyamide resin. The resulting product exhibited improved fabric formability compared to traditional woven materials. This discovery can ultimately decrease cost for carbon fiber composite structures, making them easier to adopt in automotive and other high-volume industries, as well as reduce embodied energy and lead to the creation of more jobs.

WIND BLADE PROTOTYPE WINS CAMX COMBINED STRENGTH AWARD: An IACMI-produced nine-meter wind blade prototype was recognized for solving a recycling problem that impacts composites and advanced materials. The prototype is a small-scale version of a utility-scale multi-megawatt blade and is a result of collaboration between national labs, universities, and 11 industry partners. Fabricated and assembled at the National Renewable Energy Laboratory’s (NREL) National Wind Technology Center, the prototype used new materials and processes with potential for commercialization to reduce production times and cost and increase durability, recyclability and energy-efficiency.

ROAD2COMPOSITES: Nearly 180 current and future technicians and engineers in the auto composites industry participated in this workshop, Road2Composites: Scaling Up Innovation. Attendees learned about advances in composites and their integration into automotive, aerospace, recreational, and other sectors. They also studied scale-up processes through demonstrations of unique equipment and explored lightweighting in the auto industry through the use of carbon fiber incorporation for vehicles via automation and additive manufacturing.

“Mafic has really enjoyed the connective and creative environment within the IACMI community. We have established productive partnerships and customers that have helped build our foundation for future growth including our new US facility, currently under construction in North Carolina. The facility is set to create over 100 new jobs making products that are currently featured in several IACMI projects.” – Jeff Thompson, Head of Sales and Marketing, Mafic SA Advanced Manufacturing National Program Office, NIST | www.ManufacturingUSA.com | 301-975-2830 | amnpo@nist.gov

Manufacturing Outlook / April 2022

35

AFRICA OUTLOOK

APRIL 2022

AFRICA OUTLOOK

by TR Cutler

Devastating Impacts of Senseless Russian Aggression: Collateral Damage in Africa and the World According to Washington Mito, a Kenyan-based journalist, economists have warned that prices of basic

commodities will rise owing to the recent war between Russia and Ukraine which has affected global trade. Mito suggested that Kenya is in line to feel the heat of the conflict as both Ukraine and Russia are its key trade partners.

Farmers were warned to brace themselves for tough times ahead given the spike in the price of fertilizer which will only get worse and many common commodities that Kenya imports from Ukraine and Russia will no longer be available. continued

36

Manufacturing Outlook / April 2022

AFRICA OUTLOOK Wheat is at the top of that list with Kenya importing wheat worth $140M from Russia in 2020 and another $9M from Ukraine. While some parts of Kenya plant wheat, used in the preparation of bread, the country often faces deficits given the change in climate and the ever-

increasing demand for wheat by industries and Kenyans. Similarly, maize is one of the products that

dominate cereal imports from the two countries with the majority of the maize flour exported from Russia (estimated at $9M).

Since the conflict started, news of spiking fertilizer prices was omnipresent. Farmers have already raised concern over the high price of fertilizer. This situation worsened as the Kenyan Ministry of Agriculture predicted the Russian suspension of fertilizer exports.

Additional collateral damage to the unnecessary conflict is steel, as both Ukraine and Russia are dominant exporters of iron sheets to Kenya. Kenya imported iron

sheets and steel worth nearly $120M from Russia and another $40M from Ukraine. According to the global trade data, iron sheets are the second-largest imports of Kenya from Russia after cereals.

Other products Kenya imports from Russia and Ukraine include paper boards used in the making of cardboard boxes, among other items. For some manufacturing companies in Kenya, Russia and Ukraine play a key role as the businesses depend on oilseed imports from the two countries.

Ukraine is Kenya’s major export source for the product. Some of the oilseeds include sunflower seed to make sunflower oil. continued

continued Manufacturing Outlook / April 2022

37

AFRICA OUTLOOK

Unknown to many, Russia is one of the world’s biggest manufacturers of cleaning machines such as dishwashers and vacuum cleaners.

Additionally, Kenya imports refrigerators and freezers from Russia.

Shoshana Kedem, reporting for African Business, corroborated that African countries most vulnerable to the conflict are those

which import a large share of the wheat they consume, such as Egypt. Meanwhile, African fuel oil importers like Kenya are feeling the heat of surging oil prices as Russia, one of the world’s largest exporters of crude, is hit by sanctions for this nonsensical war causing disruptions and embargoes to energy exports.

Commodity exporters, like Nigeria and Angola, are likely to be the

biggest benefactors of the war as supply-constrained commodity prices boom. Egypt is particularly vulnerable to further commodity price pressures due to its high dependency on imports from both countries, according to Capital Economics’ senior emerging markets economist, Jason Tuvey.

“This could lead to a small widening of Egypt’s current account deficit, but – with subsidies set to be cut back – the biggest impact is likely to come via higher inflation. That will hit household spending and also raise the risk of fresh social unrest.”

Ghana and Nigeria also consume a lot of wheat, much of which is imported.

Oil exporters, such as Nigeria and Angola, are set to benefit from the commodity price chaos as their current accounts rake in the gains of the oil price increase, which is big enough to counter underperforming production.

continued

38

Manufacturing Outlook / April 2022

AFRICA OUTLOOK While Russia is just a small African

or days long. This writer was a

trading partner, the impact on trade

personal witness to more than ten

will be marginal for most African

thousand Sri Lankans queuing up

countries. However, some, like

for gas with gallon plastic milk jugs

Uganda, are more exposed.

On a global scale, Russia only accounts for 2-3% of Africa’s trade, according to UNCTAD data, which is mostly made up of exports, and only 0.5% of imports from the continent.

Debt default is likely throughout Africa due to the insidious

in early March. The desperation and crisis have only worsened since that visit. The Financial Times profiled how Sri Lanka’s escalating debt crisis and how its largest tea customer, Russia, could continue to devastate that country into financial ruin.

It is an ugly and wholly unnecessary

Russian attack. The same is true

invasion with ramifications well

in Sri Lanka where gas lines are

outside of Ukraine, with significant

thousands of trucks deep and hours

impacts on many African nations.

Author Profile: Thomas R. Cutler is the President and CEO of Fort Lauderdale, Florida-based, TR Cutler, Inc., celebrating its 23rd year. Cutler is the founder of the Manufacturing Media Consortium including more than 9000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. TR Cutler, Inc. launched two new divisions focusing on Gen Z and the African manufacturing sector. Cutler authors more than 1000 feature articles annually regarding the manufacturing sector.

Over 5000 industry leaders follow Cutler on Twitter daily at @ ThomasRCutler. Contact Cutler at trcutler@trcutlerinc.com. n

Manufacturing Outlook / April 2022

39

AEROSPACE OUTLOOK

APRIL 2022

AEROSPACE OUTLOOK

by Royce Lowe

Aerospace Manufacturing’s Headwinds Raytheon Technologies Corp. said its first-quarter shipments of jet engines to Airbus SE is at 70 less than planned because of bottlenecks at casting suppliers. General Electric Co. says issues with material, labor availability, and inflation will affect its aviation business in the first half of 2022.

Honeywell International Inc. has been saying for months that the aerospace supply chain has been coming back rather slowly from a long Covid slowdown, leading to parts shortages that put hundreds of millions of dollars of shipments at risk for delays. Demand for air travel has varied with new Covid variants but has recovered somewhat relative to 2019 levels.

For a goodly while, aerospace was relatively insulated from the supply and hiring challenges that have been aggravating most industries for over a year now. To some extent, the aerospace industry’s inclusion in the supply chain crunch is good news, in that it’s a sign the industry is coming back from the

pandemic slump as demand increases for new planes and heavy maintenance work. But are the top U.S. aerospace manufacturing companies prepared for, and do they appreciate, the risks at hand?

Raytheon said it would make up for engine delays later this year and its CEO said the situation would work itself out. GE’s CEO said supply issues and Covid-driven labor absenteeism in the aviation unit were “very much short-term issues.” In contrast, the CEO of Safran SA, GE’s partner in the CFM International jet-engine JV, warned of “an everyday fight to get parts” and singled out the U.S. part of its supply chain as being the most problematic.

It looks as though there is a more significant disruption on the horizon for the defense industry. This sector relies on a manufacturing base similar to that of the aerospace industry, but both operation and employee numbers

have been much more stable during the pandemic, thanks to support from the U.S. government. Lockheed Martin Corp. and Northrup Grumman Corp. both forecast supplier bottlenecks, longer deliveries, and labor shortages.

Some months ago, Lockheed’s treasurer said, “A large part of the impact that our supply chain is facing is with our suppliers that are dual-use; i.e., they are supplying both commercial and defense.”

L3Harris Technologies Inc. has suffered shortages of electronic components.

Supply chain pressures, together with labor shortages and inflation, are expected to drag down revenue to the tune of $200 million in the first half of 2022, with the company aiming to make up half of that in the second half of the year.

The problem with materials, however, takes second place to the people problem. The U.S. government intervened to keep tens of thousands continued

40

Manufacturing Outlook / April 2022

AEROSPACE OUTLOOK of airline employees on the payroll, but did not give the same support to the aerospace manufacturing industry. U.S.-based aerospace and defense companies have announced over 115,000 job cuts since the WHO declared Covid-19 a pandemic in March 2020. At one point Boeing, Raytheon, and GE planned 65,000 job cuts, although it’s not clear that all took place as the recovery progressed. Such layoffs made sense when air travel was hard hit and airlines rushed to modify plane orders, but such a reduced workforce cannot do its job when, for example, Boeing and Airbus are looking to increase production for their narrow-body jets.

When and where aerospace companies will find the workers they need is not clear. Those laid off may not be available. Many manufacturing companies have met the problem by increased investment in automation, but it’s not that easy to do with aerospace, where even relatively minor changes to

production processes must be approved by the Federal Aviation Administration.

A likely outcome of tight labor markets, and difficulty with supply chains, is further consolidation in aerospace, and further acceleration of efforts by the larger manufacturers to bring more of their supply chains in-house.

Raytheon, for example, has sent its own personnel to work with some 280 suppliers that have had problems meeting delivery schedules because of labor shortages. Raytheon’s Pratt & Whitney division is investing some $650 million through 2027 to build a highly automated facility in Asheville, North Carolina for jet engine airfoils.

Airbus, Safran, and Tikehau Ace Capital recently signed a memo of understanding to acquire Aubert & Duval from mining and metallurgical group Eramet. Aubert & Duval is a supplier of high-alloy forgings for the aerospace industry. The company is a key partner in the development of the next European fighter jet.

It should be noted that Russia is an important supplier of titanium to the aerospace industry, and Safran, for example, buys a significant portion of its titanium supplies from Russia’s VSMPO-Avisma Corp. [Thanks to Bloomberg for most of this information.]

The pandemic, with all its attendant problems, will likely serve to bring about advantageous changes to the global aerospace industry. The U.S. National Transportation Safety Board will be supported on the ground in China by Boeing’s technical team, and China’s Civil Aviation Administration.

There is as yet little more to report on this than what has already been global news. n Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.

Manufacturing Outlook / April 2022

41

ENERGY OUTLOOK

APRIL 2022

ENERGY OUTLOOK

Nuclear Coming Back, Smaller

by Jocelyn Bright Nuclear energy hasn’t had good press over the last little while. It’s expensive, takes forever to build, and there are leaks and accidents. In short, it has a reputation as being “risky.” Its share of the world’s electricity production fell from 17.5 percent in 1996 to 10.1 percent in 2020.

With the ongoing climate change issue, governments are taking a second look. Nuclear is fighting back against (presently) expensive oil and

gas, with a new generation of small modular reactors (SMRs) designed to be cheaper, quicker to install and less financially risky to build. Russia has tried it, and China is looking to start its first commercial SMR in Hainan by 2026. Last year the UK government said it would quicken plans to build 16 SMRs designed by Rolls-Royce.

Nuscale Power in the U.S. hopes its first SMR, to be built at the Idaho National Laboratory, will be providing power by 2029. The International

Atomic Energy Agency says some 50 SMR designs are being worked on around the world.

The reactors, as the name suggests, are smaller than standard nuclear plants, and are intended to produce less than 300 MW of electricity, or roughly a fifth of that from a standard reactor.

In a large reactor, most parts are assembled in the field where there may be 8,000 people on the site. Nuscale, whose plants are designed to produce continued

42

Manufacturing Outlook / April 2022

ENERGY OUTLOOK 77 MW of electricity, hopes to move as much of the work as possible into special factories for later site assembly.

Having a regular supply of work in one place means no need to train a new team of construction workers for every plant. Nuscales’s design has a 23-meter-tall lozenge-shaped reactor vessel that sits in a steel-lined subterranean pool of cooling water and is capped by a reinforced-concrete reactor building. Several plants can be combined into a large power station, or a few used to provide power to a single site. Individual reactors can be switched off for refueling while the rest keep running.

Royce says the reason they’re at 470 MW is that’s the most power they can get while keeping every component fitting on a truck. R-R hopes that when and if its production line is up and running, each of its SMRs should cost £1.8 billion ($2.4 billion) and take around four years to build.

Roll-Royce’s SMRs go a little beyond small, to 470 MW, or more than most of the nuclear power stations Britain began building in the 1950s. Rolls-

The International Energy Agency points out that once the need for storage or backup generation is taken into account, renewables are

Nuscale, Rolls-Royce, and the China National Nuclear Corporation have had interest for their reactors from Kazakhstan, Poland, Romania, the U.S., the Czech Republic and Turkey.

Even though the costs still look huge, these days nuclear power is looking less expensive than it did.

more expensive than initial costs suggest. The Ukraine conflict has done away with “normal” energy policy and prices. It still remains to be seen whether SMRs can help make nuclear power attractive again, but certain companies and governments are giving it their best practical and financial shot.

Britain’s Prime Minister, Boris Johnson, was in electioneering mode recently when speaking about nuclear and other forms of energy, stating that initial forecasts in December 2020 saw the SMR technology up and running by the early thirties, but that he wants to move quicker, and to have it in place and contributing to the grid by 2030. He wants 25 percent of Britain’s energy mix to be nuclear by 2050.

The government recently announced funding to develop SMRs, matched by private investment, of £210 million ($276 million.) Electricité de France, EDF, is already building one new large-scale nuclear power plant in Southeast England, with an agreement from the government on another by 2024.

Johnson said that the U.K. failed for a generation to put in enough long-term electricity supply, a colossal mistake he said. He obviously wants to be the person to put all this right.

With the money and technical expertise involved in development of SMRs, it is more than likely that something positive will spring from it. [Thanks to The Economist and Jocelyn Bright, Bloomberg] n Staff Writer

Manufacturing Outlook / April 2022

43

AUTOMOTIVE OUTLOOK

APRIL 2022

AUTOMOTIVE OUTLOOK

by Lawrence Makagnon We Need To Talk About Batteries

News these days in the automotive sector consists largely of who’s coming out with new EV models, who’s starting up a new EV company and failing to meet their production predictions, who’s cutting back on production because of a lack of chips, and recently, particularly, who’s looking for a site to start producing batteries for EVs. Companies are forming joint ventures, and still looking for sites to produce EVs. But these days the battery supply is making as much news as anything, apart from the war, that is, and its effect on the supply chains for the auto

44

industry. Ukraine, for example, is a major supplier of wire harnesses that power auto electrical systems. Plant shutdowns in the country could lower European car production by as many as 700,000 units in the first half of the year. VW warned it will need to revise its outlook if it’s unable to get wire harnesses for three or four weeks.

S&P Global Mobility, an analyst group, recently lowered its 2022 and 2023 estimates for global automobile production each by 2.6 million vehicles,

thus forecasting 81.6 million units for 2022 and 88.5 units for 2023, and a possibility of them going to 4 million units below earlier projections. The semiconductor shortage may worsen, in addition to problems with the aforementioned wire harnesses from Ukraine, which is also a supplier of neon gas for chip manufacture. Russia is a key supplier of palladium. Toyota, VW, and Tesla have recently idled factories.

A recent Bloomberg article on China’s Contemporary Amperex Technology Co. continued

Manufacturing Outlook / April 2022

AUTOMOTIVE OUTLOOK Ltd. (CATL,) which supplies 30 percent of the global battery market, said that the company is looking at sites across North America for a huge $5 billion project to supply customers including Tesla.

Those ubiquitous “people familiar with the matter,” who of course asked not to be named, say the company is aiming for a factory to produce as much as 80 gigawatt-hours of batteries per year, a facility that would eventually employ as many as 10,000 workers. These same people said that executives from CATL recently held meetings in Mexico. CATL is also considering the U.S. and Canada, but has concerns over the “availability of labor and other trade issues.” No comments were forthcoming from CATL, but it is considered possible they will look very closely at the U.S. The U.S. is making efforts, and allocating billions, to reducing the auto industry’s battery reliance on China, but in any event, it will take some years for such U.S. capacity to come online. China makes 74 percent of global battery output.

With all the automakers looking to electrification, there is an unprecedented demand for batteries, hence for the metals such as nickel, cobalt, and lithium in them. Prices are up accordingly, prompting Tesla to switch to lithium iron phosphate (LFP) for short-range vehicles.

CATL dominates the LFP market, and supplies Tesla’s Shanghai factory. These “people” say the new CATL plant would produce both nickel-manganese-cobalt and LFP batteries and would supply Tesla and other automakers. BloombergNEF (New Energy Finance) calculates that CATL has presently 145 gigawatt-hours of battery manufacturing capacity, and has announced a further 579 by 2026.

The company supplies Daimler Trucks, BMW, Stellantis, and BAIC Motor Corp.

(China) among its worldwide clients.

Tesla presently makes battery cells in

California, and is preparing to open plants in Austin and Berlin. Bloomberg News recently reported that Tesla secured an undisclosed deal with Brazilian miner Vale S.A. for a multi-year nickel supply deal from Canada.

U.S.-European automaker Stellantis is getting together with South Korea - based LG Energy Solution (LGES) to make EV batteries at a new plant in Canada, reputedly the largest ever investment in Canada’s auto sector. The JV plant, at $4.1 billion, will be built in Windsor, Ontario, and will supply batteries for a large portion of Stellantis’ North American EV production. The Ontario facility will have an annual production capacity in excess of 45 GWh and will employ 2,500 workers.

It is scheduled to start operation in 2024.

LGES announced separately that it would spend $1.4 billion to build a factory in Arizona to make batteries for both EVs and toolmakers in North America.

Stellants’ CEO, Carlos Tavares, recently said his company is aiming to sell five

million EVs or 50 percent of battery EV sales by the end of the decade in Canada and the U.S. In Europe, Stellantis announced battery manufacturing plants in France, Germany, and Italy, and is planning for all vehicles - including Jeep, Peugeot, Citroen, Opel, Fiat, and Alfa Romeo to be electric by 2030. The aim is for 400 GWh by 2030.

Sweden’s Northvolt will build a battery factory in northwestern Germany to produce 60 GWh, and Vietnam’s EV company Vinfast, will break ground later this year on its first North American plant in North Carolina, where it will create 7,500 jobs and will invest $2 billion, as a first phase.

And last, certainly not least, Ford announced further EV plans for its Cologne factory, and VW confirmed it is expanding its strategic alliance with Lawrence Makagon, Ford in EVs. n Staff Writer

Manufacturing Outlook / April 2022

45

CYBER SECURITY OUTLOOK

APRIL 2022

CYBER SECURITY OUTLOOK

“Liance” Is Not “Compliance”, So Go All The Way

By Ken Fanger, MBA, CMMC-RP, President, On Technology Partners

continued

46

Manufacturing Outlook / April 2022

CYBER SECURITY OUTLOOK I remember years ago I read a comic strip of Scott Adams’ “Dilbert” where the entire team was sitting around a table discussing how they were going to reach the quality standards ISO 9000 and QS 9000. At this meeting, the pointy-haired boss tells everyone that they would need to falsify all the documents and goes on to state everything that they would need to fake. It ended with one of my all-time favorite quotes: “Remember you can’t spell compliance without liance.”

That quote stuck with me because it is so true to many of us. Many times, we are performing compliances for reasons like requirements for selling to our major customer or having it forced upon us by the federal government—I know this feeling well because CMMC (Cyber Maturity Model Certification), a compliance standard I’ve been working on, is exactly like this in every way. So, I certainly understand how tempting it is to see compliances as pains that just need to be avoided and checkboxes that just need to be checked.

Since compliances are viewed as a nuisance in many cases, it can be much more appealing to just wing it and go with your gut; you want to get the compliance without the “liance”, so to speak, and you do not give it your all. I have done this myself, and it sure gets things done quickly. That, however, only works until it does not. When it stops working and you have done things by the gut, things go very badly, very quickly.

It may make sense that not having structure can lead to devastating outcomes, but we never talk about how having such structure leads to good outcomes. I want to take a moment to tell a story I heard about a successful implementation of compliance that helped the company survive a customer mistake. They are a midsize manufacturing company that implemented quality compliance standards. It was a pain in the beginning because we all know how frustrating it can be to follow other people’s orders, but they did what they had to do. This company made the decision to become compliant and all of the headaches that entails.

After changing their culture to one of compliance, they now had very thorough records on their full production process. Then, one day, a customer sent them faulty ordering information that resulted in an incorrect product build. The customer blamed the company for the mistake and said that they would not pay for the shipment, which was large enough that it would have hurt the company badly.

This mighty little company had all their documentation showing that they had followed each step of the process exactly as the customer had requested. Slowly, the customer grudgingly admitted that it was their error and they would need to pay for the product provided.

Had they not followed their quality compliance process, they would have been on the hook for hundreds of thousands, if not millions, of dollars.

The quality compliance process that they hated in the beginning saved them in the end.

Over the past year, I have been working directly on the new CMMC from the Department of Defense, and the main thing that I have learned is that they are expecting all defense contractors to adopt a culture of security.

It is not going to be enough that you just hit all the checkboxes—you will need to also make it a part of your life.

As I mentioned, it can truly save your company if you do it.

Let me share with you one more thing if you are thinking that you can have

compliance without “liance”: The federal government is very focused on protecting the industrial base of the country, and with the new possibility of war, they will take it very seriously. If you choose to go the “liance” route, then the government will come after you for 2.5 times the value of the contract. They did it to Cisco, which means it could happen to anyone not up to par on their compliance. They are looking for test cases to prove they are serious, and you will want to avoid being that test case.

Contact us at https://ontechnologypartners.com/contact/ if you have questions or need help with securing your technology. n Author profile: Ken Fanger, MBA has 30 years of industry experience in the fields of technology and cyber security, and is a sought-after CMMC Registered Professional, helping manufacturers and contractors to meet DoD requirements for CMMC compliance. He is passionate about technology deployment, and his MBA in Operations & Logistics has helped him to be an asset in the designing and deployment of networks to enhance the manufacturing experience.

Over the past 5 years, he has focused on compliance and security, including working on the SCADA control system for the Cleveland Power Grid.

Mr. Fanger works with each client to identify their unique needs, and develops a customized approach to meeting those needs in the most efficient and cost-effective ways, ensuring client success.

Manufacturing Outlook / April 2022

47

ISSUES OUTLOOK

APRIL 2022

ISSUES OUTLOOK

by Royce Lowe

Trading Partners It’s been almost six years since the British public was guided down a winding path, strewn with misinformation, even lies, to vote in a referendum to leave the European Union. People haven’t stopped talking about it yet; they may never. As reported by Bloomberg, Britain’s Office for Budget Responsibility (OBR) says that Brexit has left Britain a “less trade intensive economy” because the nation has “missed out on much of the recovery in global trade.”

The government’s independent analyst was reporting on the state of the economy for Chancellor of the Exchequer Rishi Sunak’s Spring statement to Parliament. Its

48

Manufacturing Outlook / April 2022

calculations indicate that trade as a share of GDP has fallen 12 percent since 2019, a drop 2.5 times more than any other Group of Seven country. The OBR slammed the government’s “Global Britain” project - defining the nation’s role in the big, wide world - adding that while more business with other countries could make up for some of the decline in trade between Britain and the EU, “none of the agreements concluded to date are of a sufficient scale to have a material impact on our forecast.” It is estimated that UK trade volumes were 15 percent lower than they would have been if Britain had stayed in the EU. Sunak, following his minibudget, defended it against criticism,

but this did not alter the fact that Britain’s present tax burden is at its highest since 1949. A pledge to cut income tax in 2024, the year of the next election, is obviously a ploy to get votes at the time.

Things are not good in the U.K. at the moment. The chancellor, who may be pushing to replace Johnson, distanced himself from the Prime Minister’s recent speech where Johnson said, “It’s the instinct of the people of this country, like the people of Ukraine, to choose freedom every time.” The speech prompted Guy Verhofstadt, the former Belgian PM, to describe the remarks as “insane.” continued

ISSUES OUTLOOK It’s almost six years since the referendum vote for Britain to leave the EU, and following what must be hundreds of thousands of hours of debates and negotiations, it seems there’s never a good time to leave the EU. The U.K. government is debating whether to delay planned checks on imports from the bloc, the fourth extension in rules that are part of its Brexit package. Ministers are worried about adding more costs to businesses and consumers at the moment when households are suffering from the cost of living. Brexit Opportunities Minister Jacob Rees-Mogg (yes, that really is his name) is among those urging Prime Minister Boris Johnson to further extend a grace period on imports that’s due to end in July.

One thing leads to another in this fiasco called U.K. - EU trade, the latest fly in the proverbial ointment being the firing by P&O Ferries Ltd. of its entire seafaring crew in the U.K., 800 staff, with no warning, via video, with plans to replace them with cheaper foreign labor. P&O

Ferries is responsible for transporting thousands of trucks across the channel each day. The company said it needed major changes to recover from the financial chaos inflicted by Brexit and Covid-19. Sailing won’t be smooth for a while.

Another trade issue that was bothering Britain has finally been settled. Washington and London reached an agreement to ease tariffs on British steel and aluminium, resolving a longstanding irritant in the two nations’ trade. The agreement, effective June 1st, will allow duty-free entry of 500,000 tons of British steel into the U.S., with larger amounts subject to tariffs. The U.S. had already reached similar deals with the EU and Japan, raising speculation that the U.K. was made to wait in punishment for its handling of post-Brexit tensions in Northern Ireland. There have as yet been no discussions of a formal U.S.-U.K. trade deal. Britain touted such a trade deal as one of the major benefits of Brexit.

A recent report by the United Nations Conference on Trade and Commerce (Unctad) said that global trade will likely slow from the hectic pace of 2021, under inflationary pressures in the U.S. and real-estate instability in China. International commerce ended 2021 on a solid note, hitting an annual record of $28.5 trillion, or 25 percent up on 2020, 13 percent up on 2019.

Preferences during the pandemic for home merchandise rather than travel and leisure purchases were evident, with goods up 27 percent on the year, and services up 17 percent.

The solid trade growth of 2021 brought a less-positive aspect, namely bigger imbalances. The U.S. trade deficit in goods widened to 5.2% of global merchandise trade compared with 4.3% before the pandemic, while China’s surplus rose to a 4.5% share versus 3.5%, according to Unctad. n Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.

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