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Consuming Industries Survey
Wednesday | 30 January, 2013 | 3:23 pm

Adjust to reality

By Modern Metals' staff

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January 2013

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Optimism and pessimism are two sides of the same coin. Metals businesses today, including those surveyed by Modern Metals for our 11th Annual Reader Survey, are optimistic about the future for their own companies but worried about the general pessimism and volatility in the market, which are exacerbated by gridlock in the U.S. government.

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“The sluggish economy will continue to compress margins, and a Chinese slowdown may add to global oversupply,” said a service center respondent, adding the lack of decision-making in Congress also is a huge concern. 

Strong headwinds

“Where China goes, the market in metals and mining goes,” says Gregory Eck, managing director, metals and mining specialty at GE Capital, Corporate Finance. “The slowdown in China caused a lot of volatility in pricing, and for a preponderance of the metals supply chain, that’s an unhappy place to be.”

China recently posted better numbers, but the Euro crisis continues. “Without Spain, Greece and Italy making it out of the deep recession, we will struggle here in the United States,” commented a service center respondent. 

MM-0113-readers-image1Many companies, however, have accounted for the ongoing economic struggle in Europe in their strategies. “The Euro crisis continues to move on, but I think for the most part metals companies are looking at that as much less of a worry,” Eck says. “The European economy has been in a horrible situation since the economic crisis, and that’s been absorbed in most of our customers’ and prospects’ business plans. They’re expecting more of the same out of Europe.”

Bright spots

A turnaround in automotive, along with the strength of industries like energy and aerospace, has helped the economy post recession. “What’s really brought the economy out of the doldrums post recession has been the strength of the manufacturing sector. What’s missing is the consumer sector,” Eck says. “Automotive is almost back to solid pre-recession levels, and we’re starting to see residential housing improve. That’s a big driver to the consumer side of the equation. We have a long way to go until we’re in the heyday, and we have this massive unemployment issue that still needs to get digested, but we’re slowly getting through the worst of the problems that we’ve had to suffer since 2008.”

“Construction drives a large portion of our business,” said a surveyed fabricator. 

Another noted, “Our customers are mainly food processors, petrochemical, pharmaceutical and architectural in nature. Fixing housing financing ultimately will provide dollars to consumers, which will increase business to our customers and our business.”

“Commercial construction has been in a fog for quite awhile,” Eck says. “Our clients in the commercial construction segment don’t have a strong sentiment that it’s going to surge back in 2013, but they do have capital expenditure plans that are a year-over-year increase over last, and that’s important. I think it’s going to be an area that takes longer to come back, but it appears a floor has been reached.”

Whether they’re supplying the automotive, energy or construction industry, companies that survived the recession have worked hard to achieve efficient operations. “We’ve seen in the last three or four years that companies have really improved productivity,” Eck says. “They’ve rationalized product lines and gotten themselves to a peak of competitiveness. Businesses are sitting on extremely large stockpiles of cash. Combine that with strong credit markets that are providing significant access to capital, and you have a recipe for companies who are ready to knock the cover off the ball once some of the uncertainties go away. … [They] feel good about their right-sized businesses, their focus and they feel they have strong balance sheets so they can weather pretty much any reasonable unexpected event. They just need demand.”

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Hiring the right people and ensuring all of them are trained appropriately is a crucial component of a company’s day-to-day operations. It’s imperative to carefully consider the implications of adding or cutting back staff. 

According to the Manpower Employment Outlook Survey, which covers 13 industry sectors in the United States, among surveyed employers, 17 percent expect to add to their workforces between January 2013 and March 2013. Eight percent expect a decline in payrolls, 72 percent anticipate making no changes and 3 percent are undecided.

Of the 13 industry sectors, 12 reported a positive outlook, including durable and nondurable goods manufacturing. The only sector reporting a negative outlook was construction.

A majority of service center, fabricator and OEM/end user respondents to Modern Metals’ 11th Annual Reader Survey are not planning to expand their workforce in the next six months, even though, according to one OEM/end user respondent, “our slow period will end and the cycle will start again.”

Most respondents are taking a wait-and-see approach to hiring new employees. However, a majority of the 37 percent of fabricators, 43 percent of OEMs/end users and 32 percent of service centers that are planning to hire are having difficulty finding qualified personnel. Many of the available applicants are underqualified and unreliable, according to the respondents. “I can deal with the lack of skill, but the lack of work ethic is staggering,” said an OEM/end user respondent. 

One service center respondent said it’s difficult to find people willing to work in an office environment. “Most of the young people coming up these days want to make a high salary starting off with no experience,” while another added, “[There are] a plethora of unqualified job hoppers with lots of self-esteem and expectation and little to offer. Qualified candidates are already employed.” 

Service centers say sales specialists with experience, skilled labor, technical and professional positions, and truck drivers particularly are hard to find. Fabricators want welders that are able to work without significant supervision, capable machinists and reliable workers that can see a job through from start to finish.  

In-house training

As a result of advancements in technology, all three groups of respondents say computer skills are a must, as well as basic math skills, although more companies are offering training programs for both basic and advanced skills so they can ensure their employees are able to perform at a high level. “[We’re looking for] employees that have common sense and a good work ethic—everything else is easy to train,” a service center respondent said. 

Another noted, “Basically any new employee we get is unskilled in our processes and equipment. We have to give them a lot of attention both for training and safety purposes.” “We train our entry-level people due to the difficulty in finding skilled workers,” added a fabricator. “Once hired, they receive on-the-job training and are cross trained to help in other areas of the business,” said an OEM/end user. mm-0113-readers-image9

Service center, OEM/end user and fabricator respondents are constructing on-site training rooms and facilities to offer in-house classes. In addition, many respondents are providing education assistance. “We offer reimbursement for approved courses that have application to the positions employees are in. There are stipulations for reimbursement that the courses with grading systems be passed with a C average or better,” said a service center respondent. 

Ultimately, companies are in search of workers that are willing to put their nose to the grindstone. 

“Our shop foreman works with everyone that’s willing to take it to the next level, but we’re finding it harder and harder to find people who want to achieve that next level,” said a fabricator respondent. 
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“Everybody is hunkered down to such a lean and mean organizational structure. There’s no slack in the pipeline anymore,” says Gregory Eck, managing director, metals and mining specialty at GE Capital, Corporate Finance. As a result of this tight supply chain, companies are able to compete effectively in the market; however, they also are “re-engineering how they are doing business with their customers, becoming extremely focused on generating true strategic partnerships with their end customers so that supply chain issues will be minimized,” he says, adding, “There’s a newfound appreciation for customer partnership.”

A majority of service center, fabricator and OEM/end user respondents to the 11th Annual Reader Survey feel their supplier performance has been adequate in 2012. “Quality has been very good and deliveries are much better. [The] pricing roller coaster is the only major issue. We need some long-term market stability,” commented a service center respondent. A fabricator added that performance generally has been very good but “we get the occasional size or material we can’t find.”

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Seventy-five percent of service center respondents source steel, 31 percent source aluminum and 40 percent source stainless. Eighty-five percent of them primarily get their material from producing mills, and 44 percent thought their supplier performance remained the same during 2012. Common supply hiccups were lack of on-time deliveries and unstable or noncompetitive pricing. “On-time delivery has become more critical with our customers. This is beginning to slack off with our suppliers,” commented a service center respondent. 

Others added, “Domestic mills are about two to three weeks behind on deliveries. Overseas, some mills are late and can’t tell you when your orders will ship,” “Transportation or logistics have been the most difficult factors in obtaining materials on schedule,” “Suppliers have been so desperate to land large-project orders, they often have over promised and struggled to deliver on some of those promises. However, with the considerable slowdowns in demand and increased supply in 2012, many stock buys have been delivered quickly with short lead times.”
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Sixty-five percent of OEM/end user respondents and 67 percent of fabricator respondents get most of their material from service center suppliers. Seventy-five percent of surveyed OEMs/end users primarily source steel, 46 percent source aluminum and 30 percent source stainless. Among surveyed fabricators, 78 percent primarily source steel, 33 percent source aluminum and 36 percent source stainless. A majority of fabricators and OEMs/end users ranked their suppliers’ performance on the positive end of the spectrum, but many commented on high prices, quality issues and delivery problems. 

“Due to high volume, some materials are coming in with rusting on them,” said a fabricator respondent. An OEM/end user added, “Lead times are short, but due to extremely low pricing over the year, everything ships, including some marginal quality.”

The companies that have established a firm partnership with their core suppliers are more likely to receive good, prompt service. “[One of our suppliers] is family-owned and operated and has not lost respect for others. What you give is what you get,” said a fabricator respondent. 

“Ten years ago, no one would have dreamed of sharing the information that’s being shared today,” says Eck. “And, that’s one of the big contributors to the potential for onshoring. As a partnership develops, there’s a strong feeling that we’re in this together. It becomes less important to take a penny a pound out of the equation, which is what drove offshoring,” he continues. “Instead, it’s how can we help each other co-engineer, co-design and co-produce, and that necessitates a manufacturing footprint close to customers.”

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INVENTORIES & ORDERS | A ripple effect

A new year often brings an optimistic outlook, causing the first quarter of business to come out of the gates running and tire halfway around the track. “The first quarter is always strong,” commented a service center respondent to Modern Metals’ 11th Annual Reader Survey; however, he pointed out construction “has to move north from current levels,” a sentiment echoed by fabricators and OEMs/end users. 

“With the election settled and a new year starting, we anticipate seasonal first-quarter increases in demand, as well as the release of many projects that have been in a holding pattern, waiting on clearer direction from the Fed on credit, interest rates, taxation, along with current funding,” added another service center respondent. 

Among survey respondents, 82 percent of OEMs/end users, 95 percent of fabricators and 89 percent of service centers expect orders to either increase or remain flat in the beginning of 2013. 

“We are currently seeing orders increasing and expect and hope this trend will continue,” said one OEM/end user respondent. Contributing factors to the increase, according to OEMs/end users, include model year changes in automotive, strong OCTG, pending projects and an expansion of business into new markets.

“Many end users are busy,” commented a fabricator respondent, and fabricators are deploying marketing strategies to attract this business, “aggressively pursuing new customers to broaden our base and make up for those lost.”


2013 Survey methodology

In October 2012, Modern Metals emailed 5,341 surveys to a group of service centers, fabricators and OEMs. Six percent of the selected readers completed the survey, and we received a total response rate of 323 usable returns. By industry sector, we received responses from 81 OEMs, 84 fabricators and 155 service centers. 

Those surveyed were randomly selected on an nth-name basis from Modern Metals’ circulation, using the following business and industry classifications: metal service centers and offices; fabricated metal products (including metal cans and shipping containers; cutlery, hand tools and general hardware; heating equipment and plumbing fixtures; fabricated structural metal products; screw machine products (bolts, nuts, screws, rivets and washers); metal forgings and stampings; coating, engraving and allied services; ordnance and accessories; and miscellaneous fabricated metal products; machinery, except electrical (including engines and turbines; farm/garden machinery and equipment; construction, mining, material handling machinery and equipment; metalworking machinery and equipment; special industry machinery; general industrial machinery and equipment; computer and office equipment; refrigeration and service industry machinery; and miscellaneous industrial and commercial machinery and equipment); electric and electronic equipment (including electric transmission and distribution equipment; electrical industrial apparatus; household appliances; electric lighting and wiring equipment; household audio and video and audio recordings; communications equipment; electronic components and accessories; and miscellaneous electrical machinery, equipment and supplies); transportation equipment (including motor vehicles and motor vehicle equipment; aircraft and parts; ship/boat building and repairing; railroad equipment; motorcycles, bicycles and parts; guided missiles and space vehicles and parts; and miscellaneous transportation equipment).

Job titles surveyed included corporate officials, president, owner, vice president, general manager, treasurer-secretary, controller, chief engineer, plant manager, production superintendent, department managers, chief metallurgist, chief chemist, engineers, metallurgists, designers, production men, chemists, supervisors, foremen, and buyers, salespersons, and other purchasing and sales titles. 

 

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