Manufacturing Outlook November 2023 by Manufacturing Outlook

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FEATURE STORY: WHAT MFG CAN LEARN FROM M&A THE WAY FORWARD PAGE 12

AEROSPACE OUTLOOK PAGE 36

GDPNOW NOMINAL GDP VS REAL GDP

ISSUESOUTLOOK

PAGE 16 PAGE 18

OCTOBER ISM PMI: 46.7%

[

CASS TRANSPORTATION INDEX

PAGE 46

Released November -The Full Executive Summary Report On Business - Page 20

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Publisher LEWIS A WEISS Editor in Chief TIM GRADY Creative Director CRAIG ROVERE Contributing Writers ROYCE LOWE TIM GRADY CHRIS KUEHL CHRIS ANDERSON CHRISTINE CASATI KEN FANGER DAVID BRAUN KENNY KLINGER Production Manager LINDA HOPLER

TABLE OF CONTENTS

PUBLISHER’S STATEMENT

AFRICA OUTLOOK

Uncertainty Abounds By Lewis A. Weiss

6 GLOBAL MANUFACTURING OUTLOOK

Slight PMIincreases in U.S. And China. Global PMI up a smidgen. Europe, U.K., in doldrums. India charges ahead. By Royce Lowe

8 COVER STORY: THE MANUFACTURING TALK RADIO PODCAST REACHES 10-YEAR ANNIVERSARY AS MOST WATCHED MANUFACTURING PODCAST By Tim Grady

FEATURE STORY: WHAT MFG CAN LEARN FROM M&A THE WAY FORWARD By David Braun

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MANUFACTURING TIDBITS

FOUR WAYS MANUFACTURERS CAN BOOST NEW PRODUCT SALES By Kenny Klinger

GDPNOW NOMINAL GDP VS REAL GDP

18 CASS INDEX OUTLOOK by Cass Transportation Systems

20 ISM MANUFACTURING REPORT ON BUSINESS The Manufacturing PMI Is 46.7%

24 Open call for...

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EUROZONE OUTLOOK Contraction Continues By Royce Lowe

34 ASIA OUTLOOK New Export Controls – Perceived Threats By Christine Casati

36 AEROSPACE OUTLOOK Engines Galore By Royce Lowe

38 ENERGY OUTLOOK

By Tim Grady

© 2023 All Metals & Forge Group LLC. 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 All Metals & Forge Group LLC.

Morocco’s Turn By Royce Low

NORTH AMERICA OUTLOOK

Windy Issues By Royce Lowe

40 MATERIALS OUTLOOK Keeping It Clean By Royce Lowe

AUTOMOTIVE OUTLOOK Caddies and Hybrids By Lawrence Makagon

44 CYBER SECURITY OUTLOOK Verification and MFA Are the Backbone of Cyber Security By Ken Fanger

46 ISSUES OUTLOOK Go by Train? By Royce Lowe

Readings Continue to Provide Mixed Signals By Dr. Chris Kuehl

28 LATIN AMERICA OUTLOOK Mexico’s Ladies in Waiting by Royce Lowe

Manufacturing Outlook /October 2023

PUBLISHER’S STATEMENT

Uncertainty Abounds Now that the uncertainty has been settled about the Speaker of the House, that means something can happen in Congress. Whether that is good or bad is often debatable, but it is one more piece of uncertainty that manufacturers will have on their plate. More uncertain is the economy. One or two indicators of the more than two dozen that economists watch that indicate a recession is at hand has turned into 6 or 7 indicators. New orders continue to contract, albeit slowly, interest rates may continue to rise, bond yields are still inverted, the UAW strike adversely affected the Big 3 and their suppliers with shutdowns, consumer confidence is weakening and their savings rate is declining, and unemployment may begin to rise where even a point or two of additional unemployment can flip the economy from expansion into contraction. Once again, we don’t know if a recession will occur, or if it will be short and shallow or long and deep, but the indicators seem to convey that it will happen, and perhaps as soon as Q4 of 2023 (yes, that’s now). The other side of that coin is continued expansion, perhaps lean but not recessionary. While that was the consensus for Q4 2023 and at least the first half of 2024, those bets are being hedged. The result tends to be caution by manufacturers. Consumers drive 68% of the economy, and government spending drives about 20%. Investment spending and export drives the balance. Inflation has caused consumers to use savings or credit cards to balance their budgets, which weakens their conspicuous consumption behavior. They, too, are beginning to hedge. What does that mean for manufacturing? It means uncertainty. When demand softens, manufacturers ramp back. They remain in that pullback until demand shows signs of recovery. Right now, the signs are not pointing toward recovery. They are pointing toward further softening. Common sense would say that it is time to reduce inventories (which has been happening for many months already), and keep materials on hand on the low side until raw material costs abate further and demand strengthens. So, 2024 may well be the year when manufacturing goes slow and careful. Recession rarely hits all manufacturing sectors equally. Some may grow or remain stable in a downturn. Semiconductor fabrication plants, also known as foundries that manufacture chips designed by product companies are likely to do well in 2024 when several plants come online. The U.S. chip industry is still in catch-up mode from the Covid demand collapse to present high-demand needs and the shift from offshore suppliers to domestic suppliers. Automotive will be a mixed bag. Weakened consumer demand may create weaker new vehicle demand, but the average age of the 284 million cars in the U.S. hitting a record of 12.5 years means replacement buying is approaching necessity from nicety. Petroleum and Coal Products may improve with the current administration’s thinking to replenish oil reserves and return America to energy independence. The approval of the Pacific Northwest’s natural gas pipeline is a step in this direction. Will the Keystone Pipeline come back from Purgatory? Now, more than ever, a FREE subscription to Manufacturing Outlook is a must-have and a must-read. And, what better place to place your advertising than in a must-have, must-read publication? It is where nearly 10,000 pairs of eyes look once a month to gain insight into manufacturing now and the near-term. If manufacturing is your target market, then Manufacturing Outlook is the place to subscribe and advertise. In challenging times, stretching an advertising dollar for greater impact is a key to success. You can also stretch your ad dollars with a combo ad in Manufacturing Outlook and on the Manufacturing Talk Radio podcast viewed by 5,000 to 25,000 people per episode on YouTube, and heard by more listeners on Apple Podcasts, Spotify, Google Play, iHeartRadio, and 20 other podcast listening apps. Contact us for more information. n 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. SIGN UP FOR YOUR FREE SUBSCRIPTION

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MANUFACTURING OUTLOOK

continued Manufacturing Outlook /October 2023

MANUFACTURING OUTLOOK

GLOBAL MANUFACTURING OUTLOOK SLIGHT PMI INCREASES IN U.S. AND CHINA. GLOBAL PMI UP A SMIDGEN. EUROPE, UK, IN DOLDRUMS. INDIA CHARGES AHEAD. By Royce Lowe Orders are plummeting in Europe, and job losses accelerating. The eurozone’s biggest player, Germany, seems stuck in a rut. Its PMI was sub-40. But there are signs that the “bottom may be in sight.” There was increased confidence in the U.S. and an increase in PMI to just below the 50 mark. Production and new orders were up for the second consecutive month in China, but employment was down. Business confidence in China is muted. Production was up in China, India, and the U.S., but down in Europe, the UK, Japan, Canada, and Brazil. India shows a solid, continuing increase in selling prices, and a further expansion in new orders, production, and employment. The Watch (previously known as ASIS) suggests a strong durable goods scene, with non-durables slowing for the next few months. There is some inventory overstocking. Non-residential and multi-family construction is looking good for the next little while, with some concerns about project delays due to financing issues. Fabricated metals, and primary metals, show a good degree of strength for the next 12 months. There has been some “flattening out” of that curve that was tending to drop, of late.

Steel users across the globe see Asia continuing to support the sector with increases in new orders and production, and Europe suffering a steeper downturn than the U.S. Aluminum users see a further decrease in new orders and a fast fall in employment levels. Asia and the U.S. are on a par, with Europe way down. Copper users are seeing a faster drop in new orders, in fact, the sharpest drop since January, amid a global decline in production, that in Asia continues to expand. Non-ferrous metal prices on the LME are showing little movement these days, but mid-September showed nickel at $8.30 per pound, down $0.6 per pound from a month ago. The situation in the U.S. improved somewhat in the past month, as exemplified by better performance and improved confidence. Europe looks like a wait-and-see situation, while things look generally better in Asia than in the rest of the world. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n Manufacturing Outlook /October 2023

COVER STORY

The Manufacturing Talk Radio Podcast Reaches 10-Year Anniversary as Most Watched Manufacturing Podcast By Tim Grady

10 Years Of Manufacturing Information The Manufacturing Talk Radio Podcast is watched on YouTube and listened to on the most popular podcast apps. Averaging 5,000 to 25,000 views on YouTube and thousands of additional listeners per episode on podcast apps like Google Play, Apple Podcasts, Spotify, and nearly two dozen other listener platforms. Launched on November 4, 2013, the iconic podcast has reached its 10th broadcasting anniversary as the most-viewed or heard weekly manufacturing podcast. The talk show format is geared to all executive and employee levels within manufacturing, including supply chain partners and customers of the more than 600,000 manufacturers across

the U.S. The podcast is also popular in many other countries as the Voice of Manufacturing Globally. “When we launched Manufacturing Talk Radio, it was a marketing tool to help promote sponsors of the show. All Metals & Forge Group was the first sponsor and remains a sponsor today. But the podcast took on a life of its own as notable people from the industry, academia, federal, state, and local elected officials, and directors of industry associations began to take notice and appear as guests on the show. One of its key attributes is that it is not a ‘gotcha’ interview. It is a friendly conversation to help people in the myriad of manufacturing positions make more informed decisions and keep pace with an industry filled

with digital disruption and rapid evolution,” said Lewis A. Weiss, founder of the podcast. “We have had guests tell us that their appearance on Manufacturing Talk Radio brought them more business leads and industry awareness than any other marketing channel they have used, so the episodes, now over 800, still provide that marketing value along with the opportunity for guests to speak in general terms about developments in this dynamic ecosystem.” When the Manufacturing Talk Radio Podcast launched, its first guest was Brad Holcomb, who was Committee Chair for the Institute of Supply Management’s Manufacturing Report on Business(R) at that time, to go beyond the headline Purchasing Mancontinued

Manufacturing Outlook /October 2023

COVER STORY

Hosts Lew Weiss and Tim Grady

ager’s Index number and share ISM’s understanding of the subindexes that make up that top-line figure. The manufacturing subindexes are New Orders, Production, Employment, Supplier Deliveries, and Inventories in production plants. Each month, ISM continues to present an in-depth discussion of the Manufacturing Report on Business(R) with Tim Fiore, the Services Report on Business(R) with Anthony Nieves, and the Semi-Annual Forecast released in May and December with both of these committee chairs. The ISM Manufacturing and Services Indexes are a monthly gauge of the level of economic activity in the U.S. manufacturing and services sectors versus the previous month. “The detail in the subindexes gives manufacturers and service providers a good read on the recent past ebb and flow of the industry as a whole, and their sector in particular, and has proven to be a potential forecasting tool when the data is compared to previous expan-

sion and recession cycles,” said Wiess. “We are grateful to the ISM for their continued involvement with us over this exciting 10-year growth period.” “Our mission has been, and continues to be, to share information that manufacturers and service companies can use to add to discussions within their operations to make more informed decisions. While we have fun doing it, with some occasional levity in our discussions with guests, we are intensely careful to convey accurate and reliable information without political positions overriding reason,” Weiss said. “Manufacturing does not like uncertainty, and we are in an unfortunate cycle of much uncertainty, caught between forecasts or recession and expansion, inflation and high employment, inverted bond yields, consumer uncertainty, and other factors that make 2023 and 2024 a kaleidoscope of unpredictable possibilities. This is why we continue to produce the Manufacturing Talk Radio Podcast and its

more specialized podcasts, including The Flagship Report with noted economist Dr. Chris Kuehl, Manufacturing Think Tank with Cliff Waldman, Moser on Manufacturing with Harry Moser on Reshoring, and Hazard Girls with Emily Soloby and women discussing their roles in non-tradition fields,” he said. “To further enhance the message, we also publish a free monthly ezine called Manufacturing Outlook that dovetails with Manufacturing Talk Radio by discussing the outlook for various manufacturing sectors, and how economies around the world are performing, since imports and exports and a major component of the GDP of many countries. Between Manufacturing Talk Radio and Manufacturing Outlook, we present information that can be used worldwide,” said Weiss, who is also the publisher of Manufacturing Outlook. Built in “Outlook” sections, the forward-looking, forward-thinking digi-

Manufacturing Outlook /October 2023

continued

COVER STORY

tal magazine provides the “Outlook” for manufacturing in North America, South America, Asia, Africa, Europe, the Aerospace industry, Automotive, Cyber Security, Energy, and special discussions on burning issues, developments in graphene, manufacturing raw materials, and unique Manufacturing Tidbits on a wide variety of unusual topics, such as Movie Manufacturing in Hollywood. As a free subscription, it’s a real deal,” remarked Weiss. “We look forward to continuing and expanding Manufacturing Talk Radio as a marketing channel, information medium, and umbrella network of many more specialized podcasts to serve the manufacturing industry and services sectors as inclusively in content as possible,” Weiss concluded.

10 Manufacturing Outlook /October 2023

About Manufacturing Talk Radio: Manufacturing Talk Radio is a weekly podcast presenting breaking news, technology developments, business trends, and economic forecasts with industry experts, business executives, thought leaders, academics, association officials, and government representatives about the topics of greatest interest to small, medium, and large manufacturing companies. Hosts Lew Weiss and Tim Grady create casual conversations with guests that are in-depth, insightful, and informative to educate and often entertain any listener working in or aligned with the manufacturing industry. It averages 5,000 to 25,000 viewers per episode on YouTube, plus thousands of additional listeners on Apple Podcasts, Spotify, Google Play, iHeartRadio, and many other podcast apps.

About Manufacturing Outlook ezine: Manufacturing Outlook is a forward-looking, forward-thinking, free subscription digital magazine (ezine) published for industry and available at https://manufacturingoutlook.com/ the-latest-issue/ for readers interested in the near-term future of manufacturing. It provides the “Outlook” for manufacturing in North America, South America, Asia, Africa, Europe, the Aerospace industry, Automotive, Cyber Security, Energy, and special discussions on burning Issues, development in Graphene, manufacturing raw Materials, and unique Manufacturing Tidbits on a wide variety of unusual topics, such as Movie Manufacturing in Hollywood, reaching nearly 10,000 subscribers. Author profile

- Tim Grady is Editor-in-Chief of Manufacturing Outlook and a host on Manufacturing Talk Radio. He can be reached at timgrady@ mfgtalkradio.com. n

ISSUES OUTLOOK

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Manufacturing Outlook /October 2023

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FEATURE STORY

What MFG Can Learn From M&A By David Braun In the nearly three decades our firm has been providing M&A advisory services, we have had the good fortune to work with many manufacturing companies. Over the past few years, we have seen a bit of a renaissance when it comes to manufacturing. Customers recognize they need to have good manufacturing resources and want to have them lined up in a meaningful way so that they have the

12 Manufacturing Outlook /October 2023

flexibility to adapt to situations like the tight squeeze the COVID pandemic put on supply lines. When it comes to helping them navigate their strategic growth needs, we often find there are an abundance of opportunities and the bigger challenge is deciding which ones to focus on. Which companies do they want to spend time on potentially acquiring or

partnering with? Which target prospects are considered the most meaningful? Many factors will play a part, including risk factors, timing, and opportunity. In the current economic environment, there seems to be a bit of a divide among types of manufacturing companies. Some remain exceptionally good at their primary task of manufacturing production. Others have become quite continued

FEATURE STORY adept at assessing the marketplace; understanding their customers’ needs and knowing what they will want in the future. The difficulty is being good at both. These are some lessons learned over many successful deals and negotiations that may prove helpful: Consider the concept of “aggregation.” The concept is to introduce a new factor into the equation whereby the aggregator agrees to handle customer relationships as well as provide the necessary pathways required for that level of customer management. Amazon could be viewed as the ultimate aggregator where they often neither make nor deliver the products but do control the customer relationship including selection and purchase process, product fulfillment, and avenues of distribution. On the acquisition side of manufacturing, companies are first looking to expand their geographic footprint to serve their customers on a more regional and national basis. For some companies, this has even meant expansion beyond the boundaries of the U.S. because their customers are demanding an international presence. This doesn’t mean the manufacturing itself will relocate, but it does mean the potential expansion of assembly, storage, or warehousing facilities. Understand the inherent value in valuation. Where acquisitions are concerned, there is always the question of valuation, and what a business is truly worth. In a rising interest rate environment, it’s easier to have realistic valuation conversations because the cost of borrowing goes up and valuations tend to normalize. Many owners are not familiar with the

valuation process so educating them or even bringing in a third party to conduct the valuation will make for a much smoother dealmaking process. Buyers also need to be sensitive to the fact that owners only get to sell once, and they have often had several generations pour blood, sweat, and tears into building a business, so it is a deeply emotional transaction. The present is the time for succession planning. By far, the biggest challenge we are seeing right now across the manufacturing industry is so many owners being challenged with succession plans. Many of the business owners we speak to are over 65 years of age. Many of them do not have children who are interested in taking over the business or any other heir apparent. If the next generation is unwilling or unable to step in, that’s when it is time to consider the “sell-side” equation. How can these family-run businesses, which have outrun their family, find a meaningful home? And how should we define or describe a good prospective buyer? Existing owners usually would prefer to sell to a company whose leadership values the capabilities and investments required to keep those manufacturing businesses moving forward. Any buyers or potential buyers should know they will have to maintain the same level of investment in people and technology that the previous owners used to drive the company’s success. This will be especially true in technology where automation, data analytics, predictive modeling, robotics, and cybersecurity are all now essential to keeping a manufacturing enterprise running smoothly in the digital age. Be proactive about your talent pool. Finding skilled people in manufac-

turing is very difficult and company owners often list talent as among their top priorities. How do you keep current staffing levels up to meet demand and avoid a slack-off in production, as well as make sure there is an adequate pipeline to meet the needs of the future and replace retiring workers? Manufacturers will not survive if they wait for talent to find them. They must make an active effort to go out and find talent. To do this, there needs to be a relationship between manufacturers and communities. Support programs that provide apprenticeships and internships to students who show an early aptitude for this type of career and are not interested in pursuing a traditional college pathway. This is especially true of outreach to women who have traditionally been overlooked by manufacturers but who are showing more and more interest in the technology and hands-on aspects of this type of work. They should seek to create partnerships with the local economic development authorities to build awareness, as well as build relationships with other companies, like those that specialize in professional recruiting. The newspaper classifieds are not the way to find talent any longer; now it is about social media and digital avenues of communication. I am optimistic about the future of American manufacturing, especially with continued advances in technology and offshored jobs returning to domestic facilities. Whether through acquisition, succession, joint ventures, or minority investments, America’s manufacturers can maintain a level of excellence that is a standard, not just a goal. Author profile: Bryan DeBois is the Director of Industrial AI at RoviSys (https://rovisys.com). He can be reached at bryan.debois@rovisys.com. n

Manufacturing Outlook /October 2023

MANUFACTURING TIDBITS

Four Ways Manufacturers Can Boost New Product Sales by Kenny Klinger

Manufacturers rely heavily on their network of dealers and retailers to connect with customers. However, it’s not enough to merely stock products on store shelves. The key to differentiating yourself in a competitive market lies in having a highly motivated and informed sales team. For manufacturing executives, the question isn’t knowing “what” to do but “how” to do it.

14 Manufacturing Outlook /October 2023

Here are four strategies, to ignite genuine enthusiasm among your dealer and retailer sales teams, propelling your product to the top of the charts. 1. Spark Anticipation Through Engagement: Begin by teasing the imminent arrival of something new, and innovative, and make it downright exciting. Stra-

tegically plan your communications to maximize the impact, whether through in-person visits with manufacturer representatives or via your B2B social media channels. Consider having a promotional item made in advance of the product release. Opt for items that combine a practical function with a touch of whimsy, all adorned with the new continued

MANUFACTURING TIDBITS for personal emails or texts from the manufacturer CEO.

product’s image or logo. Whether it’s branded merch like a keychain or a stylish phone or laptop case, the goal is to establish your new product and brand presence before the product even hits the market! Make enough so they can be enjoyed and used by all management and sales professionals at all locations.

Additionally, any product-focused follow-up meetings are an ideal platform to highlight sales achievements for the new product. Encourage your sellers to share their success stories with your marketing teams, ensuring they become part of upcoming newsletters or website blogs.

2. Showcase It Before You Ship It: Set the stage for your new product with a pre-shipment event. This event can take the form of a virtual forum, where your CEO or a top executive showcases the product on camera. Dive into the product’s backstory, its transformative potential, why the release is happening now, and the strategic marketing that guarantees its success. Ensure that all retailers, dealers, and sales professionals are well-versed and excited about the product’s value, applications, and competitive advantages. By timing this unveiling before shipment, manufacturers are equipping the retailer and dealer sales teams with the necessary knowledge to make the most of this opportunity in their customer outreach efforts. 3. Organize an Interactive Forum Upon Delivery: Create a virtual forum with one or more of your product specialists for a live Q&A session with manufacturer product design team members with each individual dealer or many of them at once. This is a critical step once the product has been delivered to answer questions, provide insights, and offer a closer look at the innovation. Use a video platform that will allow you to record it so that those unable to attend can view it later. Having this virtual opportunity will

make a big difference in the enthusiasm levels. When sales teams hear from you at the same time, they can touch it, see the colors, feel its textures and various weights, and see for themselves how it works and will fit when installed. Most importantly, have a retailer/ dealer FAQ page posted on your website and ensure that contact information for manufacturer representatives is readily available. This will make it possible for any additional inquiries to be answered regarding the new product as the sales and customer service process kicks off. 4. Incentivize and Celebrate: If financial incentives or bonuses are tied to new product sales, that, of course, will be structured based on your manufacturer-retailer/dealer agreements. However, once determined and jointly announced, have ways to communicate these incentives clearly so that every store and sales manager knows what to expect. To keep your new product in the spotlight, create a motivating recognition program. Acknowledge the achievements of stores, dealers, and teams who contribute to its success through social media shout-outs, and when possible, for big wins, arrange

Manufacturing companies can’t rely on the iconic movie line “if you build it, they will come” because that isn’t enough. Manufacturers must take proactive steps to ensure product success. It takes a motivated, informed, and enthusiastic team of retailers, dealers, and sales professionals who understand the product’s value, can effectively communicate its benefits, and appreciate its cost-effectiveness. Ultimately, new product launches require a collaborative effort to be a success. Go for it! Kenny Klinger is CEO of Go Flooring, one of the nation’s fastest-growing flooring companies specializing in affordable luxury flooring solutions with enhanced customer services for residential and commercial properties in the Southeast. Under his visionary leadership, Go Flooring has become one of the leading dealers for the world’s two largest manufacturing flooring companies and understands the importance of the manufacturer-retailer-dealer relationship to manage new product launches and optimize sales. Kenny Klinger has led his team in providing convenient and customer-friendly services with an abundant sample-filled showroom, at-home custom shopping, and visual technology to enhance the flooring selection experience for homeowners, builders, designers, and commercial property managers. He can be reached on LinkedIn. n

Manufacturing Outlook /October 2023

MANUFACTURING TIDBITS

GDPNow Nominal GDP vs Real GDP By Tim Grady Something new has been creeping into the GDP numbers reporting. For several months, we have been writing about Real GDP versus nominal GDP estimates and figures from the Bureau of Economic Analysis of the federal government. “Nominal’ is one of those words that allows for a lot of wiggle room. For example, a piece of lumber called a 2x4 is not 2 inches thick by 4 inches wide – that is its ‘nominal’ measure from days of yore when a 2x4 actually was 2 inches thick by 4 inches wide. Today, a 2x4 is 1.5 inches thick by 3.5 inches wide. Multiply that half inch in thickness and width by billions of board feet

produced each year, and your margins increase substantially. It also may have been a way to absorb some costs without increasing prices – just make the product smaller but keep the ‘nominal’ reference.

•

Real GDP measures the value of goods and services in an economy, adjusted for inflation or deflation, providing a more accurate representation of economic growth.

Each quarter, the Federal Government issues its first of three measures of the previous quarter’s GDP. We often hear figures like 2.1% or 3.4% - these are nominal figures. They are modified by several factors. But recently, we are hearing a “Real GDP” number in the news. Capital.com provides a nice bullet-point comparison for clarity and understanding:

•

Nominal GDP measures the value of goods and services in an economy at current market prices, without accounting for inflation or deflation, reflecting the current size of an economy.

•

The main difference between real GDP and nominal GDP is the adjustment for inflation or deflation, making real GDP

16 Manufacturing Outlook /October 2023 continued

MANUFACTURING TIDBITS The switch to reporting Real GDP instead of nominal GDP sounds more encouraging. It makes for a better news headline. Just be aware that a change has taken place from reporting nominal GDP to reporting Real GDP. Nominal GDP is still measured, by it doesn’t make as good of a headline sound bite. more suitable for long-term analysis and comparisons. The Federal Reserve Bank of Atlanta publishes GDPNow. It is their Real GDP analysis. Here is an excerpt of their explanation: “GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the

estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model. Recent forecasts for the GDPNow model are available here.” [https://www.atlantafed.org/ cqer/research/gdpnow]

Now, if the media begins reporting Real Inflation, meaning inflation including food and fuel, we will all have more realistic information from the news - which we already know in real life.

Author profile - Tim Grady is Editor-in-Chief of Manufacturing Outlook and a host on Manufacturing Talk Radio. He can be reached at timgrady@mfgtalkradio. com. n

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Manufacturing Outlook /October 2023

CASS INDEX OUTLOOK

Cass Transportation Index Report by CASS INFORMATION SYSTEMS, INC.

Cass Freight Index - Shipments The shipments component of the Cass Freight Index® fell 4.7% m/m in October, more than reversing the past two months of gains to reach a new cycle low. We note this data set includes automotive, so the UAW strike may have had an impact this this month, which suggests a rebound in the months to come.

similar to prior downcycles in both length and magnitude, except for the pandemic downturn.

On a y/y basis, the index was 9.5% lower in October, after a 6.3% decline in September.

With normal seasonality, this index would be down slightly m/m in November and about 9% y/y.

U.S. freight volumes, as measured by the Cass Freight Index, have fallen y/y in 15 of the past 22 months,

Freight Expenditures The expenditures component of the Cass Freight Index, which measures

18 Manufacturing Outlook /October 2023

The 2023 peak season is off to a muted start, but we think overall freight volumes are better than those in the for-hire sector measured by Cass data, as private fleet insourcing persists.

the total amount spent on freight, fell 2.2% m/m and 23% y/y in October. With shipments down 4.7% m/m, we infer rates were up 2.6% m/m in September (see our inferred rates data series to the right). Seasonally adjusted (SA), the Expenditures index fell 2.4% m/m, with shipments down 2.8% and rates up 0.5%. This index includes changes in fuel, modal mix, intramodal mix, and accessorial charges, so is a bit more volatile than the cleaner Cass Truckload Linehaul Index®. continued

CASS INDEX OUTLOOK pressure on the larger contract market is lessening, with a few instances of contract rate increases bucking the downtrend of late. Freight Expectations We continue to expect modest y/y growth in consumer spending this holiday season, driven by the acceleration in real disposable incomes and the ongoing strong labor market. The recent easing in oil prices improves our confidence that peak season will end on a higher note.

The expenditures component of the Cass Freight Index rose 23% in 2022, after a record 38% increase in 2021, but is set to decline about 18% in 2023 and another 14% in 1H’24, assuming normal seasonal patterns from here. Both freight volume and rates remain under pressure at this point in the cycle. Inferred Freight Rates The rates embedded in the two components of the Cass Freight Index declined 15% y/y in October, after falling 20% in September. •

Cass Inferred Freight Rates rose 0.5% m/m SA, after a 3.3% drop in September. Rate declines have averaged 0.6% per month for the past 22 months.

•

Based on the normal seasonal pattern, this index would fall m/m in November, with the y/y decline widening to 18%.

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With spot rates stabilizing, sequential declines are likely to slow from here, but the freight market is likely to deliver more savings to shippers this holiday season.

Cass Inferred Freight Rates are a simple calculation of the Cass Freight

But general economic conditions remain better than those in the forhire freight market. Although private fleet capacity expansion continues to pull freight from the for-hire market, we think equipment purchasing patterns are changing, which should propel the cycle forward in 2024, even if the broad economy slows.

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 (TL) representing more than half of the dollars, followed by less-than-truckload (LTL), rail, parcel, and so on.

Our outlook for freight markets to keep bouncing along the bottom in the near term, followed by some holiday volatility and a change in trajectory next year, is detailed in the ACT Research Freight Forecast. This service provides in-depth analysis and forecasts for a broad range of U.S. freight measures, including the Cass Freight Index, Cass Truckload Linehaul Index, and DAT spot and contract rates by trailer type, LTL, and intermodal price indexes. We provide monthly, quarterly, and annual predictions for over forty data series over a two- to three-year time horizon, including capacity, volumes, and rates. The ACT Research Freight Forecast is released monthly in conjunction with the Cass Transportation Index report.

Truckload Linehaul Index The Cass Truckload Linehaul Index fell 0.6% m/m in October to 141.1, after a 0.5% m/m increase in September. •

The October level was a new cycle low, but only 0.1% below August, as truckload rate trends have been stabilizing, albeit still finding a bottom.

•

On a y/y basis, the Cass Truckload Linehaul Index fell 8.3% y/y in October, after a 9.1% y/y decline in September.

•

From here, even modest sequential declines would be accompanied by slowing y/y declines.

•

As a broad truckload market indicator, this index includes both spot and contract freight. With spot rates stabilizing over the past several months, downward

How have their forecasts performed? For 2022, ACT’s forecasts for the shipments component of the Cass Freight Index were 97.5% accurate on average for the 24-month forecast period. Our January 2021 forecast, two full years out, was 99.8% accurate. n

Manufacturing Outlook /October 2023

ISM REPORT OUTLOOK

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

ISM PMI at 46.7% for October 2023 Released November 1st ISM PMI for the past 5 years

OCTOBER 2023 46.7%

Expanding Contracting

continued

20 Manufacturing Outlook /October 2023

ISM REPORT OUTLOOK INSTITUTE FOR SUPPLY MANAGEMENT®

Analysis by

reportonbusiness Economic activity in the manufacturing sector contracted in October for the 12th consecutive month following a 28-month period of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®. The Manufacturing PMI® registered 46.7 percent. The New Orders Index remained in contraction territory at 45.5 percent, 3.7 percentage points lower than the figure of 49.2 percent recorded in September. The Production Index reading of 50.4 percent is a 2.1-percentage point decrease compared to September’s figure of 52.5 percent. The Prices Index registered 45.1 percent, up 1.3 percentage points compared to the reading of 43.8 percent in September. The Backlog of Orders Index registered 42.2 percent, 0.2 percentage point lower than the September reading of 42.4 percent. The Employment Index registered 46.8 percent, down 4.4 percentage points from the 51.2 percent reported in September. The Inventories Index decreased by 2.5 percentage points to 43.3 percent; the September reading was 45.8 percent. The New Export Orders Index reading of 49.4 percent is 2 percentage points higher than September’s figure of 47.4 percent. The Imports Index remained in contraction territory, registering 47.9 percent, 0.3 percentage point lower than the 48.2 percent reported in September. The two manufacturing industries that reported growth in October are: Food, Beverage & Tobacco Products; and Plastics & Rubber Products. ISM

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

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

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

MANUFACTURING

PMI at 46.7% ®

PMI

The U.S. manufacturing sector contracted in 2021 2022 2023 October, as the Manufacturing PMI® registered 46.7 percent, 2.3 percentage points lower than the reading of 49 percent recorded 50% = Manufacturing in September. This is the 12th month of Economy Breakeven Line contraction. Of the five subindexes that 48.7% = Overall directly factor into the Manufacturing PMI®, Economy 46.7% Breakeven Line only one (the Production Index) is in expansion territory, down from two in September. The New Orders Index logged its 14th month in contraction territory, and at a faster rate in October.

Manufacturing at a Glance INDEX

Oct Index

Sep Index

% Point Change

Direction

Rate of Change

Trend* (months)

Manufacturing PMI®

46.7

49.0

-2.3

Contracting

Faster

New Orders

45.5

49.2

-3.7

Contracting

Faster

Production

50.4

52.5

-2.1

Growing

Slower

Employment

46.8

51.2

-4.4

Contracting

From Growing

Supplier Deliveries

47.7

46.4

+1.3

Faster

Slower

Inventories

43.3

45.8

-2.5

Contracting

Faster

Customers’ Inventories

48.6

47.1

+1.5

Too Low

Slower

Prices

45.1

43.8

+1.3

Decreasing

Slower

Backlog of Orders

42.2

42.4

-0.2

Contracting

Faster

New Export Orders

49.4

47.4

+2.0

Contracting

Slower

Imports

47.9

48.2

-0.3

Contracting

Faster

Overall Economy

Contracting

From Growing

Manufacturing Sector

Contracting

Faster

*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 Commodities Up in Price: Crude Oil (3); Electronic Components (2); Labor — Professional Services; Labor — Temporary (2); Natural Gas (4); Plastic Resins* (2); Polypropylene; Road Freight* (2); Steel* (4); and Steel Products*. Commodities Down in Price: Aluminum (5); Caustic Soda (4); Copper Based Products; Corrugate Boxes (3); Packaging; Plastic Resins* (17); Road Freight*; Steel* (7); Steel — Hot Rolled (6); Steel — Stainless; Steel Products* (5); and Wood Pallets. Commodities in Short Supply: Electrical Components (37); Electrical Equipment; and Electronic Components (35).

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

ISMWORLD.ORG

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

Manufacturing Outlook /October 2023

continued

ISM Report On Business ®

Manufacturing PMI® New Orders (Manufacturing) 2021

October 2023 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

2022

New Orders

2023

ISM’s New Orders Index registered 45.5 percent. The three manufacturing industries that reported growth in new orders in October are: Plastics & Rubber Products; Primary Metals; and Transportation Equipment.

45.5%

52.7% = Census Bureau Mfg. Breakeven Line

Production (Manufacturing) 2021

2022

Production

2023 70

50.4%

The Production Index registered 50.4 percent. The four industries reporting growth in production during the month of October are: Paper Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; and Primary Metals.

52.2% = Federal Reserve Board Industrial Production Breakeven Line

Employment (Manufacturing) 2021

2022

Employment

2023

ISM’s Employment Index registered 46.8 percent. Of 18 manufacturing industries, four reported employment growth in October: Nonmetallic Mineral Products; Machinery; Transportation Equipment; and Food, Beverage & Tobacco Products.

46.8%

50.4% = B.L.S. Mfg. Employment Breakeven Line

Supplier Deliveries (Manufacturing) 2021

2022

53.1% 2023

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations improved for the 13th straight month in October, as the Supplier Deliveries Index registered 47.7 percent. The two manufacturing industries reporting slower supplier deliveries in October are: Wood Products; and Food, Beverage & Tobacco Products.

47.7 % 30

Inventories (Manufacturing) 2021

2022

2023

Inventories The Inventories Index registered 43.3 percent. Of 18 manufacturing industries, the only industry reporting higher inventories in October is Food, Beverage & Tobacco Products.

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

43.3%

‡Miscellaneous Manufacturing (products such as medical equipment and

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

22 Manufacturing Outlook /October 2023

ISM Report On Business ®

Manufacturing PMI®

October 2023 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

Customer Inventories (Manufacturing) 2021

2022

2023

Customers’ Inventories ISM’s Customers’ Inventories Index registered 48.6 percent. The three industries reporting customers’ inventories as too high in October are: Textile Mills; Plastics & Rubber Products; and Computer & Electronic Products.

48.6%

Prices (Manufacturing) 2021

2022

2023

Prices The ISM Prices Index registered 45.1 percent. In October, the two industries that reported paying increased prices for raw materials are: Nonmetallic Mineral Products; and Plastics & Rubber Products.

45.1% 52.9% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line

Backlog of Orders (Manufacturing) 2021

2022

2023

Backlog of Orders ISM’s Backlog of Orders Index registered 42.2 percent. The three industries reporting growth in order backlogs in October are: Primary Metals; Food, Beverage & Tobacco Products; and Transportation Equipment.

42.2%

New Export Orders (Manufacturing) 2021

2022

2023

49.4%

New Export Orders ISM’s New Export Orders Index registered 49.4 percent. The six industries reporting growth in new export orders in October — in the following order — are: Nonmetallic Mineral Products; Paper Products; Primary Metals; Food, Beverage & Tobacco Products; Fabricated Metal Products; and Miscellaneous Manufacturing‡.

Imports (Manufacturing) 2021

2022

2023

Imports ISM’s Imports Index registered 47.9 percent. The three industries reporting an increase in import volumes in October are: Wood Products; Food, Beverage & Tobacco Products; and Chemical Products.

47.9% ‡Miscellaneous Manufacturing (products such as medical equipment and

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

Manufacturing Outlook /October 2023

NORTH AMERICA OUTLOOK

NOVEMBER 2023

NORTH AMERICA OUTLOOK By Dr. Chris Kuehl

Readings Continue to Provide Mixed Signals Rather suddenly, the threat of recession is back. For the last year, the economy has managed to dodge that bullet, as many had been predicting that this downturn would have occurred as early as Q3 of last year. It has not been the case as growth numbers consistently exceeded expectations (2.6% in Q3, 2.9% in Q4, 2.3% in Q1 of this year and another 2.3% in Q2). The estimate for the third quarter is still close to 3.0%. This is when things start to deteriorate and estimates for the fourth quarter are falling fast. There are several factors feeding this new glum outlook. The impact of the higher interest rates is now being felt, banks have been tightening credit standards aggressively, and inflation has ebbed but is still far too high for the Fed, but perhaps the most important development is the series of self-inflicted wounds that are carrying the overall economy off

24 Manufacturing Outlook /October 2023

the proverbial cliff. The outbreak of major strikes and threatened strikes in sectors in auto production, healthcare, aerospace, and others is costing the economy upwards of $10 billion a week. It is estimated these actions will take a full point off GDP growth. The government is now in total paralysis at a time when steps need to be taken to keep the system functioning and that cost the country $14 billion in 2019 (the last extended shutdown). All of this is convincing investors in stocks and bonds to react. Treasury yields are now as high as they were during the last major recession as the expectation is that interest rates will stay high. The supply chain crisis has faded to some degree but there are still issues. The majority of the business community has been very active in terms of reorganizing by looking at everything from alternative supplier nations to exploring extensive

reshoring. These responses to the crisis have not been without challenges. India, Mexico, and Vietnam have become very popular alternatives to China but they each present their own issues. India’s infrastructure is woefully inadequate. China has 73 ports that can handle modern container ships - all the rest of Asia has 23. Mexico has seen massive levels of development but now has worker shortages and is still affected by political decisions by the government of Andres Manuel Lopez Obrador (AMLO). Vietnam is short of power generation and lacks skilled workers, as well. Reshoring in the US was worth a trillion dollars last year and three times that this year but this is not a rapid process. Labor shortage is a factor and so is having money to build out the capacity needed in machinery and technology. The most vulnerable industries continued

NORTH AMERICA OUTLOOK

are those with complex networks - automotive and aerospace are the classic examples. The major assemblers rely on hundreds of intermediate suppliers and any disruption in any of these will cascade through the entire network as has been seen with the UAW strike impact. There are still lingering issues in the plastics sector. Some of the unique issues have been dealt with but now there is the higher price of feedstock as oil prices rise. There are some silver linings when it comes to the supplier situation. The experiences of the last few years forced a move towards greater diversity. This has been called for over the years as that diversity was the cornerstone of the Just-In-Time system. There were multiple suppliers and a company could shift from one to another easily, but over time, the supplier system consolidated as the best performers started to dominate. In the beginning of the U.S. demand for silicon chips, there were as many as twenty supplier nations and dozens of supplier companies. Today, Taiwan Semiconductor accounts for 60% of all global production and 90% of the modern memory chips needed. The push now is to reintroduce diversity but this is far

easier said than done. These efforts to diversify are dovetailing with the need to bring more control over the supply chain and that promotes rapid domestic expansion. The key limiting factors in the U.S. are very familiar by this point. At the top of the list is availability of workers with the needed skills in the areas where the expansion is slated to take place. The second major barrier is financing. The construction sector had listed worker shortage and commodity costs as the number one and two problems as recently as six months ago but now the availability of financing is at the top of that list, and by all accounts it is going to worsen before getting appreciably better. Inflation has not increased to the levels previously seen. The latest report revealed that the core CPI, excluding food and energy, increased by 0.2% to 4.8% since the first of the year. The rate used by the Federal Reserve is Trimmed Mean Personal Consumption Expenditures (TMPCE), a more reliable measure than the Consumer Price Index. As of May 2023, the rolling twelve-month trend was 4.6%, which is essentially flat. The drivers of inflation have changed in the last year as well.

Today it is primarily driven by labor rates as there have been declines in everything from commodity prices to logistics to producer prices. In recent weeks there has been more commodity price acceleration and slightly less wage pressure. The crucial issue as far as employment is concerned remains worker shortage. There are approximately six million people theoretically in search of work but the vast majority of them are unskilled. There has been a slowdown in job offers as companies have become frustrated with seeking people who just don’t seem to be available. The most common method for hiring has been poaching from other companies. Lately, there have been more women entering the workforce again but many of them are still demanding the opportunity to work remotely. The U-3 rate of unemployment remains historically low at 3.6% (down from 3.8%) and U-6 is now at 6.7%. The U-6 measure includes discouraged workers and the involuntary part-time. There has been reluctance to engage in layoff activity as it has been so hard to find the appropriate employees, but as pressure mounts, there will be more companies forced to lay people off.

Manufacturing Outlook /October 2023

Commodity prices have been more or less stable but there have been short-term periods of volatility. The producers are looking ahead with some trepidation and worry that an economic slowdown will manifest in 2024 and affect demand. The pricing for copper, aluminum, nickel, and others has been lower of late but there is concern that production cuts will force these numbers back up by the start of next year. Oil has been very volatile as the OPEC+ nations are cutting production. The per barrel price is almost $15 higher than had been predicted with WTI in the high 80s and Brent crude in the low 90s as opposed to the predicted levels in the 70s. U.S. production has started to ramp up but will not make much of an impact for a few more months.

utilities numbers are also up slightly by 0.9%. This is the transition period for utilities - between summer demand and expected winter requirements.

Industrial production was up by 0.4% in the August numbers. The manufacturing part of this data was up a meager 0.1% but this was almost entirely down to a shrinkage in autorelated production. These numbers were down by a full 5.0%. If the decline in automotive is pulled out of the data there was growth of 0.6% in overall factor activity. The automotive decline is entirely attributed to the UAW strike and the impact this has had on the overall industry. Hundreds of suppliers have been idled by the rolling shutdowns and strikes. The tactics used by the UAW have made it even worse for these companies as they can’t predict when they will be producing so they can’t make decisions about their own layoffs. The mining part of the index was up by 1.4%. This is almost entirely the oil and gas sector and it has been growing as the OPEC states continue to restrict production. The U.S. oil and gas sector is growing in response and even the investors are getting interested again. The S&P index on green energy is down by over 25% as investors worry that subsidies for green are going to vanish. That has encouraged more interest in fossil fuels and the investment numbers are up in that sector by over 10%. The

For the past couple of years, the focus for many manufacturers has been the supply chain. It is not necessary to rehash the issues at this point as they are fairly evident. The pandemic seriously undermined the whole concept of Just-In-Time as China struggled to adapt to the lockdown. The expectation was that China would swiftly bounce back after ending the lockdown but that has not been the case, and tensions between China and the U.S. (as well as Europe) have escalated with each passing month. The result is that 96% of supply chain managers now assert they are actively seeking alternatives to China. The reality is that moving away from China will not be easy, and even impossible in many cases. China is not the vibrant economy it once was but it is not in danger of losing its status as the world’s number two.

26 Manufacturing Outlook /October 2023

The capacity utilization numbers climbed a little close to the long-run average with a reading of 79.7. This is extremely close to the level seen as “normal” (between 80% and 85%). This essentially signals that there is very little slack in the system. The majority of companies are using their capacity efficiently but there is still no impetus for new machine acquisition or hiring. That would start to happen when these capacity numbers reached the 85% level. It has been several years since these numbers were achieved and nobody expects that to take place in the next year.

The majority of the manufacturing shift has been to three nations. At the top of the list is Mexico which has now seen growth of 5.4%. Manufacturing exports account for over 85% of the nation’s export volume. Mexico has replaced China as the number one source of imported

material to the U.S. Number two on the list of shifting supply chains is India, which has seen its Purchasing Managers’ Index soar to the high 50s - the best performance in the world. Number three is Vietnam which has seen a 56% increase in investment from the U.S. There is a major initiative underway in Vietnam to develop the manufacture of chips and other high-tech items and much of this has been funded by the U.S. with both public and private money. India is getting infrastructure assistance from the U.S. to improve the connections between major cities like Bangalore, Hyderabad, and Chennai. The major weakness in India has been the lack of reliable infrastructure. The efforts to move away from China have also triggered a great deal of interest in reshoring in the U.S. as has been mentioned elsewhere in this report. All of these efforts have eroded the position China has traditionally held but these initiatives have had their share of inhibitions as well. The primary problem in Mexico has been workforce development, and in India the issue has been infrastructure in the transportation sector. Vietnam lacks the power generation it needs and the U.S. faces problems stemming from workforce deficits as well as the investment capital needed to finance the expansions. None of these are insurmountable problems but solutions will take time. Author profile: Dr. Christopher Kuehl (Ph.D.) is a Managing Director of Armada Corporate Intelligence and one of the co-founders of the company in 1999. He has been Armada’s economic analyst and has worked with a wide variety of private clients and professional associations in the last ten years. He is the Chief Economist for the National Association for Credit Management and is on the Board of Advisors for their global division – Finance, Credit and International Business. n

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Manufacturing Outlook /October 2023

*Toll free within the U.S.

LATIN AMERICA OUTLOOK

NOVEMBER 2023

LATIN AMERICA OUTLOOK By Royce Lowe Mexico’s Ladies in Waiting There’ll be an election in Mexico next June. This will see an end to ALMO’s - Andrés Manuel Lopez Obrador term in office and will open the door for one of the two main candidates to take the reins. In early September, Xochitl Galvez, a 60-year-old senator, was named a candidate for an alliance among three opposition parties, namely the Institutional Revolutionary Party (PRI), National Action Party (PAN), and the Party of the Democratic Revolution (PRD). At the same time, Morena, ALMO’s party, selected Claudia Sheinbaum, the 61-year-old former mayor of Mexico City, as its candidate. Bloomberg and “The Economist” walk us through what could be a very

28 Manufacturing Outlook /October 2023

interesting campaign, and outcome. So one of these ladies will become Mexico’s first female president. At the moment Sheinbaum is leading 44% to 27%, but with a goodly time to election day. These are two bright ladies, with Galvez a computer engineer who founded her own business, and Sheinbaum a physicist with a PhD in environmental engineering. Yes, you read it right, environmental engineering. If Sheinbaum wins, she picks up the baton from a man who is extremely popular in Mexico, and who is very pro-fossil fuels, and like lots of people in Mexico, very pro-PEMEX, the

state oil company that’s often in a real mess. Mexico is the world’s 11th biggest oil producer but is the only Group-of-20 country with no netzero emissions target. ALMO has propped up PEMEX and is trying to dissolve the National Institute for Ecology and Climate Change as an austerity measure. So in light of ALMO’s popularity and policies, whoever becomes president will need to skate around them somehow. Ms Sheinbaum, for example, says she will not deviate from the president’s policy of supporting state-owned energy companies, but she will accelerate the green transition. When the mayor of Mexico City, Sheinbaum electrified the city’s buses and put continued

LATIN AMERICA OUTLOOK solar panels over its biggest market. So she does look like a climate president in the making. Ms Galvez, who comes from a poor indigenous family, has said she will improve public services. She wants to create a state company to develop sources of green energy, and for Mexicans to know more about robotics and AI. Crime must always come into a Mexican campaign. Two-thirds of Mexicans polled say insecurity is the country’s worst problem, up from onethird three years ago. Ms Sheinbaum has an edge here, as the capital’s murder rate has fallen more quickly than the national average, from 16 per 100,000 people in 2018 to eight in 2022. Sheinbaum was raised in Mexico

City by Jewish scientists - her grandparents left Europe for Mexico in the first part of the 20th century - and entered politics full-time in 2000, when López Obrador, then mayor of Mexico City, appointed her his environment minister. She was elected leader of Tlalpan, a borough of Mexico City, in 2015, and then mayor of the city in 2018. In that post, she set a goal of planting millions of trees, piloted home rainwater collection, and ordered her employees to plug the city’s rampant water leaks. She stepped down in June to seek Morena’s nomination as its presidential candidate. She won it in September. She’s a stickler for details as an exacting boss. Mexico, via the Paris Accord, has pledged to cut emissions by 35% by 2030. The country’s largest source of carbon dioxide emissions, some 72%,

Available on

is power generation through fossil fuels. The government is building a sprawling solar farm near the U.S. border, but analysts say the next president will need to make some drastic moves to “find” more clean energy to make a real dent. The country is at a crossroads. It has to make definite climate moves to hold onto its standing in the international community. It has present obligations to the U.S. as an exporter of oil, and further it is in a free-trade deal with the U.S. and Canada. The electoral campaign will be, to say the least, interesting.s Author profile - Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

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Manufacturing Outlook /October 2023

AFRICA OUTLOOK

NOVEMBER 2023

AFRICA OUTLOOK By Royce Lowe Morocco’s Turn Like every other continent participating in the new energy field that we call batteries for EVs, Africa is in there wanting its own factory. It doesn’t have one, but there are steps being taken to put one in Morocco. Of course, it would have to be a gigafactory, of the size that could store at least 1 billion watt-hours of electricity, or about enough to go into 16,000 Tesla Model 3 cars. North America, Asia, and Europe are home to hundreds of such battery factories. China is way out in front when it comes to battery production and has at least 180 large battery factories. Emerging economies such as Mexico and Thailand also have big battery plants.

30 Manufacturing Outlook /October 2023

But to date, there is none of significant size in Africa or South America. Ironically, developing countries on both these continents are important sources of the metals that are essential for producing electric vehicle batteries. This could all change following an agreement announced in early summer between Chinese battery manufacturer Gotion High-Tech Co. and the Kingdom of Morocco. The memorandum of understanding envisions the first factory for EV batteries in Africa, with an annual capacity of 100 gigawatts, backed by an investment of €6 billion ($6.4 billion USD). Gotion is one of the world’s 10

largest battery manufacturers and is listed on both China’s Shenzhen Stock Exchange and Zurich’s Stock Exchange. The next step will be for Gotion and the government to sign an investment agreement. Gotion was not open to further comments. The bulk of the supply chain that transforms the base metals into battery components is found in China, South Korea, Japan, Europe, and the U.S. And there is nothing on the horizon that suggests that this will change in the coming years. No African nation is expected to add any lithium-ion battery manufacturing capacity through 2027, according to the latest report continued

AFRICA OUTLOOK by research firm BloombergNEF that tracks announcements made through October 2022. Morocco ranks 28th out of 30 countries that BloombergNEF tracks for activity in the lithium battery supply chain. In the volatile world of EVs and batteries, there are often doubts as to whether a planned project will be completed. But if so, the Gotion factory in Morocco would be among the world’s largest. It would be equivalent to a third of the capacity of the top global battery manufacturer, China’s Contemporary Amperex Technology Co Ltd., (CATL), and would surpass the current total for installed capacity in the U.S. Africa ranks last in the world as a target for green investment and reputedly produces just 4% of greenhouse gas emissions. But according to Bloomberg, it is among the regions worst affected by climate change. Investment in renewable energy was just 0.6% of the global total in 2021, again according to BloombergNEF, which goes on to say

Available on

that processing battery materials close to the source could help lower supplychain emissions. This is from a report that looked at the cobalt value chain in the Democratic Republic of Congo. A plant to process raw cobalt into cathode precursors that could then be integrated into batteries would cost $39 million in the DRC, or a fraction of the cost in the U.S. while cutting 30% of emissions associated with production. The immediate thought here is that 90% of the DRC’s FDI has to do with the oil industry, as are the majority of the Congo’s exports. In August, Chinese electric vehicle battery manufacturer Huayou said it had plans to invest $20bn into establishing a plant in Morocco’s region of Laayoune Sakia El Hamra. The plant will produce electric batteries for 6 million cars annually. North Africa Post reported in September that Morocco’s private investment fund Al Mada and China’s CNGR Advanced Materials said

they will partner to build an electric vehicle battery plant in Jorf Lasfar worth 2 billion dollars. The two parties announced in a joint statement that construction will start this year for the plant that is planned to be operational in 2025. The firms are reportedly in talks with Morocco’s state-owned phosphates and fertilizer company OCP to secure the phosphates they need for production. Morocco is also reported to be rich in lithium. Morocco has a thriving automotive industry, the product being aimed at Europe. Morocco will be a good manufacturing base in Africa. It’s just to be hoped that not too many companies build too many battery plants. Lest there isn’t a big enough market for the cars to put them in. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

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Manufacturing Outlook /October 2023

EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE OUTLOOK Contraction Continues

By Royce Lowe With the exception of Greece, at a 50.3 PMI rating, all the other countries in the Eurozone were in contraction. Selling prices fell for the fifth consecutive month, and to one of the greatest extents since the 2009 recession. Doctor Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank says, “With the exception of the great recession in 2008/2009, output

32 Manufacturing Outlook /October 2023

prices have never decreased at a pace faster than the current three-month average, and it’s similar with input prices, which fell almost as fast as when oil prices hit rock bottom in the late-90s and during the bursting of the dot-com bubble in 2001. Given how rare falls of this magnitude are, a rebound seems likely. Thus, we might just see goods deflation packing its bags earlier than we thought.”

All eyes in the Eurozone are on its biggest player, Germany, which according to the monthly PMI figures is at the bottom of the league. The country itself is going through strange times, with, according to “The Economist,” the anti-immigrant Alternative for Germany party second in some opinion polls. This goes against Germany’s reputation for welcoming skilled foreigners. Wellknown companies are leaving the continued

homeland, with BASF, the world’s largest chemicals company building a $10 billion state-of-the-art factory in China. Linde, in industrial gasses, delisted from the Frankfurt stock exchange to escape its “cumbersome rules” but kept its New York listing. BioNTech, which helped develop one of the world’s first Covid-19 vaccines, is setting up its cancer research operations in Britain. So at this juncture, as we’ve been often told of late, things don’t look too good for Germany. The tragic side of things suggests German decline is inevitable. But not to Nicola Leibinger-Kammuller, who is the chief executive of Trumpf, a 100-year-old family company that makes industrial tools such as laser cutters and punching machines. The way she sees things is the road through thrift and hard work, leading a path to redemption. And she further believes that this runs through the Mittelstand, the German economy’s enterprising backbone. The Mittelstand, long accredited with Germany’s reputation as an exporting powerhouse, is home to some 3.5 million small and mediumsized businesses. Their size and their products are diverse, and they make anything from chainsaws to industrial software. Trumpf, for example, has 17,000 employees worldwide, and annual revenues of $5.8 billion. There

are smaller, younger companies like Teamviewer, an 18-year-old computer maintenance company with 1,400 employees, or Marvel Fusion, a nuclear-fusion startup founded in 2019. They are diverse but share two important things, namely they are very innovative and they are less gloomy about Germany’s future than many of their blue-chip counterparts. Over 80% of Mittelstand companies say their situation is stable or good, according to a recent survey. Not fantastic, with half the companies reporting falling sales, but hopeful. The Mittelstand continues to hire and invest at home. There are those who find that the current wave of pessimism is way overdone. The German government has been accused of “not keeping up, of putting barriers in the way of innovation, of not being terribly supportive.” But this is changing. The government recently announced a “growth opportunities law,” including a 7 billion euro tax-relief package that will benefit the Mittelstand. And Marvel Fusion still hopes to build a power plant in Germany. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

STEELFORGE.COM Manufacturing Outlook /October 2023

ASIA OUTLOOK

NOVEMBER 2023

ASIA OUTLOOK

By Christine Casati CHIPS AND MORE CHIPS: DECIPHERING SEMICONDUCTOR DEVELOPMENTS IN U.S.–ASIAN MANUFACTURING SUPPLY CHAINS New Export Controls – Perceived Threats On October 17, 2023, the U.S. announced a further tightening of restrictions on semiconductor exports to China, including chip designs and equipment. Gina Raimondo, the U.S. Secretary of Commerce, had advised Chinese leaders during her recent visit that these restrictions were imminent. They do not pertain to lower-end chips in the consumer electronics industries, where U.S. companies such as Intel have thriving sales to

34 Manufacturing Outlook /October 2023

China. They are an attempt to shore up the “gray zone” areas that were not covered explicitly in the controls released a year ago. Those controls were initially designed to prevent the most advanced semiconductors and equipment for high-end AI development by companies such as Nvidia from being used to advance the development of China’s artificial intelligence and military technologies. According to Bloomberg, the U.S.

wants to monitor top-of-the-line chips powering AI models. The Biden Administration does not want to be more restrictive than necessary, which could hurt both the U.S. economy and the Chinese economy. However, stringing together slightly inferior chips or using modular chiplets outside of the restrictions could also be used to replace AI superchips used for supercomputing. This could pose a national security threat. It’s very difficult to protect the same technologies continued

ASIA OUTLOOK

used in commercial exchange from being used in “dual-use” applications, such as weaponry, according to Raimondo. (A chiplet is a sub-processing unit used in a modular approach to building central processing units (CPUs). U.S. companies AMD and INTEL are using this approach in their production. The Chinese have learned it rapidly. China relies heavily on importing advanced semiconductors to make technology goods for both export and domestic use. The expanded rules will give the U.S. more visibility in the flow of U.S.-designed and produced chip-related exports via third parties and other nations and grants the Department of Commerce the right to review export applications within a 25-day period. New restrictions also further limit nations that produce the most advanced production equipment, including Japan, The Netherlands, South Korea, and Taiwan from selling or rerouting these high-end products to China. They also limit exports to China’s most advanced artificial intelligence semiconductor companies, such as SMIC, who are potential rivals to the U.S. company Nvidia. Current and Future Impact of Export Controls Nvidia has stated that it has always complied with existing curbs on its products but has developed and sold millions of Made-for-China chips

in the gray zone. Its annual revenue of sales to China has always been significant and will be curtailed in the future. Its stock price dropped significantly after these additional export controls were announced. It should be noted that Malaysia, Taiwan, and China are the largest sources of U.S. imports and important destinations for U.S. exports of semiconductors. More broadly, East and Southeast Asia are critically important partners for the U.S. semiconductor trade. These new restrictions may, in some cases, make it more difficult for U.S. companies to “play” these markets. They may also curtail the revenue needed for U.S. product development in the long term for companies such as Nvidia. For the time being, sales by U.S. chipmakers to China are stable or surging. Large Chinese customers have recently stockpiled 800-series chips in anticipation of these restrictions. Greater Resilience to Geopolitical Risk According to the Economic Research Publication No. 31 by the Federal Reserve Bank of St. Louis entitled “U.S. Trade of Semiconductors: Cross-Country Patterns and Historical Dynamics” (12/7/22), there has been a decline in the U.S. semiconductor trade deficit with China suggesting a decline in geopolitical risk. But

the U.S. still has a lot of exposure to China, as China is the second-largest recipient of U.S. chips exports and the third-largest source of imports to the U.S. It should be noted that Taiwan Semiconductor Manufacturing Corporation (TSMC) still supplies over 90% of U.S. designed chips, both lower-end and the most advanced kinds, some of which come from TSMC owned and operated semiconductor facilities in China. Growing tensions in the region could increase the exposure to potential conflict and risk. On the other hand, “the mutual dependence between these countries in accessing semiconductors” could lead to a socalled “silicon shield” through cooperation rather than conflict. OUTLOOK: The increasing web of restrictions surrounding China’s access to high-end foreign AI memory chips and related equipment suppliers has accelerated major investments by China into its own semiconductor development. Manufacturers will continue to find ways to string together chiplets to drive AI development. Pouring money into this sector will help drive China’s economic growth and shorten the time it will take for major players like SMIC and Huawei to “catch up” in both the advanced technologies required and higher volume production methods. However, the delicate complexity of these systems will require years of investments in supporting technologies and training. So don’t expect an even playing field anytime soon, even as China remains the largest global customer and consumer of semiconductors, wherever they come from.

Author profile: Christine is co-founder 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 /October 2023

continued

AEROSPACE OUTLOOK

NOVEMBER 2023

AEROSPACE OUTLOOK

By Royce Lowe Engines Galore General Electric, Rolls Royce, and Pratt and Whitney are the three major aircraft engine makers whose products you’ll see when looking out of your plane window. Simple Flying recently gave us a “tour” of the engines that get us from A to B and back again. When buying planes, airlines can choose which engines to go with. Safety isn’t usually a concern, in spite of some recurring issues, so

36 Manufacturing Outlook /October 2023

the choice is normally made based on efficiency and price. The choices airlines have for engines depend on the aircraft type. The engine market is highly competitive, with companies jostling to make the most powerful and efficient engines. As expected, widebody aircraft have more powerful engines, currently topped by the Boeing 777 and the Airbus A350 of those in service. Meanwhile, the GE9X, which is purpose-built for the forthcoming (in 2025) Boeing 777X,

holds the Guinness World Record title for thrust and is officially known as the most powerful commercial aircraft jet engine. Narrowbodies, such as the Boeing 737 MAX and the Airbus A321neo receive constant attention, in efforts to make engines more powerful and efficient, though making them small enough to fit the planes. Such as the efficiency improvements for the A321neo (CFM International’s continued

AEROSPACE OUTLOOK LEAP-1A or Pratt & Whitney’s PW1100G-JM) and 737 MAX (CFM International LEAP-1B). The LEAP here stands for Leading Edge Aviation Propulsion. CFM International is a joint venture between GE and France’s Safran. CFM manufactures the CFM56 and LEAP engines, which can be found extensively on the A320 and 737 families of aircraft. GE has also partnered with Pratt & Whitney to form the Engine Alliance, which made the GP7000 engine for the A380. GE’s engines, including those from joint ventures, can be found on just about every popular commercial jet to date, barring the A350 (for now). This means they’ll be found on the 777, 747, 787, 737, A320, A330, A340, and A380. If you’re flying on a narrowbody, especially the Boeing 737, chances are high that there is a GE power plant under the wing. Pratt & Whitney is the number 2 engine maker, and its engines will be found on the A220, the A320 family, the A330, 747-400s, 767, and Embraer E jets. Pratt & Whitney has had recent great success with its narrowbody engines and has thus been focussing on these. Pratt & Whitney previously partnered with GE for the GP7000, which Gulf carrier Emirates ended up choosing for a majority of its A380s. The manufacturer has also partnered with the Japanese Aero Engine Corporation and MTU Aero Engines to form International Aero Engines. The group has produced the IAE V2500, which can be found on earlier A320 variants and the recently retired McDonnell Douglas MD-90. Pratt & Whitney’s most recent engine has been for the A220 family. It was awarded the exclusive contract for the Airbus project inherited from Bombardier.

Pratt & Whitney actually had engine failure problems a couple of years ago with variants of its popular PW1000G, forcing replacement and accompanying heavy financial losses. However, the company remains dominant in the engine market, especially with the future focus on narrowbody jets and a committed relationship with Airbus.

The three companies mentioned above, along with their joint ventures, hold a nearly 100% market share of the commercial aircraft sector. The airline industry will grow and aircraft development along with it. Work will continue to provide more efficient and less polluting aircraft while looking after the safety of the flying public.

Last on the list, the number three engine maker is Rolls-Royce, which makes engines exclusively for widebody aircraft, with the A330, A340, A350, A380, 777, and 787 featuring RR engines. In fact, the Airbus A350 exclusively features Trent XWB engines. In November 2022, RR delivered its 1000th Trent XWB engine since the Trent XWB-84 entered service alongside the Airbus A350-900 six years earlier.

Since the flying public took off following the pandemic, there have been numerous reports of which companies are buying whose planes, and how many of them. The latest news, via “people familiar with the matter” concerns AIG SA, who are talking to both Airbus and Boeing regarding a potential widebody aircraft order, to replace 777s at British Airways. BA presently operates some 60 777s, 37 787s, and around 13 A350s. It looks like more widebodies, 777X, and options on 50 A350s.

Rolls-Royce jet engines currently go by the name of Trent, with the Trent XWB powering the A350 and the Trent 1000 powering the Boeing 787. That is until its newest and biggest engine yet comes to market. The UltraFan is set to be the largest engine aviation has ever seen, with a dedicated testbed facility in Derby in the UK. (Airbus has announced the A350 neo for 2025 and the Rolls-Royce Ultra Fan would be the ideal engine for it.) Rolls-Royce too has had engine problems from time to time, with the Trent 1000 suffering hiccups over the years, requiring replacements and even worldwide aircraft grounding. The market for aircraft engines is highly competitive. Manufacturers are always looking to innovate and provide engines that are more fuel-efficient and less polluting. The Rolls-Royce UltraFan will be 25% more efficient than the first generation of Trent engines, and its technologies can also be applied to older (and smaller) models.

LATAMAirlines (Latin American) is buying 13 A321neos; United Airlines is looking at 50 787s and 60 A321neos; Air Canada is in for 18 787 Dreamliners, while Air France-KLM will purchase 50 A350s. Meanwhile, American Machinist reports that Air France and Airbus are negotiating the establishment of a new joint venture to provide component maintenance services (maintenance, repair, overhaul, or MRO) for the global A350 fleet. Airbus indicated the partners would have equal ownership stakes and foresee a 2024 start. There are presently 550 A350s in service, 1,000 on order. Never a dull moment up in the air. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

Manufacturing Outlook /October 2023

ENERGY OUTLOOK

NOVEMBER 2023

ENERGY OUTLOOK Windy Issues By Royce Lowe The world’s largest offshore wind farm, Dogger Bank, has produced its first power, according to Norwegian energy maker, Equinor. The offshore wind farm is now connected to Britain’s national grid and is supplying power to Britain’s homes and businesses for the first time. This marks a major advance

in the industry. The Dogger Bank Wind Farm, located 70 nautical miles (130km) off the coast of Yorkshire, is being developed in three phases, Dogger Bank A, B, and C, with a total capacity of 3.6 GW. Power generation began with the first GE Vernova’s Haliade-X 13 MW turbine, one of the world’s largest and most powerful. Each rotation

of the 107m long blades can produce enough energy to power an average British home for two days. Notably, this wind farm utilizes high-voltage direct current (HVDC) transmission technology, a first for a UK wind farm. Equinor, the lead operator, will maintain and operate Dogger Bank continued

38 Manufacturing Outlook /October 2023

ENERGY OUTLOOK over its expected 35-year lifetime from the recently opened O&M base at the Port of Tyne. This operation and maintenance facility will create around 400 jobs, supporting the wind farm and involving collaboration between Equinor, GE Vernova, and North Star, the UK-based offshore support services vessel operator.

to put in place in the near future. The monopiles are the most tangible sign of progress for U.S. offshore wind, but they come at a time when the industry is struggling. Vineyard Wind is pushing forward, but other projects have been stalled after inflation and rising financing rates drove up costs.

When complete, Dogger Bank will contain 277 turbines and will be almost twice the area of New York City. It will have the capacity to power six million British homes annually. The first power milestone achieved by Dogger Bank sets the stage for the installation and commissioning of the remaining 276 turbines, with the aim of achieving full commercial operation in 2026. The project is a result of the collaborative efforts of Equinor, SSE Renewables, and Vårgrønn, who are jointly developing and building Dogger Bank.

Developers are looking to renegotiate power-delivery contracts they signed years ago before increasing component prices made the deals unviable. And some states are balking at the prospect of higher electricity rates from offshore turbines. That’s why Avangrid is so pleased that Vineyard Wind is finally taking shape.

Bloomberg gave us a tour of some of the major projects being undertaken in U.S. waters. Some 15 miles south of Martha’s Vineyard, in Massachusetts, a massive structure climbs its way from the Atlantic Ocean. Nearby will soar the biggest turbines in the Atlantic, as tall as the Washington Monument surmounted by the Statue of Liberty. This is the first offshore power substation in the U.S. and this fall it is expected to start delivering electricity from Vineyard Wind, the nation’s first commercial-scale offshore wind farm. By 2024, the project is expected to generate enough electricity to power 400,000 homes. Not too far away from the first six monopiles, foundations attached to the seabed, signal the resting places of the turbines, that developers Avangrid Inc. and Copenhagen Infrastructure Partners are scheduled

Each of the 62 turbines that will be installed by early 2024 will have a 13-megawatt capacity and will look down on the North Atlantic from an 850-foot vantage point. Installation of these turbines means there will be no turning back on this project. Unlike the 1.2 gigawatt Commonwealth Wind project, which Avangrid agreed in July to pay $49 million to cancel, saying rising costs had made it unviable. Vineyard Wind lined up supply deals before inflation drove up costs. The whole thing was brought to a head by a most significant drop in the share price of Orsted, the world’s biggest offshore wind farm company. This was aided and abetted by Moody’s. The offshore wind industry is not put off by what has happened of late and considers it a temporary setback. But there is some hesitancy. Sy Oytan, Avangrid’s chief operating officer for offshore wind, said recently “Offshore wind is in trouble, in the U.S. and globally,” Equinor ASA and BP Plc are facing

similar hurdles for their Empire and Beacon projects near Long Island, with 3.3 gigawatts of total capacity. In June, they told the state that “adverse economic impacts have imposed huge cost increases on the projects.” To remain viable, Equinor and BP asked the state to approve a 54% price increase, according to documents filed last week. The company said it expects the state to issue a response in the fourth quarter and can’t say now what it would do if regulators reject their request. In fact, the higher rates were rejected by the state, so the developers are now reconsidering their next move. There is no doubt that the out-andout optimism that accompanied announcements and completion of projects in the past few years has been somewhat tempered of late. It looks like some serious negotiations are on the horizon between the developers and the states. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

Manufacturing Outlook /October 2023

MATERIALS OUTLOOK

NOVEMBER 2023

MATERIALS OUTLOOK Keeping It Clean By Royce Lowe For the past few years, people in the metals business have, of necessity as much as anything, been conscious of an obligation to the climate around them. Steel and aluminum, for example, in particular, are responsible for the emission of uncountable quantities of carbon (dioxide) into the atmosphere. Companies and organizations are working to minimize these effects in the steel industry by the use of hydrogen for the reduction of iron ore, which results in the emission of gasses that are harmless to the atmosphere. Companies are changing from the blast furnace - basic oxygen furnace (BFBO) route - to the electric arc furnace (EAF) process, thus reducing emissions considerably.

40 Manufacturing Outlook /October 2023

Sweden’s SSAB produced what it called fossil-free steel in 2021 and supplied a finished steel product to Volvo. They called this “an important step on the way to a completely fossil-free value chain for iron- and steelmaking.” SSAB and Volvo have an agreement to work together on fossil-free steel, which comes from iron ore, and on SSAB’s so-named SSAB-Zero, which involves the use of recycled steel. According to a recent press release from SSAB, the aim is to deliver 40,000 tonnes of SSAB Zero™ to the market in 2023, increasing to around 100,000 tonnes in 2025. They’re still building blast furnaces in Asia, where the vast majority of

the world’s steel is made. China and India, both reliant on coal and, hence on the BFBO production process, are not making concerted efforts to change their steelmaking methods. Even some countries in Europe are still going for coal to a large extent. So the “good guys” in North America and certain parts of Europe are left to carry the flag for the time being. The problem is that these same good guys don’t make that much steel, compared to China, India, and Japan, whence comes the lion’s share of the world’s steel. Recent news from Bloomberg speaks of Sweden’s H2 Green Steel (H2GS) being in talks with governments in Canada to build a factory in northern continued

MATERIALS OUTLOOK player in the production of primary aluminum, thanks to its abundance of hydroelectric power. Much of what it produces it exports to the U.S. But what it produces comes with carbon emissions that represent some one percent of the globe’s total emissions, and this is for a metal whose annual production is around 4% that of steel.

Quebec, as it tries to deliver on a promise to its customers, namely steel produced with minimal carbon emissions. The company is presently starting on construction of its first plant in Boden, Sweden, with the ambitious goal of starting production by late 2025. Agreements to supply automakers, including MercedesBenz Group AG, have already been signed. Stockholm-based H2GS was launched in 2021 by private equity veteran Harald Mix’s investment vehicle Vargas Holding AB, which is also behind Northvolt AB, the company that recently announced plans for a C$7 billion ($5.1 billion USD) EV battery plant near Montreal. The potential Quebec green steel project - the Swedes are also talking to Texas, Brazil, and Portugal would be located on a 500-acre site in the city of Sept-Iles, northeast of Montreal, and require an investment of between €3 billion ($3.2 billion USD) and €6 billion. One plan would

see H2GS build a “green iron” plant and a giant electrolyzer powered by renewable energy that would supply the site with hydrogen, replacing the use of carbon-intensive coal. The iron would then be exported. The site would appear to be perfect for the H2GS project, with access to the St. Lawrence River, a supply of clean, cheap hydro-power, plus the iron ore from Rio Tinto’s Iron Ore Co. of Canada. The plant would take 1.5% of Québec’s available power. H2GS says “No green power, no project.” The plan is to start construction in 2026 and operation in 2030. A similar situation exists with aluminum, with around 60% coming from China. Production of this metal results in very heavy emissions, as does production of the electricity required to drag aluminum from bauxite. Here again, we have efforts underway to produce the metal with a minimum of harmful emissions. Canada has long been a major

Since 2018, Rio Tinto, the mining giant, and Alcoa, have been working on a process called ELYSIS, that emits pure oxygen as a by-product and eliminates all of the greenhouse gas emissions associated with traditional aluminum smelting. This innovation involves replacing the carbon anodes used in traditional aluminum smelting with inert, proprietary materials. Along with Rio Tinto and Alcoa, there is involvement from the governments of Canada and Québec. Apple, whose involvement in a clean climate goes to its supply chain, and hence to the use of aluminum produced at Elysis’s Industrial Research and Development Center in Québec, using hydropower. Apple purchased material from the trial, prompting ELYSIS’s CEO to state that the trial material was the first time aluminum had been produced at commercial purity, without any greenhouse gas emission, and on an industrial scale. Further, the sale to Apple confirmed the market’s interest in aluminum produced using the breakthrough ELYSIS carbon-free smelting technology.

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

Manufacturing Outlook /October 2023

AUTOMOTIVE OUTLOOK

NOVEMBER 2023

AUTOMOTIVE OUTLOOK By Lawrence Makagon Caddies and Hybrids Bloomberg reports that GM is taking cars back to Europe, a place it lost money for decades. And not just any car, but the Cadillac Lyriq EV, which at last count was selling around 3,000 models a quarter. Not exactly mindboggling sales numbers.

of losses, to the company that is now Stellantis.

GM recently announced it was taking orders for the SUV in Switzerland with deliveries starting in the first half of 2024. Plans for the next two years involve sales in Sweden, France, and three more European countries. Europe is uncertain at this time, with VW cutting production due to a lack of demand, and Chinese companies looking to sell their wares.

GM’s first new model for Europe, the Lyriq, is a midsize SUV powered by the manufacturer’s Ultium batteries that offer an estimated range of 530 kilometers (329 miles) per charge. With a starting price of 82,000 Swiss francs ($89,705 USD), the model costs roughly the same as premium German electric SUVs such as BMW’s iX3 and Audi’s Q8 e-tron. European sales will be made via the company’s website and flagship stores. GM plans to offer a complete range of EV models in Europe by the end of the decade.

GM has been quiet in Europe for the past several years. In 2017, it sold Opel and Vauxhall, after two decades

Ford has been suffering problems of late with its F-150 Lightning. Sales of the pickup fell 46% during

42 Manufacturing Outlook /October 2023

the third quarter when the company shut its factory for expansion and delayed delivery of trucks for “quality checks.” Ford had expanded to produce 150,000 trucks per annum. Since resuming in early August, Ford said it had been holding vehicles for unspecified quality reasons. Ford cut prices on Lightning models by as much as 17% in July to compete with Tesla, which has also been cutting prices this year as EV sales growth slows in the U.S. Chief Executive Officer Jim Farley has said buyers don’t like the EV prices, so he’s putting renewed effort into gasoline-electric hybrids, which he predicts will quadruple in sales at Ford over the next five years. And Bloomberg again, here singing the praises of the hybrid, that sort of incontinued

AUTOMOTIVE OUTLOOK $59,752, compared with $45,567 for models that run on gasoline. So where does this leave all the investment that we hear has been made in battery electric vehicles?

between vehicle that runs part fuel, part battery. Toyota brought out its hybrid over 25 years ago, with a small fuel tank and large battery. It became a favorite of the green movement. Recent times, however, saw hybrids falling out of favor coincident with the development of fully electric vehicles and their government incentives. But hybrids are making a comeback, since high prices and less than highly efficient charging infrastructure, all coupled with high interest rates, are sending buyers away from electric vehicles. Research firm GlobalData says U.S. hybrid sales have more than doubled since 2020 and will hike by some 35% this year. To win over some of those customers, Ford is doubling production of its three-year-old F-150 hybrid and lowering the price by $1,900 — making it about equal to the fullgasoline model, and almost 10% cheaper than the all-electric version it introduced in 2022. Ford aims to quadruple hybrid sales over the next five years and offer the technology across its lineup, even as it cuts back ambitious production plans for its fully electric models.

GlobalData expects Toyota’s hybrid sales to rise 7.5% this year, to more than 600,000. About one-third of Toyota’s sales in the U.S. are hybrids, and some models are only available as gas-electrics, including the Sienna minivan and Sequoia full-size SUV. GlobalData further states that the number of hybrid models for sale in the U.S. market is expected to grow to 369 by 2026, more than double the 164 on sale in the U.S. in 2020. Hyundai and Honda also are major hybrid players that combined are expected to control 32% of the U.S. market for gas-electric models this year. Hybrids continue to outsell EVs in the U.S., with sales approaching 1.4 million vehicles this year, versus nearly 1.2 million full electrics. This sees hybrids controlling 9% of the American car market in 2023, while full-electrics command 8%. Americans have been slower to adopt EVs than European and Chinese consumers because of the lack of charging infrastructure as well as the higher price of EVs, even after Tesla cut prices this year. The average price of an EV in the U.S. in August was

Toyota, meanwhile, who didn’t jump on the EV bandwagon along with all the others, has of late had a change of outlook. It’s developing technology to expand production of battery-EVs, and recently opened up its three plants in the Tokyo area to journalists, hence to tell the world where it was going in the coming years. Bloomberg, of course, went along. Toyota detailed plans to commercialize solid-state batteries, introduce 10 new electric models, and sell 1.5 million batteryelectric vehicles annually by 2026. The batteries will be lithium-ironphosphate, due in 2026 or 2027. There’s a black, metallic coating needed to build up anodes and cathodes in the batteries, and to do this with no damage on a massproduction basis is a potential obstacle in Toyota’s process. If successful, such batteries will improve range by 20%, reduce costs by 40%, and charge to 80% full in 30 minutes or less, according to Toyota. Toyota is following Elon Musk in efforts to cast an aluminum chassis in three parts. But it’s not there yet. Musk got the idea from a toy model of a Model S and pushed his engineers to die-cast entire car sections. This is from the recently published biography of Musk, by Walter Isaacson, the man who gave us that of Steve Jobs some years ago. Mmm, Tesla versus Lawrence Makagon, Toyota. Sounds like Staff Writer interesting times ahead.

Manufacturing Outlook /October 2023

CYBER SECURITY OUTLOOK

NOVEMBER 2023

CYBER SECURITY OUTLOOK Verification and MFA Are the Backbone of Cyber Security By Ken Fanger, MBA, CMMC-RP, President, On Technology Partners Verification of your identity is one of the key methods that modern cybersecurity uses to help protect your data. We want to make sure that you’re the one accessing your accounts every time. As hackers become more capable and sophisticated, determining that a person is who they say they are becomes more of the backbone to protecting our data. The most common form of verification, one you’re likely already familiar with, is multi-factor authentication. Multi-factor authentication, often simplified to MFA, is another way to keep people out of your important files or accounts. When you hear multi-factor authentication, what we mean is having two or more different ways to confirm your

44 Manufacturing Outlook /October 2023

identity before gaining access to your account. An example of multi-factor authentication would be entering your password, as well as entering a code that the system sends to your cell phone. You may already be familiar with this process when logging into your bank accounts.

phone at home on the kitchen table, it’s more necessary than ever.

With MFA in use, you have your password, and you have that code sent to your cell phone – something a hacker wouldn’t have access to unless they stole your phone as well. Thus, it is much more challenging for someone else to gain access to your accounts. While this extra step can be annoying, especially when you’re trying to log in to an account and you, say, leave your

Lucy, my boss, and wife, as well as the CEO of our company, decided to try to reinstall her email client. Like most people, she googled Outlook and proceeded to go to the first site that came up in the search. So far, so good, right? Clicking on this first site, she let the magical internet fairies take her to the land of Microsoft so she could reinstall Outlook—or so she thought. She didn’t

Let me share a personal story of why 2FA or MFA truly makes a difference. I’d like to take you back to 2012, a time when hacking wasn’t as present in our minds as it is today.

continued

CYBER SECURITY OUTLOOK notice that the link she actually clicked on was for something called Macrosoft, not Microsoft. No immediate red flags jumped out at her, so she clicked the download button, not realizing she was downloading a file from hackers. The next step was to enter her email and password, which she did, much to her later chagrin. Within moments of her entering her email and password, the hackers began their attack. We immediately implemented our email hack protocol. Within 10 minutes of Lucy’s hacker download, we noticed really strange behavior from her account. Within 15 minutes, we had Lucy start changing her passwords, contacting people about the hack, and fixing the changes that the hackers were making within her account. Even though we were able to respond so quickly to the attack, that didn’t stop

hundreds of emails from being sent out by the hackers. As you can imagine, we had a lot of fun calling all those people to inform them that our email was hacked. It did, however, show the value of a calm and rapid response. Fortunately, no one clicked on any of the links in the emails sent out by the hackers, and we were able to shut down their entire attack within 20 minutes. If Lucy had MFA enabled on her account, the hackers would have been stopped from being able to access her account without the second method of authentication (the code text to her cell phone). This means that the attack would never have happened; the emails would never have been sent out, and we wouldn’t have had to call hundreds of clients to inform them of the attack. So when it comes to securing your data and improving your cybersecurity, verification of your identity is at the core of it all. Tools like MFA help protect our data and if it isn’t already a part of your

cyber-security routine, it should be at the top of your list. 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. n

Manufacturing Outlook /October 2023

ISSUES OUTLOOK

NOVEMBER 2023

ISSUES OUTLOOK By Royce Lowe

Go by Train? Straphanger, from Taras Grescoe, is a publication that deals with transportation and its effects on the climate. A recent segment describes the frustration of the writer and some of his friends, at the games the British government has been playing of late with plans, heretofore laid, for the extension of Britain’s rather pitiful rail system. This is in an effort to reach the country’s net-zero commitments. The UK took a U-turn on meeting its net-zero commitments, and then there was the blow delivered by Prime Minister Rishi Sunak and

46 Manufacturing Outlook /October 2023

his Conservatives to HS2, the highspeed rail project to link London to northern cities. Sunak had committed to reaching net zero by 2050. But this past summer he granted new licenses for gas and oil extraction in the North Sea. Then he rolled back the deadlines for all the more proximate targets for combating climate change: installing electric heat pumps, rather than gas boilers; insulating homes; and, most importantly, banning the sales of gasoline cars by 2030. All the deadlines have been moved back—in the case of cars, until 2035. The reason Sunak cited were all pocketbook-based: prices are

going up and this will hurt consumers. There were many Conservative MPs who came out against Sunak’s U-turn, but carmakers were particularly livid: they’ve been spending hundreds of millions of pounds to make the transition to electric vehicles. The same thing has happened to the UK’s high-speed rail scheme, HS2, (HS1 is the link from St. Pancras Station in London to the Chunnel, and from there to Western Europe.) This is a scheme originally launched by Labour Prime Minister Gordon Brown. London to Manchester in an hour, that continued

ISSUES OUTLOOK was the pitch, instead of 2 hours and 47 minutes. Fewer short-haul flights to mess up the atmosphere; greenhousegas-spewing short-haul flights! A glittering version of France’s TGV, for Britain! (The TGV started service in 1981, doing around 200 mph at the time.) Even big, bad Boris was for HS2, promising prosperity for northern towns and all that. There again, we’re talking about Britain here (or England) where half the rural land is owned by 0.6% of the population, and one-third by just 1,200 aristocratic families who have successfully fought off the “right to roam” for many centuries. This is that green and pleasant land, where George Stephenson, from Northumberland, built the world’s first steam locomotive to carry passengers on a public rail line in 1825. Only ten years after Waterloo. He also built the world’s first public inter-city railway line to use locomotives, which opened in 1830. So let’s say HS2 was fully built. There’s no doubt of its impact on the environment. It’s already had an impact on housing, in the form of expropriations. But this pales at the side of all the multi-lane motorways, roundabouts, and carparks, that keep the UK’s 33 million private automobiles and standard-issue company cars (which really drive up

the total national fleet) circulating, and emitting carbon, every day. Even with the 900,000 fully electric and 550,000 plug-in hybrids included. France has some 37 million cars, only 760,000 fully electric; 450,000 hybrids. And just under 70 million people. But a lot more room to spread its carbon around. The cost of all this, of course, is something else. In addition to the thousands of acres bought up from private landowners, and 30,000 jobs committed to the project, £25 billion ($30.5 billion) has already been spent on HS2. The latest estimate is that the total price tag would be £100 billion. Sunak recently announced he is putting everything but the London-Birmingham HS2 segment on ice. The government will have spent $3 billion U.S. for each mile of track. To connect two cities just 100 miles apart. But does this make sense? No! Such an expense is not inevitable for building even the most complex projects in high-speed rail. Everything about HS2, from the timeline to the executive salaries (the CEO was paid half a million pounds a year, before bonuses) is a case study of how not to build rail in the 21st century. The truth is that democracies can come out with plans such as HS2, sell them to the public, and then back off when the politicians in power see trouble (i.e. losing votes). And in this case, they

start up the old fossil-fuel machine. The conservatives will be out at the next election in the UK. The labor party is doubtless thinking long and hard about what it will do, if anything, with Britain’s railways. Japan started its legendary bullet train in 1964, with a maximum speed of 200 kph (125 mph). Later models far surpassed that. Train travel in Western Europe is mostly a joy to experience. China has built bullet trains, but it’s an autocracy and doesn’t need to worry about what the public thinks. It seems that the future of rail travel in North America, if it has one, is far down the road. High-speed from Washington DC to New York, for example, is an average of 82 mph. There is a real high-speed train on the drawing boards somewhere. A recent newspaper article detailed a journey from Montreal to Ottawa, where there was a sixhour delay not far from Montreal. Apparently, a brake had seized. For a family of four in North America there is but one way to travel.

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

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Manufacturing Outlook /October 2023

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