Much has changed in the resins market since we last considered it in early October. The market for plastics and resins has stabilized, with the disruptions to supply caused by Hurricane Harvey dissipating as capacity has or will very shortly come back on line. Additionally, reactive buying in the face of uncertainty of supply has been replaced by more proactive supply chain behaviors. Largely, buying behavior was bullish and aggressive in in the immediate wake of the storm, studied and reflective near the peak, and is now becoming more bearish. Given we are entering the second half of the 4th quarter, a period which usually brings tight inventory management, this bearishness is entirely rational. Buyers are balancing both “traditional” year-end pressures to keep working capital tied up in inventory to a manageable minimum with the potential for additional supplies the 3 new major resin plants starting to come to market. Domestic processors will likely work to limit their purchases while they wait for prices to fall back below pre-hurricane levels. Given these changing dynamics in the supply-demand balance, carefully consider large contracts in excess of immediate demand, as prices are likely to continue their softening trend, although with higher energy
The market for plastics and resins continues to be somewhat confusing, operating under very different market conditions as compared to other raw material commodities. Though resin producers have learned the value of managing capacity to stabilize (and potentially to increase margins), the way they’ve been building up inventories is puzzling, even in the face of steady and increasing demand. The fact that producers were pushing for price increases as of August indicates that they anticipate increasing demand, decreasing capacity, or a combination of both, and have some confidence of realizing higher prices for their products. After Hurricane Harvey, demands for increased pricing have only strengthened as stockpiles are drawn down and infrastructure restarts are slower than hoped for. What can you do to keep up with these continually changing trends? Be responsible for your own defense. The best defense for a small manufacturer is to have multiple sources of resin pre-validated in your manufacturing process and pre-approved by your customers. This allows you to seamlessly shift from one supplier to another if faced with an unpalatable pricing demand. Be prepared to play suppliers against each other to ensure they remain in a reasonable margin band as market conditions vary, and
For the past few years, manufacturers have enjoyed declining and advantageous input costs on most commodity industrial metals – copper, zinc, aluminum, iron, tin, steel, etc. The party has most definitely come to an end. As the global economy heats up, demand for industrial metals to supply the manufacturing sector in all markets likewise increases, resulting in a steady upward pressure on raw material input costs. Barring another major economic or geopolitical crisis, we have likely seen the last of a softening commodity market for quite a while, and must prepare for a period of increasing cost pressures. Manufacturers in the USA, particularly small manufacturing enterprises, need to be aware and be taking proactive steps to prevent margin erosion due to negative purchase price variance resulting from these commodity pressures. Know what your metal purchases should cost - be better informed than the salesman across the table from you. Hopefully as a manufacturer you haven’t been a passive, price-taking buyer, or a seller allowing larger customers to dictate how material cost inputs are to be dealt with. Hopefully, you already have indexing agreements in place with both suppliers and customers. Most importantly with suppliers, because without such agreements you have
The MIT Technology Review today published an article that makes the case that the migration of manufacturing from the U.S. to Asia is an urgent problem for reasons other than the obvious effect on manufacturing employment. In her analysis of optoelectronic and automotive component manufacturing, Carnegie Mellon University professor Erica Fuchs shows that the fate of emerging technologies can be linked to the choice of manufacturing location. Quick quote: "In studies with colleagues at MIT, Fuchs shows that the relocation of component manufacturing from the United States to East Asia in optoelectronics and to China in composite body parts for automobiles changed the economics of producing the technologies. "The result in both cases is that emerging technologies developed in the United States were not economically viable to produce in the Asian countries because of differences in manufacturing practices. And Fuchs suspects similar effects are happening more generally as production shifts to the developing world. "Location matters for ‘which products will be economically viable, which products countries will be most competitive in producing, and which products countries and companies globally are most likely to develop,’ she says." Read the full text of the article here: Location matters in manufacturing, by David
"Manufacturing is not merely about giving people jobs. The next generation of technological innovations is intimately tied to production processes." In an article published in the MIT Technology Review on July 1, Suzanne Berger, a professor of political science at MIT who co-chairs the Institute’s Production in the Innovation Economy project, makes the case that future technology innovation will not follow the pattern established over the last three decades by the information technology sector. "The experiences of successful firms over the past 30 years make it plausible to think that manufacturing can be outsourced and offshored without any damage to the engines of innovation. Once it was possible to codify the different stages of the journey from conception to final product and to break design apart from production, major new industries could arise around enterprises like Apple, Qualcomm, and Cisco. … [However,] There is a close connection between R&D and manufacturing in many of the emerging sectors (wind and solar, biotech, new materials, batteries and others) because modularization may just not work as well for these technologies as it has for IT. R&D engineers may have to stay close to manufacturing to develop new strategies for making processes more efficient."
Plain Dealer Business Reporter Robert Schoenberger is covering the two-day high-profile symposium called "Building the Ohio Innovation Economy" which is being held at the InterContinental Cleveland April 25-26, 2011. Here’s an excerpt: "CLEVELAND, Ohio—Ohio’s economic future depends teaching companies how to develop and then build new products here, academic and business leaders said Monday at a symposium to discuss innovation. ‘Being No. 1 in the world in developing new ideas is no longer enough,’ said Sridhar Kota, assistant director of the White House Office of Science and Technology Policy. He added that American businesses too often develop the big ideas and then have them built overseas. ‘A lot of product and process innovations come up as you go from idea to product, and we’re losing that.'" MAGNET Board Chairman, James W. Griffith, who is President & CEO of Timken Co., also addressed the Symposium attendees. "‘I am a believer that we can change this trend’ of lost manufacturing jobs, said James Griffith, president and chief executive of Canton-based steel and bearings company Timken. ‘I am a believer because we’ve done this at Timken.'" Read the complete article "Symposium focuses on the future of innovation in Ohio," by Robert Schoenberger, Cleveland
Here’s an important development for dozens of manufacturers in Northern Ohio who are competing on the global stage: Final vote sets duties on Chinese steel pipe, Warren Tribune-Chronicle, February 9, 2011 Washington—U.S. Rep. Timothy J. Ryan, D-Niles, called Monday’s vote by the United States International Trade Commission to place anti-dumping and countervailing duties on the Chinese pipe "a win for our manufacturers," adding the Obama Administration is "holding China accountable" for unfair trade practices. The ruling benefits TMK IPSCO, V&M Star, Wheatland Tube and other area manufacturers. Check out all this week’s news briefs about manufacturing in Northern Ohio on MAGNET’s Northern Ohio Manufacturing News page.