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Outlooks for manufacturing in 2019

Discussion in 'Business Models, Niches, Industries' started by Arun Siva, Dec 29, 2018.

  1. Arun Siva
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    Arun Siva aspiring 大君 of the bourgeoisie Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass Summit Attendee

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    This will be a chain of posts about various industries. I believe this should help people realize that although the USA-CHINA relationships are shady politically there will still be some leg room to find ample suppliers regardless of the economic situation at bay. (all this talk about a bear market looming around the corner doesnt apply to sourcers and suppliers)

    I highly recommend anyone that is sourcing or doing something related ot NPD (new product development) to read this forecast churned out by Mckinsey. Although I agree with about 70% of it, there are a myriad of other issues that have not been fully laid out. I hope to isolate industries and their outlooks and what that means for potential sourcers-creators-developers-shippers.
    A new era for manufacturing in China | McKinsey


    First up, Steel and Metals.


    In 2018, the U.S. steel industry experienced steady year-over-year growth, owing to tax reform that injected the industry with immediate cash on hand. Trade negotiations, colorfully referred to as “trade wars” in the media, created winners and losers in the American economy. With its margins largely protected by the U.S. government, in the form of export and import tariffs, the steel industry emerged as one of those winners.

    Due to the atypical circumstances that impacted the industry during the last year, steel manufacturers should not expect to experience similar level of growth across the industry. A new level has been set, and if the steel industry is to see further gains from here, performance will rely heavily on improving customer demand, not added tax incentives or trade barriers.

    With that in mind, economic indicators are projecting slow growth across the steel industry in 2019. To be clear, the industry is not expected to contract, but year-over-year growth will likely fall short of the growth seen in 2018.

    As the level of growth for the steel industry next year will be dictated by domestic demand, it is essential for executives in the steel industry to carefully monitor economic indicators so they can accurately identify any potential speed-bumps for demand and plan for potential short-term slowdowns. To get a better sense of the ebb and flow of that demand, as well as the economic cycle on which it depends, it’s important to pay special attention to the three following indicators: Manufacturers’ New Orders: Nondefense Capital Goods, Architectural Billings Index and China’s Purchasing Managers’ Index.

    Manufacturers’ New Orders: Nondefense Capital Goods

    This leading indicator outlines nondefense-related orders in manufacturing, which historically has provided an accurate six-month forecast of demand for the steel industry. For the first time since the third quarter of 2016, this indicator is showing deceleration. On its own, this provides a reason for caution for the steel industry going into 2019. In the best case scenario, this could be a short-term speed bump in closing a strong year for steel, but it also shows vulnerability in the industry, especially if global demand drops due to new tariffs.

    Architectural Billings Index (ABI)

    The Architectural Billings Index, which monitors the total work being provided by architectural firms, is often seen as an early indicator of a changing construction market, but it has also proven to be a very reliable indicator for overall industrial production in the U.S. Like the previous indicator, ABI is starting to show deceleration as we approach the end of the year. This can be a long term indicator for the demand for steel in 2019, particularly in the second half of the year.

    While ABI is starting to slow, there is a short-term positive indicator for the steel industry, as the indicator for U.S. housing units authorized, but not yet started is currently at an all-time high with more than 175,000 residential homes ready to be built. This can overcome the immediate challenges that the housing industry may face, but, given that much of the residential market is less important to the steel industry than commercial construction, the long-term potential of slowed demand for steel will still loom. .

    China’s Purchasing Managers’ Index (PMI)

    This is an important indicator for projecting the demand of steel globally. China is both the world’s biggest producer and consumer of steel, and is also a large investor into foreign-direct investment in many countries. As such, China is a good overall metric to watch for the overall steel market worldwide, in spite of the U.S. not engaging in much direct steel trade with China.

    China’s PMI serves as a reliable leading indicator for the health of China’s manufacturing industrial production, which is showing signs of weakness, growing at its slowest rate in 2 ½ years in September. Given the relationship with our trade with China—not necessarily directly with steel but indirectly in many other ways—seeing negativity in this indicator can also lead to negativity for domestic steel producers by impacting their customers who may be reliant on a healthy Chinese economy as either a customer or financial backer.

    Key Takeaway

    The steel industry cannot plan to use the results of this past year as a reliable indicator for planning production next year. There are many geo-political circumstances, both globally and domestically, that can greatly influence the industry, which is already showing too many signs of vulnerability. In forecasting sales and production for next year, steel industry executives should understand the forecast of production for key industries related to steel, such as construction, auto and durable goods (machinery, in particular), to best determine the growth of demand.

    These are all industries that depend on large amounts of steel. The growth of these industries, especially in the context of the aforementioned indicators, will provide the most complete view of the demand for steel in the next year and will be instrumental in anticipating and adjusting for impending market fluctuations.

    What this means for sourcers

    You all should not have a problem finding reputable forges and metal houses because there is an influx of small to mid level plants that are still up and running because they are usually part of a collective of other warehouses-chains-supply chains, that still need some business to operate due to the amount of demand. The scenario has changed now, since the too big to fail companies that are ENTIRELY dependent on Chinese big named steelhouses are going to suffer from price gouging and or other "costs" that will creep up.
    But its a good time to be a small or mid level player because there are mouths to feed on both ends.
     
    Greg R, Walter Hay, Kid and 2 others like this.
  2. Arun Siva
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    Arun Siva aspiring 大君 of the bourgeoisie Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass Summit Attendee

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    Semiconductors and Minute Electronics

    According to the World Semiconductor Trade Statistics (WSTS), the global semiconductor market value in 2018 is estimated at US$477.94 billion, increasing 15.9% on year, and the value will grow to US$490.1 billion in 2019.

    Of the 2018 market value, Asia Pacific except Japan will account for 60.4%, North America for 22.1%, Europe for 9.1%, Japan for 8.4%. In particular, China will take up about 50% of the market value, with 27% attributable to local companies catering toe domestic demand and 23% to factories mainly established by Taiwan-based ODMs including Foxconn Electronics, Quanta Computer and Compal Electronics serving global clients.

    Japan-based companies are important suppliers in semiconductor materials and equipment, special semiconductor and memory, while South Korea-based ones together occupy over 70% of the global memory market, with their January-October 2018 total semiconductor exports exceeding US$100 billion.

    It remains to be seen how that US-China trade war will reshape the market and industry in East Asia, partciularly China.

    Taiwan Semiconductor Manufacturing Company (TSMC) continues to lead in chipmaking technology, but China's IC design sector will for the first time see its revenues surpass its Taiwan counterpart in 2018.

    The semiconductor industry has also seen a shift of focus, in line with the general direction of the overall IT industry. The growth driver for the semiconductor industry is shifting from mobile communication devices to IoT, data centers and cloud computing services.

    For foundry houses Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics, Microsoft, Amazon and Google have become clinets as important as Apple, Qualcomm, Nvidia and MediaTek. For example, Google in early 2018 asked Samsung to assign monthly production capacity of 20,000 12-inch wafers specifically for making high-end memory chips, because Google's development of machine learning and voice recognition has sharply increased demand for computing and analytics performance, while Samsung occupies over 90% of global supply of HBM (high bandwidth memory) DRAM.

    Automotive electronics

    With use of CMOS image sensors (CIS) extending from smartphone cameras to automotive cameras, Samsung has planned to expand its CIS production capacity to surpass Sony to become the globally largest supplier. Samsung began to modify Line 11 DRAM factory in its Hwaseong production base for production of CIS at the end of 2017, with the modification to be completed by the end of 2018.

    Samsung also will modify Line 13 DRAM factory in the same production base for CIS production. Samsung had monthly production capacity of 45,000 12-inch wafers for making CIS at the end of 2017, and the capacity will increase to nearly 120,000 12-inch wafers when the two additional factories begin production.

    Samsung's moves are in line with the optimism of carmakers and other semiconductor vendors about the future of autonmous driving.

    In view of fast development of autonomous driving technology, Nvidia has cooperated with China-based Baidu to develop automotive computers by applying GPUs used in gaming to autonomous driving. Specifically for use in autonomous driving, Nvidia-developed SoC Drive Xavier can perform 30 trillion operations per second at power consumption of 30W.

    As more and more electronics are being inputted in our vehicles, there is ample opportunities for after market sectors as well.
     
    Walter Hay likes this.
  3. Arun Siva
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    Arun Siva aspiring 大君 of the bourgeoisie Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass Summit Attendee

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    Here are two useful outlook reports on plastics and chemicals looking forward to 2019
     

    Attached Files:

    Walter Hay likes this.
  4. zeros-only
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    zeros-only New Contributor

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    Good stuff Arun

    Sent from my STH100-2 using Tapatalk
     
    Arun Siva likes this.
  5. Arun Siva
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    Arun Siva aspiring 大君 of the bourgeoisie Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass Summit Attendee

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    Thanks. There are reports coming from Africa too. Especially the minerals and raw materials coming from Africa to be used in China-taiwan-malaysia-vietnam for manufacturing. I am working on those next.
     
  6. zeros-only
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    zeros-only New Contributor

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    Now that will be interesting

    Sent from my STH100-2 using Tapatalk
     
  7. Arun Siva
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    Arun Siva aspiring 大君 of the bourgeoisie Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass Summit Attendee

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    Happy New Years to Everyone here at TFLF. Wishing you all a propserous and merry 2019. It will be a Great year for all to thrive and create value for all.
     
    zeros-only and Empires like this.

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