Manufacturing Outlook November 2020 by Manufacturing Outlook

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A CYBER RISK MANAGEMENT PROPOSAL

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MANUFACTURING OUTLOOK PAGE 6

THE CASS TRANSPORTATION INDEX PAGE 8

PREPARE FOR TOMORROWâ&#x20AC;&#x2122;S FORGING MARKET PAGE 16

MANUFACTURING TIDBITS COVID DRIVES REMOTE WORK WITH B2B PAGE 20

OCTOBER ISM PMI: 59.3%

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Released November 2nd -The Full Executive Summary Report On Business - Page 24

Manufacturing Outlook / November 2020

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Publisher LEWIS A WEISS Editor in Chief TIM GRADY Creative Director CRAIG ROVERE Contributing Writers ROYCE LOWE NORBERT ORE CHRIS KUEHL THOMAS R. CUTLER AMELIA ROY JEANNE-MARIE LOWRIE JOCELYN BRIGHT CHRIS ANDERSON ROSEMARY COATES LAWRENCE MAKAGON Production Manager LINDA HOPLER Current Circulation 45,200 Advertising ADVERTISE@MFGTALKRADIO.COM Editorial Office JACKET MEDIA CO. 75 LANE ROAD FAIRFIELD, NJ 07004 (973) 808-8300

TABLE OF CONTENTS

5 PUBLISHER’S STATEMENT A word from our publisher

6 MANUFACTURING OUTLOOK A look at manufacturing around the globe

© 2020 Jacket Media Co. No part of this publication may be reproduced or used in any form without the prior written permission of the publisher. Manufacturing Outlook is a registered trademark of Jacket Media Co.

SOUTH AMERICA OUTLOOK Brazil in the spotlight

31 ASIA OUTLOOK China, Japan and India

THE CASS TRANSPORTATION INDEX

by Cass Informations Systems Inc.

EUROZONE OUTLOOK

A look at Europe

COVER STORY: REASSURING THE RESHORING: A CYBER RISK MANAGEMENT PROPOSAL by Tom Finan, Cyber Growth Leader within Willis Towers Watson

MANUFACTURING TIDBITS

Insights from inside manufacturing in action

OUTLOOK FOR VIRGINIA 14 MANUFACTURING LOOKS PROMISING: NEW AND EXPANDING FACILITIES

by Thomas R. Cutler

16 PREPARE FOR TOMORROW’S FORGING MARKET

by Tom Lefaivre

18 CONSISTENT & CONSTANT MESSAGING: HOW MANUFACTURERS WILL PROSPER IN 2021 by Thomas R. Cutler

20 MANUFACTURING OUTLOOK:

COVID DRIVES REMOTE WORK WITH B2B by Motti Danino

33 GLOBAL PMI OUTLOOK by Norbert Ore

34 THE CREDIT MANAGER’S OUTLOOK by Dr. Chris Kuehl

38 METALS OUTLOOK The cost, making and treating of metals

42 AEROSPACE OUTLOOK The aerospace industry

44 ENERGY OUTLOOK Energy and the environment

24 ISM MANUFACTURING REPORT ON BUSINESS

Text “RADIO” to 66866 for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast.

28 NORTH AMERICAN OUTLOOK Manufacturing in the US, Canada & Mexico

46 AUTOMOTIVE OUTLOOK Auto industry news

48 ISSUES OUTLOOK Issues around the globe

Open call for...

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

PUBLISHERS STATEMENT Publisher’s Statement

Even the Uncertainty is Uncertain Between Covid and the U.S. election, all of us are seeking solace amidst the uncertainty. Manufacturing is gearing up to produce and ship 10’s of millions of doses of one of 9 Covid vaccines in 2020 – maybe. There are several states with unconfirmed election results, lawsuits and recounts. Perhaps by year-end the U.S. Presidential election will be resolved – maybe. At this point, we cannot definitively say, which leaves things uncertain, and that makes all of us, well, uncertain about the economy, the vaccines, the election, employment, a return to normal in air travel, hotel stays, business meetings, and social interaction at restaurants, bar, or even the grocery store. It’s not fun, but this, too, shall pass – hang in there! The silver lining, at the moment, happens to be in the Purchasing Manager’s Index (PMI) numbers in the U.S. Manufacturing, which never totally shut down, is showing a strong rebound. The Services sector held up well through 2020 in performance, but not generally in employment. And whether you look at the ISM’s PMI numbers, or Strategas Research Partner’s PMI numbers, or IHS PMI numbers, all those birds of a feather are flocking together, flying in expansion territory. We may not be at pre-Covid levels, but we are not sinking into a recession. So far, the predicted V-shaped recession and rebound has held to that form, and unless another shock wave hits the U.S. economy, we expect the economy will continue in growth mode. Major industry sectors, like airlines and automobiles, have endured the downturn and there will likely be some bailout money from Washington. What that actually means is that D.C. will use the public debt to rescue crippled industry sectors. It is, at this point, probably your great, great, great grandchildren’s money that is being spent today. Like tariffs, we, the American people are paying with higher prices, lesser earnings, and deeper debt. And as deficit spending goes, being in a hole and continuing to dig deeper won’t solve the problem. Even a tax plan that raises $10 trillion dollars more over 10 years is a fail when the U.S. carries over $100 trillion in unfunded liabilities, without counting state debt, county debt, city debt, and miscellaneous other government debt. So, a bailout is great for now but leaves great uncertainty for later. So, any silver lining is encouraging because there are some gray clouds on the horizon. What is unusual is consumer sentiment, which has risen steadily since March during the Great Shutdown. As our readers may know well, consumers represent 70% of purchasing in the U.S. economy. If consumer sentiment downshifts, expect storm clouds to form rapidly overhead, and economic weather conditions to deteriorate rather quickly. So here is the challenge – as you read through the many sections in Manufacturing Outlook, look for silver linings. Dig into the ISM report to see how your industry sector is performing, and compare it to how your business is performing. Are you in the trend curve, or behind it? This is the bigger, forward-looking picture from the most recent data that this ezine presents. Enjoy the issue!

Lewis A. Weiss, Publisher Contact laweiss@mfgtalkradio.com or text “RADIO” to 66866 for comments, suggestions and ideas and guest requests for

Manufacturing Outlook / November 2020

MANUFACTURING OUTLOOK

NOVEMBER 2020

MANUFACTURING OUTLOOK GLOBAL MANUFACTURING PMI STILL UP IN OCTOBER. JAPAN STILL IN CONTRACTION. GERMANY CONTINUES TO PULL UP EU PERFORMANCE. STEEL DEMAND AND PRICES, UP AND UP.

by ROYCE LOWE The Bureau of Labor Statistics jobs report for October shows a gain of 638,000 non-farm payroll jobs, with the unemployment rate falling to 6.9 percent. There were significant gains in leisure and hospitality (271,000), professional and business services (208,000), retail trade (104,000) and construction (84,000). The number of unemployed dropped by 1.5 million to 11.1 million. Manufacturing gained 38,000 jobs in October, of which 7,000 in Fabricated Metal Products and 6,000 in Primary Metals, but there are still 621,000 fewer jobs in manufacturing than there were in February. Transportation and Warehousing added 63,000 jobs in October. The Bureau of Economic Analysis recently released its ‘advance’ estimate for the annual rate of Real GDP growth in the third quarter of 2020, putting it at 33.1 percent. The figure for the second quarter of 2020 was minus 31.4 percent. GDP for Q1 was -5.0, so the present net for the year is -3.3 and there is some tepid optimism that the full year may finish out +/-1.0. The ISM PMI figure for U.S. manufacturing rose from 55.4 percent in September to 59.3 percent in October.

Manufacturing Outlook / November 2020

The overall economy returned to a sixth month of expansion. IHS Markit’s remarks on U.S. manufacturing for October show faster expansions for production and new orders. Less pressure on capacity led to slowing employment growth, with some companies attributing this slowing to difficulties in finding suitable candidates. Domestic demand was up, but export down slightly and falling for the first time since July. October’s IHS PMI, at 53.4, was up slightly from September’s 53.2. GLOBAL STEEL PRODUCTION WAS UP BY 2.9 PERCENT YEAR-OVER-YEAR IN THE MONTH OF SEPTEMBER for the 64 reporting countries – which represent 99 percent of world crude steel production – to 156,359 MT. The YTD figure is down 3.2 percent. The U.S., Canadian, and European steel markets are currently moving into overdrive, with hot-rolled, cold-rolled and hot-dip galvanized prices at two-year highs. U.S. crude steel production for September was

MANUFACTURING OUTLOOK

5.709 MT, down 18.5 percent year-over-year. Canada produced 0.780 MT of crude steel in September, down 27.6 percent year-over-year. Mexico produced 1.400 MT of crude steel in September, down 3.9 percent year-over-year. Crude steel production in Germany in September was at 3.018 MT, down 9.7 percent year-over-year; in Italy 1.794 MT, down 18.7 percent year-over-year; in France 0.963 MT, down 20.1 percent year-over-year and in Spain 0.936 MT, down 20.7 percent year-over-year. Russia’s crude steel production for September was at 5.860 MT, up 0.8 percent year-over-year; Ukraine’s was 1.651 MT, down 5.4 percent year-over-year. CHINA produced 92.555 MT of crude steel in September, up 10.9 percent year-over-year; Japan 6.486 MT, down 19.3 percent year-over-year; India 8.520 MT, down 2.9 percent year-over-year and South Korea 5.831 MT, up 2.1 percent year-over-year. Taiwan produced 1.605 MT in September, down 8.1 percent. Brazil’s crude steel production for the month of September was 2.574 MT, an increase year-over-year of 7.5 percent. Primary Global Aluminum Production in September was reported at 5.424 million tons, with production in China, at 3.150 million tons, representing 58 percent of world total. Production was 465,000 tons in GCC; 348,000 tons in the rest of Asia; 270,000 tons in Western Europe; 317,000 tons in North America and 338,000 tons in Eastern and Central Europe.

THE ECONOMIST magazine, in its latest weekly report on world economies highlights changes in Gross Domestic Product (GDP), Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The consumer price increases represent year-over-year changes. The unemployment figures, %, are for the month as noted. The JP MORGAN GLOBAL MANUFACTURING PMI – a composite index produced by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – rose from 52.3 in September to 53.0 in October - a 29-month high. New orders and manufacturing output accelerated in October, as business confidence strengthened to its highest since May 2018, and there was a further upturn in international trade. There was solid growth in the consumer, intermediate and investment goods categories, fastest in investment, weakest in consumer.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. Manufacturing Outlook / November 2020

CASS INDEX OUTLOOK

OCTOBER 2020

CASS TRANSPORTATION INDEX REPORT

by CASS INFORMATION SYSTEMS, INC. The V-shaped recovery continued in the latest reading of the Cass Freight Index. Also, shipping volumes were back in the black, with the index posting a positive year-over-year change for the first time since November 2018. We should see this continue through year-end, assuming current freight trends continue, even with normal seasonal softening month to month. Inventories remain quite lean. Cass Freight Index - Shipments As for the actual amount of freight moving, Cass Freight Index shipment volumes rose 2.4% over year-ago levels, crossing into positive territory and improving over last month’s decline of -1.8%. This was the best growth we’ve seen since October 2018. And while the raw index number rose only slightly (0.3%) from September’s level, it was the still the highest reading since September 2019 and 27.8% above April’s low point. One of the drivers of the recent resurgence in freight activity has been healthy consumer spending, as U.S. retail sales had another very good month, increasing 5.2% year over year in October. This was driven by a mixture of the continued reopening of the economy and businesses, schools starting back up, and optimism around healthcare advances, including a vaccine (there are >20 in various trial phases presently). The momentum of good news has continued after the election, as optimism further increased due the declared positive results

Manufacturing Outlook / November 2020

showed by at least a couple of the vaccines still in trial and the promise of Operation Warp Speed to get them out ASAP when ready. Feeding the domestic transport machine, imports were also seen growing in October. The Port of Long Beach announced a 19.4% y/y increase in October import volume (The Port of Los Angeles not yet released but should also look strong), and we expect November to be up y/y as well. We have written the last few months about this “West Coast port dump” due to low inventory levels, where large U.S. importers are bringing in a disproportionate amount of their containers to SoCal and then moving truck or rail around the U.S. to avoid stock-outs. It has not stopped. This results in higher transportation costs, but it’s been necessary to keep goods in stock (vs waiting for the longer transit time it takes for containers to get from Asia to the East Coast or Gulf Coast ports). Also on the international side, air cargo capacity remains tight, with high rates expected into 2021 due to most commercial belly capacity staying out of the market until probably mid-2021 at the earliest. Vaccine hopes may indicate the potential for increased flying sooner, but we believe the domestic routes (which do not impact the longhaul freighter market) will add capacity first. Freighters have been operating for months near peak levels, so peak season this next month will be tight and yields high. The weekly AAR rail traffic data showed positive y/y comps through October and has bounced back

CASS INDEX OUTLOOK in the latest week with its best reading of 2020 – both overall and excluding coal & grain. This data set tracks closely with the Cass Freight Index, so given that total rail carloadings are still strong, we expect Cass Index levels to remain on a positive trajectory to finish the year. Note – Week 46 carloads are originations through the week of 11/14/2020 for BNSF, CSX, KSU, NSC, and UNP. Source: Association of American Railroads and Stifel research Cass Freight Index - Expenditures With respect to overall dollars spent on freight transportation, the Cass Freight Index expenditures reading increased 3.1% y/y in October – almost dead even with last month and 28.7% higher than May’s low (and that’s with significantly less contribution this year from fuel surcharge revenue) Revenue per shipment trends are up, as trucking rates rise, although off a better y/y comp in September. The present constraints on drivers and industry supply are real (Exhibit 8), so even with better demand, fewer trucks are running and rates are rising significantly. How much capacity can be coaxed to enter next year in this tight supply/ demand environment will play heavily into the ultimate growth in the shipper’s average freight bill. The Cass Truckload Linehaul Index, which measures per-mile linehaul rates for the largest segment in the domestic transportation space, declined 2.7% y/y in October while increasing nearly 1% from September. Still, this was the best comp since September 2019, as truckload pricing continues to improve off the bottom. We believe it is not higher because it mostly includes contract rates and not the more volatile spot market (which has already moved). As contract rates are repriced over the next few quarters, this will eventually turn to y/y growth. The combination of rising and healthy demand with limited supply is causing shippers to pay more to get their freight moved, as “turn-downs” by carriers remain high. We see this most clearly in the spot rates posted here through mid-November. They have still not peaked, so the pricing outlook remains bullish for carrier negotiations with shippers, as spot rates are up substantially y/y (including fuel surcharges) in the dry van, flatbed, and reefer markets, with dry van above 2018 peak levels and reefer closing in.

Flatbed is only cooling off slightly due to its higher degree of demand seasonality. Next, we note the Cass Truckload Linehaul Index has a strong correlation to the quarterly yield metrics reported by the publicly traded TL carriers (Chart 11). October data indicates further improvement in the market. In recent 3Q20 earnings reports (released between this and the last Cass report), carrier yields turned positive, rising slightly faster than the Cass TL Index due to mix, freight selection, and specific carrier yield management actions at those companies. More rate increases will be ahead for carriers in 4Q20 and 2021 – the only debate is how high they’ll go, as we’re hearing everything from 6%-12% right now. The Cass Intermodal Price Index, measuring total per-mile costs, looks at the smaller intermodal market and shows basically the opposite of what we see in the TL market, as intermodal rates hit a new low in terms of y/y comparison, dropping 23.2% y/y in October. However, it appears to have hit an absolute bottom, with the index rising 2.1% sequentially (but still the second lowest absolute reading since November 2010). Two main drivers of this – 1) the fuel surcharge – this is the big one, because while the Cass Truckload Linehaul Index excludes fuel surcharge, the intermodal index includes fuel surcharges, and 2) intermodal pricing has been on a lag vs TL pricing, so as intermodal demand improves further and TL contract rates move higher, intermodal rate increases should follow. The fuel comp issue will go away in 2Q21. Intermodal demand is growing, and with TL rates up, Intermodal pricing should turn soon. Note – Week 46 carloads are originations through the week of 11/14/2020 for BNSF, CSX, KSU, NSC, and UNP. Source: AAR To wrap it up, October was a big month. The Cass Freight Index showed marked improvement, and after seeing no growth in 2019 and no growth the first nine months of 2020, the y/y increase in shipments was a welcome change and good sign of things to come. Due to inventory restocking, we see strong demand well into the first quarter of 2021 and then easy comps to start the second quarter. We expect healthy demand, coupled with supply constraints, to lead to continued higher prices for truckload and intermodal contracts well into 2021. Manufacturing Outlook / November 2020

COVER STORY

REASSURING THE RESHORING: A CYBER RISK MANAGEMENT PROPOSAL by Tom Finan, Cyber Growth Leader within Willis Towers Watson

The reshoring of manufacturing to the U.S. and other advanced economies has been a slow but steady phenomenon for many years. A combination of government action spurred by COVID-19, changing economics, and increased automation promises to accelerate this trend. Wherever manufacturers locate, however, the sector is one with significant cyber risk for which most companies are unprepared. Reshoring presents the insurance industry with a unique opportunity to help. Brokers, underwriters and reinsurers should collaborate with manufacturers to develop cybersecurity best practices for reshorers. Companies that implement those best practices successfully should qualify for customized cyber insurance coverage tailored to their specific needs.

Manufacturing Outlook / November 2020

This “test bed” approach would help create a virtuous cycle of cybersecurity improvement among this small but growing population of companies. Incorporating lessons learned, similar coverage eventually could be extended beyond reshorers to all organizations contending with cyber risk due to converging information technology (IT) and operational technology (OT) systems. This initiative could have positive impacts in the near and long term. With vetted best practices to guide them, IT- and OT-dependent companies could advance their cybersecurity maturity considerably. As insurance industry confidence in those practices builds over time, the cyber insurance market’s capacity to cover related losses would likely expand accordingly. In the process, the cyber resilience

COVER STORY of countries worldwide would be immeasurably enhanced. Reshoring momentum Government Action In the ongoing wake of COVID-19, leaders across the U.S. Federal Government have responded with a wave of executive actions, legislative proposals, and other public policy initiatives designed to encourage the reshoring of American manufacturing.1 Each of these efforts represents increasing bipartisan consensus about the future of global supply chains.2 Simply put, overreliance on one geographic region to source goods and materials essential to everyday life poses an unacceptable risk to both economic and national security.3 In Congress alone, Members have drafted a series of bills establishing tax, grant, and other incentives to encourage the domestic production of personal protective equipment (PPE), medical devices, and pharmaceuticals.4 Similar legislation seeks the repatriation of 5G network manufacturing, semiconductor assembly, and the provisioning of defense materiel.5 Other strategically important items for reshoring consideration include the production of industrial magnets, industrial molds, and lithium and lithium-ion batteries as well as the mining of rare earth metals.6 Momentum is growing for additional government action. Surging public sentiment favoring domestic re industrialization is now coinciding with newfound business appreciation of how well local supply chains have performed during the pandemic compared to their less dependable international counterparts.7 This awakening has led several experts to call for more tax incentives, deregulation, and targeted research and development investment to facilitate the reshoring shift.8 Political support for this trend is by no means limited to the U.S. In response to COVID-19, French President Emanuel Macron has said that supply chains will “need to become more French.” 9 Germany’s health minister likewise wants to minimize “one-sided dependencies [with supply chains] in order to win back national sovereignty.”10 For its part, Japan’s national bank has allocated upwards of $2 billion dollars to help its domestic manufacturers reshore from overseas.11 Australia

and South Korea are considering similar moves.12 The conclusion is clear: the pandemic has initiated a global rethinking of what manufacturing should be conducted and where in order to promote greater resiliency against pandemics and other large scale disasters. Cost For their part, American manufacturers had been warming to the idea of reshoring their operations even prior to COVID-19 given rising labor costs and other overseas business challenges.13 In China, for example, wages for manufacturing jobs tripled between 2005 and 2016.14 Shipping and logistics costs associated with global supply chains also were increasing.15 Manufacturer frustration likewise was mounting with Asia-based factories that used unapproved suppliers and components, foreign finished goods that differed from samples, inconsistent product quality, and intellectual property (IP) theft.16 Despite these issues, a March 2020 survey revealed that only 10% of American manufacturers had an active interest in reshoring.17 The pandemic changed everything. Just two months later, in May 2020, a follow-up survey found that that figure had leapt to 64%.18 In short, the widespread disruption of global supply chains caused by the pandemic quickly transformed what had been a tentative exploration of moving manufacturing homeward into a full-on embrace.19 Manufacturing Outlook / November 2020

This momentum likely will continue as manufacturers begin to reassess the economics of domestic production. Historically, manufacturers chose to offshore based on a product’s final price at the factory door – in other words, the price to actually make it.20 Given much lower overseas labor costs, that price regularly justified locating factories out of the U.S.21 Organizations such as the Reshoring Institute, however, argue that manufacturers should use a more comprehensive and revealing metric to inform decisions about where to locate: a product’s total cost.22 Total cost considers not only the price of labor but also dozens of hidden expenses incurred at every stage of the manufacturing process.23 The Reshoring Institute’s total cost calculator tool accordingly builds in items such as duties and freight rates, travel expenses, inventory carrying costs, warranty expenses, IP loss, impacts on product innovation caused by locating production far from engineering teams, losses related to long delivery times, political instability, and – of particular relevance to the COVID-19 situation – supply chain shocks.24 These frequently overlooked expenses typically reveal a 20- 30% understatement of offshoring costs.25

Manufacturing Outlook / November 2020

What does this mean for manufacturers considering a return of operations to the U.S. and other advanced economies? The American case is illustrative. If looking just at the historic metric – the price of making something – rising overseas labor costs alone justify reshoring approximately eight percent of overseas manufacturing.26 Taking a product’s total cost into account, however, boosts that percentage to 32%.27 Subjecting foreignmade products to a 15% tariff, which already is in place against $112 billion in Chinese-made goods, raises the percentage even higher to 46%.28 Taken together, a strong business case exists today for reshoring almost half of American overseas manufacturing. Automation While it predated COVID-19, another key factor accelerating the reshoring trend is the advent of robots and other automation technologies. As a recent report by the Information Technology and Innovation Foundation noted: While both developed and developing economies stand to benefit from the next production system . . . higher-wage nations will get more of a productivity boost from these technologies than lower-wage ones. Lower labor costs in developing economies provide less incentive to

COVER STORY adopt automation equipment like robotics, and the new production systems enable shorter production runs, smaller factories, and higher productivity – all of which will work in the direction of reshoring to higherwage nations.29 Research by the World Economic Forum confirms this shift, showing a direct correlation between increasing automation and increasing reshoring of production to developed industrialized countries.30 The Reshoring Institute 2019 Survey of Global Manufacturing demonstrates the same correlation.31 It found that more than half of manufacturing executives were planning or considering reshoring activities within the next five years.32 It likewise found that 70% of those executives are considering investments in robotics to improve production efficiencies.33 COVID-19 is only speeding this change.34 As the pandemic continues to reveal global supply chain risks, increasing numbers of manufacturers are investing in automation as a hedge against future disruption shocks.35 The low cost of robots, in turn, directly incentivizes reshoring by reducing the margin companies can save on labor by offshoring.36

Author profile

Tom Finan is a Cyber Growth Leader within Willis Towers Watson’s FINEX Cyber/E&O Practice. His work includes regular engagement with clients to discover their cybersecurity needs and the development and placement of responsive consulting and insurance solutions. Tom spearheaded the development of the company’s Cyber Risk Solutions in North America and has actively led teams delivering the company’s enterprise risk management, cyber risk culture, and cyber workforce readiness solutions. Tom previously served as Senior Cybersecurity Strategist and Counsel with the Department of Homeland Security’s National Protection and Programs Directorate (NPPD). He also worked as Staff Director and Counsel for the Subcommittee on Intelligence, Information Sharing and Terrorism Risk Assessment with the U.S. House Committee on Homeland Security. Tom is a former Assistant General Counsel at the FBI. Prior to his FBI position, he worked in private litigation practice. Tom earned his J.D. from the University of Minnesota Law School and B.A. from the University of Virginia.

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Manufacturing Outlook / November 2020

MANUFACTURING TIDBITS

Manufacturing Outlook for Virginia Looks Promising: New and Expanding Facilities by T.R. CUTLER

Premium-PPE: Investing $5.3 million to increase manufacturing capabilities and add 180 jobs Premium-PPE, a manufacturer of AmeriShield branded masks and personal protective equipment, is investing $5.3 million to expand its operation in the City of Virginia Beach. The company will purchase additional equipment to increase manufacturing capacity and meet growing demand, creating 180 new jobs. “Throughout the course of this public health crisis, we have seen Virginia manufacturers like Premium-PPE adapt their business models to stay viable and help keep people safe,” said Governor Northam. “As we saw at the beginning of this global pandemic, without a dedicated supply chain for manufacturing masks and other personal protective equipment in the United States, we would be forced to rely on overseas shipments that are often hard to get and come with exorbitant prices. By growing its manufacturing

Manufacturing Outlook / November 2020

MANUFACTURING TIDBITS Based in the City of Chesapeake since 1970, Plasser American Corporation is a railway track maintenance equipment manufacturer that has adapted its products to the North American railroad and transit system. The company also provides railway inspections and railway repair vehicle services. After experiencing exponential growth over the last few years, Plasser American currently has more than 300 employees at its Chesapeake operation. The company also has a firstof-its-kind apprenticeship program that enables apprentices to gain hands-on experience while studying at Tidewater Community College.

capabilities, Premium-PPE will help support our present and future needs and continue to play a vital role in producing critical health care supplies for the Commonwealth and states across our country.” Premium-PPE is a subsidiary of PremiumEstore, LLC, a leading manufacturer and distributor of consumer products to customers around the globe for the last 12 years. In March, PremiumEstore began operating as Premium-PPE and is now focusing solely on the production of personal protective equipment, shifting its full production to disposable face and surgical masks. The company made this shift in response to the COVID-19 pandemic and has secured high-volume contracts. Currently, Premium-PPE has the ability to manufacture over 20 million disposable masks each month at its facility in Virginia Beach. Premium-PPE CEO Vitali Servutas shared, “City and state officials have worked hand-in-hand to help Premium-PPE to grow and support not only Virginians, but all Americans.” Plasser American expanding in Chesapeake, creating 98 jobs Plasser American Corporation, a manufacturer of railway construction and maintenance equipment, will invest $52.6 million to expand in the City of Chesapeake. The company will add a 45,000-square-foot, three-story office building and a new 82,000-square-foot manufacturing facility to increase production capacity. The investment plan also involves the renovation of existing infrastructure and the addition of manufacturing equipment, including an updated industrial paint booth. Plasser American will create 98 new jobs and acquire three adjoining properties to accommodate the expansion.

Thomas Blechinger, President of Plasser American noted, “I am proud of our company’s development in the United States over the last six decades and here in Chesapeake for 50 years. This milestone is our chance to show our commitment to the region and to support local talent, employees, and suppliers.” Danish Manufacturer Rose Holm to establish first U.S. Operation in Henrico County Danish company Rose Holm, a leading manufacturer of threaded bolts for the food and beverage, wind power, and heat exchange industries in Northern Europe, will invest $1.35 million to establish its first U.S. manufacturing facility in Henrico County. The new operation will give the company close proximity to a major customer and further its wind energy efforts. Virginia successfully competed with Indiana for the project, which will create 10 new jobs. “We believe that the North American market will expand when it comes to the demand for quality solutions within the highly engineered fastener products portfolio,” said Factory Manager Matthew Barnes. Rose Holm aims to play a significant role as a key component supplier in offshore wind energy generation and plate heat exchanger industries. Author Profile:

Thomas R. Cutler is the President and CEO of Fort Lauderdale, Floridabased, TR Cutler, Inc., celebrating its 21st year. Cutler is the founder of the Manufacturing Media Consortium including more than 8000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. Cutler authors more than 1000 feature articles annually regarding the manufacturing sector. More than 4600 industry leaders follow Cutler on Twitter daily at @ ThomasRCutler. Contact Cutler at trcutler@trcutlerinc.com. Manufacturing Outlook / November 2020

MANUFACTURING TIDBITS

The Future of Aluminum Closed Die Forging is Upon Us by TOM LEFAIVRE

The future of closed-die aluminum forging is wide-open. The value of the global metal forging market, with a predicted compound annual growth rate of 6.3% over the next several years, is set to grow to over $130 billion by 2027 according to recent reporting. With a growing demand for commercial and electric vehicles, a coming resurgence in aerospace, and an increasing need for forged parts in markets ranging from the sugar industry to machine equipment, the closed-die aluminum forging market is well-positioned to reach new heights in the coming years. However, in its present state, the forging market is also significantly fragmented and faces a variety of challenges. Forging companies that are able to recognize these difficulties and adapt to a shifting landscape will be in the best position to reap the benefits set to come over the next decade.

Manufacturing Outlook / November 2020

Accelerating Markets The onset of the ongoing coronavirus pandemic has resulted in numerous changes to how people are going about their daily lives. One of the more unsurprising results, given the benefit of hindsight, has been the growth in the used-car market. Consumers, eager to avoid public transportation or ride-hailing services, have taken to purchasing used cars. Online automotive platform Edmunds.com has reported a surge in the sale of used vehicles. With a booming automotive market, the need for aftermarket automotive parts is set to multiply as these consumers look to maintain their new, pre-owned vehicles. In addition to used vehicles, the increasing emergence of electric vehicles (EVs) is also set to significantly expand

MAANUFACTURING TIDBITS the closed-die aluminum forging market. As companies continue to enter the EV market, from established brands such as General Motors and Volkswagen to burgeoning startups like Lucid Motors and Rivian, the industry’s need for lightweight, high-strength components has steadily been moving upward. Auto components with a superior strength-to-weight ratio, such as those produced by Anchor Harvey, are ideal for manufacturing this next generation of vehicles. As automotive companies increasingly turn to U.S. based closed-die aluminum forgers to reshore their supply lines and secure production capacity for components, the EV market is on course to provide a sustainable trajectory for growth in the closed-die forging industry. Growth Opportunities With a backlog for new aircraft orders already spanning multiple years and a decrease in consumer travel, many commercial airlines have been increasingly focusing on establishing more robust relationships with MRO facilities and suppliers of aftermarket forgings. Even military operators are flying aging fleets longer, bolstering the demand for aftermarket aerospace components. Closeddie aluminum forging companies that are AS9100 certified, like Anchor Harvey, are in a prime position to fulfill the current market needs for high-quality aftermarket aerospace components. As civilian travel picks back up, those same companies will be primed to manufacture new lightweight aerospace parts for new aircraft orders as airlines eventually move to retire and replace their fleets. Increasing demands in other industries are also providing growth opportunities for closed-die aluminum forgers. As sectors including sugar, metal rolling, cement manufacturing, and nuclear power, in addition to several others, are experiencing periods of expansion, the need for an increasing number of aluminum components to ensure continued operations has been steadily growing. To make the most of these and similar opportunities, forging companies need to find the right balance between chasing fast-growing market segments while maintaining their established positions in other industries and growing their relationships with long-term customers. Challenges Ahead The benefits of forging over other fabrication techniques have been instrumental in driving the growth of the market. However, with the forging market currently fragmented and the degree of fragmentation predicted to grow over the coming years, consolidation will be crucial in ensuring long-term viability and success for many closeddie aluminum forging companies. With numerous forge shops catering to niche markets, the need for closed-die aluminum forging companies to grow via mergers and acquisitions is already evident. As the forging market looks to become more fragmented, companies with the foresight to combine resources and market share will be able to grow their profitability and expertise rather than being increasingly relegated to smaller, specialized, or hobbyist market segments.

Additionally, forging companies will need to find ways to differentiate themselves. Whether it’s through the addition of new technologies, the implementation of modernized processes or the achievement of advanced certifications, the ability to adapt to the evolving landscape of modern forging will prove critical to closeddie aluminum forgers’ success in the years ahead. Ready For Tomorrow At Anchor Harvey, we’re already working to surmount the challenges of tomorrow. The achievement of our AS9100 certification ensures we stay forward-focused, while the addition of digital monitoring systems allows us to improve and maintain stellar safety and production records. Digital monitoring, in tandem with our data acquisition systems, ensures machine stability and part consistency from component number one to number one million. We modernized our process, implementing a cellular manufacturing operation, and turned five steps— sawing, hot forging, polishing, trimming, and inspecting— into one continuous workflow. These enhancements led to further improvements, such as the development of our proprietary, in-house ability to heat treat components continuously throughout the forging process. On-the-go heat treatment has already proven to be a significant differentiating factor for Anchor Harvey, delivering results that exceed ASTM standards with a 15% improvement in component properties and consistently recognized by major OEMs as “the best of all worlds” for providing superior components. At Anchor Harvey, we’re prepared today for whatever tomorrow may hold. Author profile

As President of Anchor Harvey, Tom Lefaivre is responsible for overseeing all company facets and its data-driven aluminum forging business. Having served as the company’s president for over 17 years, Tom has a proven executive management track record and over three decades of experience driving sales and growth in the industry. He has spearheaded the transformation of the 100-year-old forge shop, evolving its next growth stage with deep integration of advanced technologies and entrance into a global array of new markets.

Manufacturing Outlook / November 2020

MANUFACTURING TIDBITS

Consistent & Constant Messaging:

How Manufacturers Will Prosper in 2021 by T.R. CUTLER

Working out once a month will not produce the desired results of a strong body; nor will periodic dieting produce a lean body. Consistent behavior in diet and exercise are the only ways to achieve and maintain long-term health and optimal appearance. Similarly, it is foolish for any manufacturer to believe that one press release a month and one published feature article a year will accomplish a strong and healthy manufacturing reputation and grow market share. Achieving media coverage is a good way to build a manufacturerâ&#x20AC;&#x2122;s profile, increase a well-earned reputation, and communicate messaging to target audience customers. Posting a single published feature article is not enough; it must provoke the implementation of cross-promotional PR strategies which exponentially increase the reach of the media coverage. PR is the protein shake to augment a good marketing campaign. Manufacturers as thought leaders Research has shown thought leadership in manufacturing marketing makes a difference for B2B brands. Nearly two-thirds of decision-makers said that thought leadership is one of the top ways to gauge the caliber of thinking that a company can provide. This approach permits creativity, authentic voice of the manufacturer, and advances all other elements in manufacturing marketing.

Manufacturing Outlook / November 2020

MAANUFACTURING TIDBITS

Due to COVID, B2B manufacturing is still undergoing significant changes via digital transformation. While technology has been embraced on the shop floor, many marketers are still wondering about the best way forward in a world no longer defined by a calendar of industry events. Companies with opinionated leaders become the conduit to buyers who respect the thought leadership. Thought leadership is often opposed to the status quo in the manufacturing space.

is voluminous. Customers can be interviewed, employees can be profiled, and products can be explained. When feature articles are published, they can be crosspromoted. Conferences (remote or in-person), webinars, and other events can be shared. Being nominated for awards can be a feather in the cap of manufacturers, whether announced as the winner or not. Strategic partnerships with other vendors, systems integrators, and membership in associations are also cause for regular press releases. Only with this frequency can editors and members of the Manufacturing Media Consortium find something to announce. Competitors are shouting their virtues and differentiators. Silence is not an option for manufacturers to succeed in 2021. All these elements become fodder for social media as well. It takes time to grow Twitter followers, but like PR, that functionality can be outsourced. 2021 media planning session By early December it is best if all manufacturers work to create a 2021 media plan. In addition to the topics described above, there will also be unknown elements such as new clients, new employees, mergers & acquisition, that can be documented. Taking these functions one quarter at a time might be necessary baby-steps for manufacturers who have not performed strategic media planning sessions previously.

Three press releases a week Advising manufacturers to issue at least three press releases a week is often met with shock. Most have no clue what could be announced with that level of frequency. The answer is simple, if the doors are open today, there is something to say today. From new products, new hires, and new customers, there is never a shortage of things to talk about. Since most small and midsized manufacturers have neglected to tell their story, the backlog of content

Author Profile: Thomas R. Cutler is the President and CEO of Fort Lauderdale, Florida-based, TR Cutler, Inc., celebrating its 21st year. Cutler is the founder of the Manufacturing Media Consortium including more than 8000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. Cutler authors more than 1000 feature articles annually regarding the manufacturing sector. More than 4700 industry leaders follow Cutler on Twitter daily at @ThomasRCutler. Contact Cutler at trcutler@trcutlerinc.com. Manufacturing Outlook / November 2020

MANUFACTURING TIDBITS

Manufacturing Outlook:

COVID Drives Remote Work with B2B eCommerce by MOTTI DANINO

As the COVID pandemic wears on, manufacturers and distributors of industrial products continue to be impacted. Economic shutdowns greatly reduced the demand for some industrial products. While some industries were able to operate with a remote workforce, many manufacturing jobs must be performed on-site and cannot be performed remotely.

These companies realized the importance of optimizing effectiveness in the pandemic environment and are finding solutions for some members on the team to work safely and remotely.

Early in the pandemic many manufacturers, distributors, and those selling physical products, assumed remote working would not be possible.

Increasingly manufacturing leaders are embracing digital technology through process automation, while others still rely on the physical presence and

Manufacturing Outlook / November 2020

Manufacturers succeed in managing a distributed team

MANUFACTURING TIDBITS interaction of humans. During COVID some believe it is difficult for industries to adopt distributed, remote work policies and maintain workplace productivity. That is a false presumption. Manufacturers and distributors of physical goods can review workflows identifying areas where technology can bring additional improvements. Even if automation, robotics, and cloud computing are being used, manufacturers must revisit communication, project management, CRM, and B2B eCommerce tools to see how they can further digital transformation.

of things) can enable remote work. Identifying how photo, video, and teleconferencing technology can enhance safety and performance is critical. Implementing digital communication methods on the shop or warehouse floor, such as instant messaging and tele-conferencing limits physical contact.

Most manufacturing firms of $75M+ are embracing B2B eCommerce With online traffic at an all-time high, manufacturers are investing in digital selling channels that recover losses from in-person sales and creating a new channel to serve online customers. That is just a portion of doing business in the new, pandemic manufacturing world. Manufacturers determine what teams must be present on the production or warehouse floor and how they can socially distance and still maintain safety. Reviewing engineering tasks is essential when determining whether IIOT (industrial internet

All businesses have been forced to work from home and face the communication, productivity, and security challenges of managing remote teams. These challenges are amplified for manufacturers as many product management, production, and warehousing activities simply cannot be done remotely. Manufacturers managing customizable products from engineer-to-order (ETO) to assemble-toorder (ATO) must adjust processes which require less frequent iteration and collaboration with in-person teams. Manufacturers relying on a limited number of specialized suppliers in the supply chain must work together to adopt new communication methods, processes, and tools. Organizations with cross-functional teams must enable asynchronous communication while

Manufacturing Outlook / November 2020

MANUFACTURING TIDBITS

maintaining a positive work environment and accountability. Many manufacturers are operating with legacy tools and systems must be optimized or changed in favor of cloud technologies that make it easier to collaborate and share data remotely. Manufacturers adopting best combination of digital tools, processes, and communication methods While it may be challenging to offer product demos or check for defects with a webcam, it may be the only option during COVID. A good web camera, fast connection, and the right web conferencing software goes a long way. With a lack of tradeshows and travel restrictions, the world of physical B2B sales is changing quickly. Diverting field sales resources to communicating with clients, spending more time on sales calls, and shipping more samples is the new normal. Manufacturers must give more time to vendors and suppliers so they can make changes well

Manufacturing Outlook / November 2020

ahead of the production schedule. Leaving a larger window to rectify communication issues is especially important with overseas suppliers. Seeking alternatives across the value chain to preserve relationships and create mutually beneficial partnerships, dissipates risks, and diversifies points of failure during dynamically changing environments. Technologies and collaboration tools are the glue that holds remote manufacturing teams together. Fortunately, there are great tools that help B2B manufacturing businesses work around the challenges of industry. To market, sell, and offer customers the best experience, manufacturers need a single source of truth offered by CRM and eCommerce solutions. OroCommerce is a powerful B2B eCommerce software for distributors, manufacturers, wholesalers, and suppliers. OroCommerce offers B2B businesses an unmatched selling experience, supporting complex workflows and business models such as B2B2C, D2C, and B2B marketplaces. It empowers remote teams by eliminating data silos and providing everyone

MANUFACTURING TIDBITS gives team members a comprehensive view of customers. The softwareâ&#x20AC;&#x2122;s open-source nature provides companies the freedom to customize the look, feel, behavior, and functionality of the software. It is easy to use on mobile and boasts a long list of technology partners, integrations, and a robust API for additional customization.

Author Profile:

greater visibility into the B2B buyer experience. With the most features out-of-the-box, it speeds up time to market and reduces the sales cycle. OroCommerce comes with an out-of-thebox natively integrated CRM, OroCRM. It is an excellent tool for distributed teams because it

Motti Danino (pictured left) serves as Chief Operations Officer at Oro Inc. He oversees global operations, partner relations, and marketing of OroCommerce. Prior to Oro, Danino was part of Magento where he launched and led the eCommerce cloud business unit, a SaaS eCommerce platform targeting small and medium businesses.

Manufacturing Outlook / November 2020

ISM REPORT OUTLOOK

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

BREAKING NEWS

ISM PMI at 59.3% for October ISM PMI for the past 5 years

OCTOBER 2020 59.3%

Manufacturing Outlook / November 2020

ISM REPORT OUTLOOK INSTITUTE FOR SUPPLY MANAGEMENT®

Analysis by

reportonbusiness Economic activity in the manufacturing sector grew in October, with the overall economy notching a sixth consecutive month of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®. The October Manufacturing PMI® registered 59.3 percent. The New Orders Index registered 67.9 percent, an increase of 7.7 percentage points from the September reading of 60.2 percent. The Production Index registered 63 percent, an increase of 2 percentage points compared to the September reading of 61 percent. The Backlog of Orders Index registered 55.7 percent, 0.5 percentage point higher compared to the September reading of 55.2 percent. The Employment Index registered 53.2 percent, an increase of 3.6 percentage points from the September reading of 49.6 percent. The Supplier Deliveries Index registered 60.5 percent, up 1.5 percentage points from the September figure of 59 percent. Of the 18 manufacturing industries, 15 reported growth in October, in the following order: Apparel, Leather & Allied Products; Fabricated Metal Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Machinery; Furniture & Related Products; Paper Products; Wood Products; Chemical Products; Primary Metals; Computer & Electronic Products; Transportation Equipment; Electrical Equipment, Appliances & Components; and Miscellaneous Manufacturing‡. ISM

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

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

MANUFACTURING

PMI at 59.3% ®

PMI

Manufacturing grew in October, as the Manu2018 2019 2020 facturing PMI® registered 59.3 percent, 3.9 59.3% percentage points higher than the September reading of 55.4 percent. The month-overmonth gain of 3.9 percentage points is the 50% = Manufacturing Economy second-biggest positive change in the ManuBreakeven Line ® 42.8% = Overall Economy facturing PMI since May 2009, when it Breakeven Line increased by 4.2 percentage points. (There was a 9.5-percentage point increase in June 2020, as activity picked up significantly after coronavirus-induced shutdowns.) The Manufacturing PMI® signaled a continued rebuilding of economic activity in October, with all five contributing subindexes in moderate to strong growth territory. Five (Fabricated Metal Products; Food, Beverage & Tobacco Products; Chemical Products; Computer & Electronic Products; and Transportation Equipment) of the big six industry sectors continue to expand.

Manufacturing at a Glance INDEX

Oct Index

Sep Index

% Point Change

Direction

Rate of Change

Trend* (months)

Manufacturing PMI®

59.3

55.4

+3.9

Growing

Faster

New Orders

67.9

60.2

+7.7

Growing

Faster

Production

63.0

61.0

+2.0

Growing

Faster

Employment

53.2

49.6

+3.6

Growing

From Contracting

Supplier Deliveries

60.5

59.0

+1.5

Slowing

Faster

Inventories

51.9

47.1

+4.8

Growing

From Contracting

Customers’ Inventories

36.7

37.9

-1.2

Too Low

Faster

Prices

65.5

62.8

+2.7

Increasing

Faster

Backlog of Orders

55.7

55.2

+0.5

Growing

Faster

New Export Orders

55.7

54.3

+1.4

Growing

Faster

Imports

58.1

54.0

+4.1

Growing

Faster

Overall Economy

Growing

Faster

Manufacturing Sector

Growing

Faster

*Number of months moving in current direction. Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.

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

ISMWORLD.ORG

Commodities Up in Price: Aluminum (5); Aluminum Products; Base Oils; Copper (5); Corn; Corrugate; Ethylene; Freight; High-Density Polyethylene (HDPE) Products (4); Lumber (4); Plastic Products; Plastic Resins (2); Polyethylene Film; Polyethylene Resins; Polyethylene Terephthalate (PET) Bottles; Polypropylene (4); Polyvinyl Chloride; Precious Metals (4); Propylene; Soybean Products; Steel (3); Steel — Cold Rolled; Steel — Galvanized; Steel — Hot Rolled (2); Steel Products (2); and Wood Pallets. Commodities Down in Price: Caustic Soda. Commodities in Short Supply: Aluminum Products; Capacitors (2); Electrical Components; Labor — Temporary; Lumber; Personal Protective Equipment (PPE) — Gloves (8); Freight; Polyvinyl Chloride; Resistors; and Steel Products. Note: The number of consecutive months the commodity is listed is indicated after each item.

Manufacturing Outlook / November 2020

ISM REPORT OUTLOOK

ISM Report On Business ®

Manufacturing PMI® New Orders (Manufacturing) 2018

2019

October 2020 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

New Orders

2020

The New Orders Index registered 67.9 percent. Of the 18 manufacturing industries, the 16 that reported growth in new orders in October — in the following order — are: Apparel, Leather & Allied Products; Wood Products; Plastics & Rubber Products; Primary Metals; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Computer & Electronic Products; Paper Products; Food, Beverage & Tobacco Products; Machinery; Chemical Products; Petroleum & Coal Products; Transportation Equipment; Nonmetallic Mineral Products; and Miscellaneous Manufacturing‡.

67.9%

52.5% = Census Bureau Mfg. Breakeven Line

Production (Manufacturing) 2018

2019

Production

2020

63%

51.7% = Federal Reserve Board Industrial Production Breakeven Line

The Production Index registered 63 percent. The 11 industries reporting growth in production during the month of October — listed in order — are: Nonmetallic Mineral Products; Fabricated Metal Products; Plastics & Rubber Products; Primary Metals; Food, Beverage & Tobacco Products; Machinery; Paper Products; Transportation Equipment; Chemical Products; Electrical Equipment, Appliances & Components; and Computer & Electronic Products. The only industry reporting decreased production in October is Textile Mills.

Employment (Manufacturing) 2018

2019

Employment

2020

53.2% 50.8% = B.L.S. Mfg. Employment Breakeven Line

Supplier Deliveries (Manufacturing) 53.1% 2018

2019

2020 80

60.5%

ISM’s Employment Index registered 53.2 percent. Of the 18 manufacturing industries, the 11 industries to report employment growth in October — in the following order — are: Apparel, Leather & Allied Products; Wood Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Plastics & Rubber Products; Primary Metals; Nonmetallic Mineral Products; Computer & Electronic Products; Machinery; Transportation Equipment; and Chemical Products.

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations was slower in October, as the Supplier Deliveries Index registered 60.5 percent. Fifteen industries reported slower supplier deliveries in October, listed in the following order: Textile Mills; Fabricated Metal Products; Furniture & Related Products; Wood Products; Paper Products; Plastics & Rubber Products; Machinery; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Chemical Products; Computer & Electronic Products; Transportation Equipment; Miscellaneous Manufacturing‡; and Electrical Equipment, Appliances & Components.

Inventories (Manufacturing) 2018

2019

2020

51.9% 44.3% = B.E.A. Overall Mfg. Inventories Breakeven Line

‡Miscellaneous

Manufacturing (products such as medical equipment and

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

Manufacturing Outlook / November 2020

Inventories The Inventories Index registered 51.9 percent. The six industries reporting higher inventories in October — in the following order — are: Nonmetallic Mineral Products; Miscellaneous Manufacturing‡; Furniture & Related Products; Paper Products; Food, Beverage & Tobacco Products; and Chemical Products.

ISM REPORT OUTLOOK

ISM Report On Business ®

Manufacturing PMI®

October 2020 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

Customer Inventories (Manufacturing) 2018

2019

Customers’ Inventories

2020

36.7%

ISM’s Customers’ Inventories Index registered 36.7 percent. Of the 18 industries, the only one reporting higher customers’ inventories in October is Printing & Related Support Activities. The 15 industries reporting customers’ inventories as too low during October — listed in order — are: Textile Mills; Paper Products; Wood Products; Plastics & Rubber Products; Machinery; Fabricated Metal Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment; Chemical Products; Nonmetallic Mineral Products; Computer & Electronic Products; and Miscellaneous Manufacturing‡.

Prices (Manufacturing) 2018

2019

Prices

2020

65.5%

52.5% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line

Backlog of Orders (Manufacturing) 2018

2019

The ISM Prices Index registered 65.5 percent. The 15 industries reporting paying increased prices for raw materials in October — listed in order — are: Apparel, Leather & Allied Products; Wood Products; Paper Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Machinery; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Furniture & Related Products; Primary Metals; Chemical Products; Textile Mills; Computer & Electronic Products; Transportation Equipment; and Miscellaneous Manufacturing‡.

Backlog of Orders

2020

55.7%

ISM’s Backlog of Orders Index registered 55.7 percent. The 10 industries reporting growth in order backlogs in October, in the following order, are: Wood Products; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Furniture & Related Products; Paper Products; Machinery; Computer & Electronic Products; and Chemical Products.

New Export Orders (Manufacturing) 2018

2019

New Export Orders

2020

55.7%

ISM’s New Export Orders Index registered 55.7 percent. The 11 industries reporting growth in new export orders in October — in the following order — are: Wood Products; Primary Metals; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Machinery; Miscellaneous Manufacturing‡; Transportation Equipment; Fabricated Metal Products; and Chemical Products.

Imports (Manufacturing) 2018

2019

2020

58.1%

‡Miscellaneous

Imports ISM’s Imports Index registered 58.1 percent. The 12 industries reporting growth in imports in October — in the following order — are: Petroleum & Coal Products; Nonmetallic Mineral Products; Fabricated Metal Products; Paper Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Chemical Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Machinery; Plastics & Rubber Products; and Miscellaneous Manufacturing‡.

Manufacturing (products such as medical equipment and

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

Manufacturing Outlook / November 2020

NORTH AMERICAN OUTLOOK

NOVEMBER 2020

NORTH AMERICAN OUTLOOK by AMELIA ROY

The Institute of Supply Management PMI figure rose from 55.4 in September to 59.3 in October. New orders, production and employment are growing; supplier deliveries are slowing at a faster rate; backlogs are growing; raw materials inventories are growing; customer inventories are too low; prices are increasing and exports and imports are growing. Of the 18 manufacturing industries, 15 reported growth in October, in the following order: Apparel, Leather & Allied Products; Fabricated Metal Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Machinery; Furniture & Related Products; Paper Products; Wood Products; Chemical Products; Primary Metals; Computer & Electronic Products; Transportation Equipment; Electrical Equipment, Appliances & Components;

Manufacturing Outlook / November 2020

and Miscellaneous Manufacturing. The two industries reporting contraction in October are: Textile Mills; and Printing & Related Support Activities. Comments from the industry are more optimistic than seen in a long time. Computer & Electronic Products state that COVID-19 hurting mostly as a lack of personnel. Commodities Up in Price Aluminum (5); Aluminum Products; Base Oils; Copper (5); Corn; Corrugate; Ethylene; Freight; High-Density Polyethylene (HDPE) Products (4); Lumber (4); Plastic Products; Plastic Resins (2); Polyethylene Film; Polyethylene Resins; Polyethylene Terephthalate (PET) Bottles; Polypropylene (4); Polyvinyl Chloride; Precious Metals (4); Propylene; Soybean Products; Steel (3); Steel — Cold Rolled; Steel — Galvanized; Steel — Hot Rolled (2); Steel Products (2); and Wood Pallets.

NORTH AMERICAN OUTLOOK Commodities Down in Price Caustic soda Commodities in Short Supply Aluminum Products; Capacitors (2); Electrical Components; Labor — Temporary; Lumber; Personal Protective Equipment (PPE) — Gloves (8); Freight; Polyvinyl Chloride; Resistors; and Steel Products. Note: The number of consecutive months the commodity is listed is indicated after each item. U.S. LIGHT VEHICLE SALES Ford is returning to monthly reporting, and said its October sales were down 6.1 percent, due in large part to a factory overhaul to produce the redesigned version of its F150 pickup. FCA and GM have no plans to return to monthly reporting. There was reportedly an industrywide one percent increase in sales in the U.S. in October. CANADA saw a further strong increase in production, new orders - both domestic and

export - and purchases in October. The ongoing recovery in client demand led to an increase in employment. There were intense supply-chain pressures as lead times from vendors lengthened further. The PMI for October, at 55.5, was slightly down from September’s 56.0. Rising demand for inputs and higher prices for raw materials led to the fastest increase in cost burdens for nearly two years. Canadian light vehicle sales for October were down 2.1 percent year-over-year to 156,095 units. MEXICO is having a terrible time through the pandemic, which appears to be hitting all corners of its manufacturing industry. Even though the PMI is struggling back towards the fifty mark, the industry is seeing sharp reductions in total sales, production, input buying and employment. The PMI for Mexico in October was at 43.6, up from September’s 42.1. Manufacturing employment decreased further and business pessimism returned. Amelia Roy, Staff Writer

Manufacturing Outlook / November 2020

SOUTH AMERICAN OUTLOOK

GLOBAL OUTLOOK

SOUTH AMERICA by JEANNE-MARIE LOWRIE

BRAZIL saw sharp growth again in October in new orders, production, and employment, and recordbreaking trends in new export orders. The PMI rose from 64.9 in September to 66.7 in October. There was strong demand, capacity expansion plans, and heavy order backlogs. To go along with all this were high rates of input and output inflation, supply-chain pressures and delivery delays, together with difficulty in obtaining such inputs as chemicals, metals, packaging, paper, plastics and textiles. For the moment Brazil will take it. Argentina remains in turmoil as it tries to balance its deficit spending and recover from the deep devaluation of its peso. The popularity of President Macri fell sufficiently for him to lose the 2019 election to Alberto Fernandez, just in time for COVID to decimate the weak Argentinian economy. Any outlook on Argentina, a country in turmoil for decades, will be bleak.

Manufacturing Outlook / November 2020

All Latin American economies are experiencing severe downturns due to the pandemic, on top of the weak economies each country was experiencing prior to 2019. Brazil, at the moment, is the outlier because it resisted shutting down, but it paid a high price in the spread of COVID. Depending upon how long and how serious the pandemic remains will determine how quickly individual countries might bounce back. Looking forward, all of South America will be in serious economic trouble through 2021. Latin America has not been a high-powered global economic center, largely due to political chaos and corruption, made substantially worse by the virus. Brazil may be the only country that surprises, but it could surprise either way, good Jeanne-Marie Lowrie, or very bad. Staff Writer

ASIA OUTLOOK

GLOBAL OUTLOOK

ASIA OUTLOOK

by CHRIS ANDERSON

CHINA saw continuing expansion in October and a sharper increase in production and new orders. New export sales growth softened amid the resurgence of the coronavirus in certain export markets. Business confidence was at its highest in just over six years. The October PMI, at 53.6, was up on September’s 53.0. This marked improvement in business conditions was the strongest since January 2011, with the quickest increase in new orders for almost a decade. There was only a slight improvement in employment. Chinese vehicle sales were up 13 percent in September, with new electric vehicle sales up 68 percent. Tesla China’s sales were over 11,000 units, putting the company at number three in Chinese NEV sales. JAPAN’s PMI rose to 48.7 in October from September’s 47.7, but stayed in contraction. Both production and new orders fell at slower rates, and export orders were up for the first time since

November 2018. Job cuts quickened. Business optimism is at its highest since July 2017. There are difficulties sourcing raw materials and inputs due to longer supplier delivery lead times. Overall, things are getting better in Japan. INDIA’s manufacturing PMI reached another level, with production increasing to the greatest extent in 13 years amid strong new orders growth. New export orders were also up strongly, the most pronounced in almost six years. Jobs were shed to allow adherence to government coronavirus distancing guidelines. The PMI rose from 56.8 in September to 58.9 in October. The level of optimism was at a 50-month high amid hopes of an end to COVID-19 and the reopening of other sectors of the economy.

Chris Anderson, Staff Writer

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Manufacturing Outlook / November 2020

EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE by CHRIS ANDERSON

IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI), again backed by a strong performance in Germany, rose to 54.8 in October from 53.7 in September, the best for 27 months. Germany drove sharper increases in regional production and new orders. Backlogs rose appreciably, but firms continued to cut employment. There was growth across all three market sectors, with investment goods the strongest, and the highest for over two years. The new overall export business rose at a rate that was the best recorded by the survey since February 2018. There was a heightened increasing demand strain on suppliers. Car sales in Western Europe were down 29.5% on a YTD basis, with September sales up 0.1 percent year-over-year. French sales YTD were down 29% ;

German down 25.5%; Spanish down 38.3%; Italian down 34.3 % and UK down 33.2 %. Forecasts are putting the reduction in sales for the year at 24 percent. Plug-in hybrids and battery electric vehicles are now accounting for 1 million sales per year in Europe. Some 90,000 BEVs were sold in Europe in September. IHS Markit’s PMI for the UK was at 53.7 in October, down slightly from 54.1 in September. The continuing expansion included both domestic and export business, with the trend in export business strengthening with increased demand from China and the U.S. Both the intermediate and investment goods industries saw marked expansions of production and new orders, whereas consumer goods slipped back into contraction. Manufacturing employment declined for the ninth consecutive month. Over sixty percent of manufacturers are looking for higher production in the coming year. There is ongoing concern re COVID-19 and Brexit. The UK produced 0.545 MT of crude steel in September, down 7.7 percent year-over-year.

Manufacturing Outlook / November 2020

Chris Anderson, Staff Writer

GLOBAL PMI OUTLOOK

by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL SURVEYS, STRATEGAS RESEARCH PARTNERS The global recovery continues to strengthen as 15 of the 18 surveys that we follow printed a combined PMI of 56.6 (+0.3) percent. The laggards are Mexico (43.6) and Japan (48.7) in the major economies, and they are joined by the seven ASEA countries which have a combined PMI of 48.6 percent. Five months of growth is building confidence globally. The slower growth economies should continue to improve as the major economies continue broaden their recovery. ISM U.S. Manufacturing PMI™ - An expansionary October PMI™ (59.3, +3.9) will drive manufacturing growth into Q1 2021. New Orders (67.9, +7.7), Production (63.0, +2.0), and Supplier Deliveries (60.5, +1.5) made major contributions to the rapid acceleration. The past relationship between the PMI®and the overall economy indicates that the PMI®for October (59.3) corresponds to 4.8-percent annualized GDP growth, according to the press release. Drivers: In addition to the improvement in New Orders, Production, and Supplier Deliveries, Inventories (51.9, +4.8) indicates some accumulation is starting to take place while Employment (53.2, +3.6) moved at a slower pace of growth. October’s leaders in manufacturing are Brazil, Germany and the United States. New Orders Minus Inventories: This key measure at +16.0 (67.9 minus 47.1) shows New Orders continued to expand faster than Inventories in October. Compared to the average gap (+6.8), inventory availability can become an issue. Concerns about constraints may become more prominent and a problem to supply chains. Customers’ Inventories: Only one industry reported higher customers’ inventories in October: Printing & Related Support Activities. Fifteen industries reported customers’ inventories as too low during October: Textile Mills; Paper Products; Wood Products; Plastics & Rubber Products; Machinery; Fabricated Metal Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment; Chemical Products; Nonmetallic Mineral Products; Computer & Electronic Products; and Miscellaneous Manufacturing. We continue to believe a Customers’ Inventories Index at this level (36,7, -1.2) indicates inventory replenishment will be broad-based and spill over into 2021.

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

Manufacturing Outlook / November 2020

CREDIT MANAGER’S OUTLOOK

CREDIT MANAGERS’ OUTLOOK by DR. CHRISTOPHER KUEHL MANAGING DIRECTOR OF ARMADA CORPORATE INTELLIGENCE THIS REPORT REPRINTED COURTESY OF THE NATIONAL ASSOCIATION OF CREDIT MANAGERS (NACM.ORG) WHERE MORE IN-DEPTH INFORMATION CAN BE FOUND.

Combined Sectors This is the point where hyperbole and comparisons seem to fail. How does one even attempt to describe the economic situation the US and the world faces right now? There has been so much of this crisis that has been unexpected and so much of it has been artificial. The recession was not organic and thus took everybody by surprise. The downturn in 2008 was predicted by credit managers as they saw significant distress showing up in 2007. There was no such warning this time – favorable numbers ranged from 58.8 to 64.0 in February and in April the range was from 20.0 to 41.6. This was an utter collapse and one that nobody could have anticipated. Since then there has been a dramatic rebound in some areas and continued distress in others. The favorable factor range is now from 68.0 to 74.2 – numbers that have not been seen in many years. This is dramatic to be sure but needs to be put in some perspective. Remember that it is estimated that third quarter GDP will have climbed by over 20% but also remember that second quarter GDP was down by over 35%. The bottom line is that month to month comparisons will be very unreliable for a few more months. The current combined index holds at the highest level seen in years – 58.4. This is in contrast to the reading in April when it was at 40.6. That gain of nearly twenty points is a bounce back to be sure but not really as impressive as it would appear at first glance. The combined index for the favorable factors has staged the biggest gains with a reading of 68.0 compared to 63.3 last month and 32.0 in April. The combined index for the unfavorables has not shown this wild variability. This month it registers a reading of 51.9 and last month the reading was 51.1. In April when the favorables were crashing the unfavorables read a much less dramatic 46.3. The fact is that this recession has been so sudden and so unusual there has not been time for many businesses to get into the kind of situation that would trigger unfavorable readings.

Manufacturing Outlook / November 2020

As one would expect the biggest jump occurs in the sales category. Last month was impressive in its own right as it had jumped to 65.5 – a very, very far cry from the 20.0 reported in April. Now its stands at 74.2 and that is nearly unprecedented in the history of the survey. The new credit applications data stayed a little closer to last month with a reading of 65.2 compared to 63.6 in September. The dollar collections numbers also stayed a little closer to September levels but they still improved quite a lot as they went from 63.3 to 64.6. The amount of credit extended jumped almost as dramatically as the sales numbers with a reading of 68.0 compared to 60.8 last month. In April, this reading was down to 41.6. The trend seems to be that companies that have been able to emerge from the lockdown are seeing significant demand and new opportunities and are asking for more credit in order to expand. This is actually a hallmark of a short and sharp recession. Weaker companies fail and stronger companies move aggressively to gain market share given up by those that have gone out of business. The unfavorables are not showing as much drama but there has been movement, nonetheless. The good news is that the rate of rejections of credit applications has not moved much and most importantly it has stayed in the expansion zone with a reading of 51.4 as compared to 51.6 in September. This is good given the surge in new applications as it suggests that those newly applying for credit are indeed creditworthy. The data for accounts placed for collection have remained more or less stable. The reading last month was 49.4 and this month it is 49.5. It is still in the contraction zone below 50 but hovering very close to breaking back into expansion. There had been an expectation these numbers would look worse by now but those who took on debt have been able to keep current. The disputes category surged back into expansion territory with a reading of 51.0 – contrasting nicely with the 48.7 registered in September. The dollar amount beyond terms shot back into expansion territory with

CREDIT MANAGERâ&#x20AC;&#x2122;S OUTLOOK

Manufacturing Outlook / November 2020

CREDIT MANAGERâ&#x20AC;&#x2122;S OUTLOOK a vengeance as it registered a gain to 58.0 after a respectable 54.6 in September. This is as interesting as the improved performance in dollar collections as it signals that debtors want to stay on good terms with those they are seeking credit from. The dollar amount of customer deductions held steady and in expansion territory with a reading of 51.0 compared to 51.1 in the prior month. The filings for bankruptcies slipped a bit from 51.3 to 50.7 but the important point is that these numbers stayed in expansion territory. Manufacturing Sector The manufacturing sector has been somewhat immune from the economic gyrations created by the lockdowns. It has depended to a great extent what sector a given manufacturer serves. Those that are engaged in aerospace have not seen much progress and neither have those that orient towards sectors such as hospitality or tourism in general. The automotive sector has been up and down but is currently trending up and so is the construction equipment sector. Oil and gas have been likewise up and down â&#x20AC;&#x201C; you get the idea. The majority of the damage has been felt by the service sector. The combined score for manufacturing rose sharply to 58.8 and this is up from the decent reading in

Manufacturing Outlook / November 2020

September when the numbers were at 55.3. Through the last several months there have been reliable readings in the expansion zone â&#x20AC;&#x201C; the last time they slipped into contraction was in May with a reading of 44.1. The index of favorable factors has been even more impressive with 67.9 this month and 62.5 last month. In April, these readings were down to 34.3 so it is important to note that the current high numbers are coming against that backdrop. The index of unfavorable factors improved but not as dramatically with a rise to 52.6 after a reading of 50.5 in September. The bulk of the activity has been in the favorable categories for the bulk of the year. That trend has continued. The sales reading jumped to 75.3 after a 65.1 in September. There has been an observed surge in the acquisition of goods since the pandemic shut down the majority of the service sector. This has been good for a lot of consumer manufacturing as well as industrial activity. The new credit applications improved as well but the leap was not quite as impressive with a new reading of 62.0 compared to 60.8. The dollar collections data also made a nice jump from 63.9 to 65.0 and that is especially good news as compared to the 35.7 number in April. The amount of credit extended also improved dramatically with a

CREDIT MANAGER’S OUTLOOK

reading of 69.4 compared to 60.0 in September. The companies that are seeking credit are seeking quite a lot of credit as they try to take advantage of pent up demand and opportunities to expand market share. The rejections of credit applications improved a bit as well and combined with the increase in applications this points to some solid future growth. The number last month was at 51.7 and is now sitting at 52.8. This factor has been consistently solid for the last several months. The accounts placed for collection jumped back into expansion territory with a reading of 51.4 after last month’s 49.4. This is good news given the increased pressure that had been building in many of the industrial sectors. The disputes numbers also returned to expansion territory with a reading of 51.6 as compared to the 48.1 in September. The low point for disputes was in June with a number of 47.4 – not in the stressed months of March and April. The disputes have emerged along with some of the expansion of business through the summer. The dollar amount beyond terms surged to a high of 58.4 as compared to the prior month at 52.3. The fact is that most companies are doing their best to get current and stay current as they anticipate more credit needs. The dollar amount of customer deductions moved out of the contraction zone as well as the numbers went from 49.8 to 50.5. The filings for bankruptcies remained very stable with a reading of 51.2 compared to 51.6. If there is to be an increase in bankruptcy activity it is more likely to hit after the first of the year and the end of the holiday spending season Overall, the manufacturing data has been trending in a positive direction with gains seen in everything from the Purchasing Managers’ Index to capacity utilization, industrial production and durable goods orders. Granted, there is still a long way to go to offset the damage that was done earlier in the year but the data

has been trending in the right direction. Author profile Dr. Christopher Kuehl (PhD) 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. He prepares NACM’s monthly Credit Managers Index. He is the Economic Analyst for the Fabricators and Manufacturers Association and writes their bi-weekly publication, Fabrinomics, which details the impact of economic trends on the manufacturer. Chris is the chief editor for the Business Intelligence Briefs, distributed all over the world by business organizations and he is one of the primary writers (with Keith Prather) for the Executive Intelligence Briefs. He also makes close to a hundred presentations each year to business and industry associations in the US and overseas. He is on the Board of the Business Information Industry Association in Hong Kong and serves as a resource for the media and for many trade publications. Chris has a doctorate in Political Economics and advanced degrees in Soviet Studies and Asian Studies and was a professor of international economics and finance for over 15 years prior to starting Armada.

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METALS OUTLOOK

NOVEMBER 2020

METALS OUTLOOK

by ROYCE LOWE

WHO’S HOLDING THE IRON REINS? To make steel we need iron, to make cast iron we need iron. To make iron we need iron ore, as a blast furnace feed and to make direct reduced iron pellets. China imports 70 percent of the world’s iron ore, most of which comes from three companies. These are Rio Tinto and BHP, both Anglo-Australian firms, and Vale, a Brazilian one. The three have formed what could almost be called a cartel, where none is keen to undercut the other two. This puts them in a strong position vis à vis their Chinese customers. China, naturally, doesn’t like this, and wants to change it. It’s in the strange position of having some

Manufacturing Outlook / November 2020

of the world’s leading technology companies, but gets barely a sniff at one of the most basic industries of all, iron mining, where it’s paying over $100 per ton to feed its steel mills. China has long hoped to back the development of a huge iron-ore deposit in Guinea called SIMANDOU, in which Rio Tinto has a joint venture with CHINALCO, China’s state-owned aluminium producer (and Rio’s biggest shareholder.) The story behind Simandou and the people trying to get to it reads like a spy novel, with bauxite miners and governments involved, and, of course, corruption. Suffice it to say that there’s

METALS OUTLOOK a north side and a south side to this deposit, which is estimated to contain 2 billion tons of some of the world’s highest-grade iron ore. China wants it, the Rio-Chins joint venture wants it, and its development, railway and port and all could cost over $20 billion. All this could push down the price of iron ore by $10 per ton; but this might be happening anyway. Rio, quite wisely, is not doing too much to encourage further exploration into Simandou. So for the time being China will be taking a back seat, though we know not for how long. Starting up an iron-ore mine is a very expensive business, and although China rarely balks when it comes to money, it may take more than just that to allow it to seriously get into this particular game. Rio Tinto ruffled feathers not too long ago by disastrously destroying a 46,000-year-old Aboriginal site in Western Australia. So Rio Tinto and China are at the proverbial loggerheads, with others waiting on the sideline to take a big bite of the iron-ore business. The coronavirus saw rising raw material costs and weakening steel prices, with profit margins falling to multi-year lows between May and August of this year, but upping significantly in the past few months, particularly in the U.S. This was fueled by increased

selling prices, rather than by reductions in mill output expenditure. Iron ore is up since May, due mainly to China’s appetite for the stuff, and prices are predicted to remain elevated in the near term. Coking coal, an important blast-furnace feed, is up since the summer - when it saw a four-year low - and there were import restrictions on it into China, but increases in steel production in India, Europe and the U.S. should push up prices of this commodity in the coming months. Scrap costs were rising until September, but have since stabilized or softened and will firm up as steel demand improves. There have been disaster-related outages in Brazil in the past couple of years, which have tended to up the price of the ore. It is predicted that EU and U.S. profit margins will improve in the final two months of 2020. Steel price increases and relatively stable input costs will help steelmakers in these regions to return to profitability levels similar to those recorded in early 2019. Prices in Asia look stable for the balance of the year. U.S. hot-rolled coil prices soared $100 per ton in October to reach $700 per ton, cold-rolled over $70 per ton. European hot-rolled coil increased by some 40 euros per ton. Meanwhile, there are reports of

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Manufacturing Outlook / November 2020

METALS OUTLOOK

serious shortages on certain products in the North American and European markets. Selling prices have been adjusted accordingly.

mitigate the reduction in global steel demand this year.

Steel demand, this year and next.

This forecast assumes that despite the current resurgence in infections in many parts of the world, nationwide lockdowns will not be repeated. Recent moves in France and the UK, for example, and significant resurgence of the virus in the U.S. are likely to affect steel demand to some (unknown) extent. Many steel-using sectors are still operating below their pre-COVID level.

The World Steel Association (worldsteel) recently released an update to its Short Range Outlook (SRO) which is much more optimistic than that released in June. The decline in demand, although significant, is much smaller than previously expected. It is forecast that steel demand in 2020 will contract by 2.4 percent, falling to 1.725.1MT, and that in 2021 steel demand is expected to recover to 1.795 MT, up 4.1 percent over 2020. A strong recovery in China will

China has been in strong recovery since late February, showing a steady improvement and positive GDP growth for the year, despite the 6.8 percent contraction in the first quarter of 2020. China saw improvements in real estate and infrastructure, and from August the machinery and automotive sectors showed year-over-year growth of 10.9 and 7.6 percent respectively. China is looking to a growth of 8 percent in steel demand in 2020, helped by a

Non-ferrous metal data show price increases in the four metals we follow, with aluminum up from $0.775 per lb in early October to $0.830 in early November; copper up from $2.80 to $3.04; nickel up from $6.50 to $6.90, zinc up from $1.05 to $1.14.

Manufacturing Outlook / November 2020

METALS OUTLOOK

government infrastructure stimulus and a strong property market. In the advanced economies, double digit contraction in 2020 seems unavoidable. Recovery in the U.S. from the lockdown was strong, and the manufacturing downturn was shorter and less acute than expected, but the U.S. is struggling to control the virus spread, and the recovery momentum in the coming months is an unknown. The outlook for 2021 looks to be subdued for automotive and construction. Europeâ&#x20AC;&#x2122;s recovery, post-lockdown, was stronger than expected, but the deep contraction of the major steel-using sectors, particularly automotive, will contribute to a double-digit contraction in 2020. Italy and Spain were hardest hit. Although they handled the virus quite effectively, both Japan and South Korea saw large reductions in exports, which will limit their recovery. Overall, steel demand in the developed economies is expected to fall by 14.9 percent in 2020 and to recover by 7.9 percent in 2021. Infrastructure projects will constitute an important part of the global construction industry in the coming years,

though there may be a slow start to 2021. The oil and gas industry is a big question mark for the coming years, with reduced consumption, hence production and lower prices contributing to a slow recovery. The green economy will likely take up some of the slack. The automotive industry took a real hit from the pandemic, with a 70-90 percent contraction in many countries. There was a global 34 percent contraction in the second quarter. The industry is coming back, with China taking the lead. January to August saw car production in the U.S. and Germany down over 30 percent. The machinery sector is suffering from supply chain disruptions, and this problem is ongoing in most countries. There is also a lack of orders in the sector.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. Manufacturing Outlook / November 2020

AEROSPACE OUTLOOK

NOVEMBER 2020

AEROSPACE OUTLOOK

by ROYCE LOWE

THE BOEING SAGA AND OTHER STORIES The EU’s top aviation regulator said he is satisfied that the changes to the Boeing 737 MAX have made the plane safe enough to return to the region’s skies before year end, even as a further upgrade his agency demanded won’t be ready for up to around two years. Following September’s test flights, the executive director of the European Union Air Safety Agency (EASA), Patrick Ky, is reviewing the final documents prior to a draft airworthiness directive the agency expects to issue in November. Future software development will take 20-24 months, for the development of a so-called synthetic sensor. Ky said the level of safety reached is high enough for the agency, and that what they discussed with Boeing is the fact that, with a third sensor, they could reach even higher safety levels. The FAA, Boeing’s main certification body, is further along in its review, and has held back from predictions for the time being. The FAA chief, Steve Dickson, flew the MAX in late September and said its controls felt “very comfortable,” but the review process is not complete. Under International Law, the FAA must act before EASA and other agencies

Manufacturing Outlook / November 2020

around the world can lift the grounding of the aircraft. Ky said the synthetic sensor would simplify the pilot’s job when one or both of the mechanical angle-of-attack scanners on the MAX fails. This device, which monitors whether a plane is pointed up or down relative to incoming air, malfunctioned in both crashes. The MAX problem strained the rapport between the FAA and global aviation authorities, including EASA, which acted faster to ground the jet, and have made demands that go beyond U.S. requirements to clear its return. The FAA’s relationship with Boeing has also shifted, after the planemaker was accused of hiding changes that magnified the differences between the MAX and the earlier 737 models in order to bring down costs and minimize training requirements. China is a further question mark, where aircraft demand surged prior to the pandemic. China has participated in some reviews, but not in the flight testing that includes regulators from Canada and Brazil, along with the FAA and the EASA.

AEROSPACE OUTLOOK Boeing looks to be getting near to getting the MAX back in the skies. We’ll follow this. Meanwhile, Airbus SE reportedly plans to increase the production rate of its top-selling A320neo aircraft in the second half of 2021, from 40 to 47 aircraft per month. They are betting on jetliner demand recovering, but may make adjustments. Deliveries in 2020 will be down 42 percent. The increase in production may be too optimistic, but it is thought they may be trying to time the market’s recovery while ensuring their suppliers are prepared to likewise increase their own production. Elton Musk’s SpaceX, snubbed by America’s military in its early years, is now enjoying more success than ever in acquiring Pentagon business. SpaceX has launched satellites, improved weather forecasting for the military and built a whole

new generation of small spacecraft intended to track hostile missiles. The company has worked with the Air Force and the Army to demonstrate communication links. Elton Musk’s ultimate goal is to colonize Mars to provide humans a safe escape from Earth if necessary. But in the process, SpaceX amassed an order book of civilian launch contracts estimated at about $5 billion. It also has won contracts to supply the military with rocket launches and satellite prototypes eventually worth an estimated $6 billion and some $9 billion more in past and future NASA awards, primarily to ferry cargo and astronauts to the International Space Station. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.

Manufacturing Outlook / November 2020

ENERGY OUTLOOK

NOVEMBER 2020

ENERGY OUTLOOK by JOCELYN BRIGHT

DONALD’S FADING ENERGY Europe and China are making efforts to move to clean energy, though in China’s case, we sometimes stop and wonder. President Trump, meanwhile, has been pulling in the opposite direction, sort of like a tug-o-war. In 2016, he promised to save American coal ; in 2020, he has put on the cloak of fracking’s last defense against an assault from the left. We might call him the carbon-emitting president; during his reign, America has become the world’s largest producer

Manufacturing Outlook / November 2020

of crude oil, yet America’s oil boom is subsiding and coal-fired power is in decline. The Environmental Protection Agency - what a misnomer - has sought to weaken regulations for reducing greenhouse gas emissions in the power sector, undermine the legal basis for limiting coal plants’ mercury emissions, loosen fuel-efficiency standards for cars, and ease rules for oil and gas producers’ methane emissions. But there’s more drilling in the cards as President Trump is in the

ENERGY OUTLOOK process of opening up an area of public lands larger than Austria and Switzerland combined. Coal-mining employment dropped by 5 percent from 2016 to 2019, despite Trumpâ&#x20AC;&#x2122;s campaign promises. Coal-fired power generation fell by 22 percent over the same period, threatened by cheap natural gas and increasingly cheap renewables. Four years ago, American coal produced twice as much electricity as did renewables; a recent government forecast says that this year renewable power looks to match coal-fired for the first time ever. The dominance of oil and gas in the U.S. is not in the best shape either. President Obama was the one who started the fracking party, where oilmen blasted hydrocarbons from layers of shale. It was Obama who signed a bill that ended a fortyyear ban on crude oil exports, opening up new

markets. Under Trump, sanctions on Iran and Venezuela have supported oil prices, but the China trade war depressed them. Oil and Gas companies are in turmoil. Even before COVID-19 pummeled oil demand, investors were running from American shale and its poor returns and the ongoing need for investment. If Trump succeeds in auctioning leases in the Arctic, it may be at bargain prices. Several big companies such as BP and Royal Dutch Shell have already left Alaska. Since the beginning of 2020, the value of the S and P Global Clean-Energy Index is up 70 percent. So the next White House inhabitant might well toe this line.

Jocelyn Bright, Staff Writer

Manufacturing Outlook / November 2020

AUTOMOTIVE OUTLOOK

NOVEMBER 2020

AUTOMOTIVE OUTLOOK A MOVEABLE POD

A Swedish company, Einride, founded in 2016 by Robert Flack, an engineer who worked for Volvo, is presently in the business of making, developing, tuning, and marketing what he calls the Pod. It looks something like a trailer of an articulated truck without a cab. Flack thinks the technology of autonomous vehicles, long in the experimental stages, has now evolved to the point where driverless freight vehicles might

Manufacturing Outlook / November 2020

by LAWRENCE MAKAGON

start working, earning a living so to speak. Some Pods are already in trials for jobs such as running between warehouses, hauling logs from forests and delivering goods for supermarkets. The Pods use the same technology of cameras, radar, lidar (the optical equivalent of radar) and satellite positioning as do other companies in the field. They differ, however, in the way their

AUTOMOTIVE OUTLOOK manufacturer tries to deal with the regulatory concerns which prevent fully autonomous vehicles from taking to public roads. Einride’s present approach is to avoid the regulations by avoiding the roads; thus, the Pod operates on designated routes within the confines of enclosed, private areas such as ports and industrial parks. Einride also differs in its approach to the word autonomy, in that it always keeps a human in the loop - to keep an eye on what is happening and to take over the driving for a difficult maneuver or if something goes wrong. But this human operates remotely. This is unconventional, but not drastic. Aerial drones are usually controlled in this way. What may be termed radical is that Mr. Flack believes there is no need for a remote driver for each Pod. Einride already uses one person to control two Pods, but plans eventually for one driver to look after ten. This hasn’t been cleared for open roads, and it is not yet known how regulators will take to it. Much will depend on how frequently the remote driver needs to intervene. Drones have taken the lead in this, and some test flights have been allowed where one remote pilot controls multiple drones. Pods are now being developed that are intended for local roads and one suitable for highways is planned for 2023, with remote operators, if allowed. Such Pods will operate at higher speeds than the present Pods that are restricted to 20 m.p.h. All these vehicles, if successful, promise a change in the way that freight is delivered. The more ‘normal’ side of the automotive business, if such can be said of this business anymore, sees FCA going electric at its Windsor, Ontario plant, where it will invest $1.1 billion and add 2,000 jobs. This is part of a three-year deal with the union UNIFOR, whereby the plant will produce plug-in hybrids and battery electric vehicles. The jobs will be added in 2024, and will effectively replace the 1,500 jobs cut earlier this year.

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GM has invested $4.5 billion in electric vehicle technology in the past year-and-a-half. The company will produce an electric Cadillac, the Lyriq, at its Spring Hill plant in Tennessee. GM is bringing back an oldie, a new Hummer. This over-powered beast, last produced in 2010, is coming back as a battery electric vehicle. The BEV will be assembled at a 35-year-old plant outside Detroit that is currently undergoing a $2.2 billion renovation. The new Hummer, which will see the light of day in just over a year, is part of GM’s $20 billion gambit to challenge Tesla, whose new Cybertruck will take to the road at around the same time. GM has promised 20 new electric models by 2023. Ford, not to be outdone, is bringing out an electric Mustang Mach-E, already in production. Imagine that, a quiet Mustang.

Lawrence Makagon, Staff Writer Manufacturing Outlook / November 2020

ISSUES OUTLOOK

NOVEMBER 2020

ISSUES OUTLOOK by ROYCE LOWE

WHAT MIGHT JOE DO? Economic data show there’s been no reversal of U.S. manufacturing decline during Trump’s trade war and Trump tariffs on $100 billion worth of Chinese goods to discourage imports. There was a reduction in the trade deficit with China in 2019, but the overall U.S. trade imbalance increased more than ever that year and has continued its increase, up to a record $84 billion in August, as U.S. importers looked to cheaper goods from Vietnam, Mexico and other countries. The trade deficit with China has risen during the pandemic, and is back to where it was at the beginning of the Trump administration. Reshoring of U.S. production hasn’t happened either. Job growth in manufacturing started to slow in July 2018, and manufacturing production peaked in December 2018. January 2020 saw a phase one trade deal with China, because of tariffs, whereby Beijing agreed to buy more U.S. goods, some $200 billion over two years, enforce intellectual property protections, remove regulatory barriers to agricultural trade and financial services, and to not manipulate its currency. At the time of writing China has not imported the quantities of goods stipulated in the deal. It is also said that the tariffs that remain on

Manufacturing Outlook / November 2020

some $370 billion in Chinese goods annually will, over time, force China to end unfair practices and help rebuild the U.S. manufacturing base. The U.S. trade representative Robert Lighthizer said that tariffs “are having the effect of bringing manufacturing jobs back to the U.S.”, citing statistics showing a net gain of 400,000 U.S. manufacturing jobs from November 2016 through March 2020, when the pandemic forced widespread factory shutdowns. But some 75 percent of the increase in manufacturing jobs occurred before the first set of tariffs against China took effect in July 2018, when the annual growth in manufacturing jobs peaked and then started to decline. By early 2020, even before the pandemic struck in the U.S., manufacturing job growth in the U.S. had effectively ceased, and factories were shedding workers in four of the six months to March. A Federal Reserve industry-by-industry analysis showed that tariffs did help boost employment by 0.3 percent in industries trading with China, by giving protection to some domestic industries to cheaper Chinese imports. But such gains were more than offset by the higher costs of

ISSUES OUTLOOK importing Chinese parts, which cut manufacturing employment by 1.1 percent. Further, the analysis found, retaliatory tariffs imposed by China against U.S. exports reduced U.S. factory jobs by 0.7 percent. Trump is not the only U.S. president to use tariffs to protect favored industries. President Obama - Chinese tires; President George W. Bush - steel; and President Reagan - Japanese TVs and computers, are cases in point.

in a new plant in 2012 for polysilicon production. China meanwhile specifically identified Solar as a strategic industry in its ‘made in China 2025’, its national plan to dominate high-tech manufacturing. The plan included the manufacture of solar-grade polysilicon, turning China into a competitor to Hemlock, instead of a customer. Hemlock’s solar-grade exports to China were down to just over $100 million by 2018. The new plant never operated and was closed in 2014.

But Trump’s enormous increase in tariffs on Chinese goods represented a sharp departure in World War II economic history. Since the war, the U.S. has led rounds of global trade negotiations aimed at reducing tariffs. Trump put a stop to that, paving the way to the biggest use of tariffs since the Smoot-Hartley tariffs during the great depression.

The overall benefits - if any - of the tariff imposition have been and will be, talked and written about for some time now. Tariffs were discussed in the recent presidential debates. Joe Biden’s moves on tariffs, should he be elected, may come as a surprise. They are as yet an unknown, but according to at least one of his advisors he may not commit to a total rollback. So we really don’t know, at this stage, what Joe might do.

Some U.S. manufacturers benefitted, others did not. Some benefitted before the tariff war, suffered under it. Hemlock, a Midwestern manufacturer of polysilicon used in computer chips and solar cells, sold $1 billion of polysilicon to the Chinese solar industry in 2010 and anticipated continuing sales. It invested $1 billion

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

Manufacturing Outlook / November 2020

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