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31. January 2008

U.S. metal industry slows

Poor economy hurts makers of products for cars, houses

Metal fabrication companies are experiencing the lowest product shipping levels since January 2002, reflecting weakness in the general economy, according to a trade association report.

The report from the Precision Metalforming Association, based in Cleveland, notes that 44% of 159 companies surveyed this month said that average daily shipping levels were below levels of three months ago.

Only 13% of the companies reported shipping levels above three months ago, down from 24% in December.

The Milwaukee area has hundreds of metal-product manufacturers and companies that build machines for them. Some have been hammered by a loss of business from the Big Three U.S. automakers, while others have been hurt by a general slowdown in the economy.

Precision Metalforming Association has widespread membership in Wisconsin.

"PMA member companies are reflecting overall economic uncertainty in their projections for the first quarter of 2008, especially compared to their outlook one year ago, in January 2007, which was decidedly more positive than it is today," said Bill Gaskin, PMA president.

A slump in home construction has hurt metal companies that make an array of housing products, such as aluminum siding, plumbing parts and electrical wire.

"It's a function of the housing and automotive markets, which are a reflection of the economy in general," said Stephen Meier, program chairman for the Wisconsin PMA chapter.

Metal companies making small, commodity-type products are in trouble because much of that work has gone overseas.

"A big part of it is tied to Mexico to a certain extent, but an even larger part is China and India," Meier said. "They just work for such little money in those countries. . . . Unless you can meet the price, the big companies are moving work there as fast as they can."

Mixed outlook

Meier also is a regional sales manager for Orchid International, a Madison manufacturer of metal products used in a wide range of industries, including automotive, appliances, electrical, lighting, and lawn and garden equipment.

The company has a mixed outlook for the next three months, Meier said.

"We have some things that look reasonably good. However in the core of our business, motor and transformer laminations, it's hard because of competition from China and India."

At Quality Tool & Die in West Allis, business has slowed since December.

"I am hearing from my customers that they expect this year to be fairly decent. . . . But this is the slowest we have been in two or three years. I hope it's temporary," said Ron Loos, company president.

The PMA business conditions report also has a mixed outlook.

When asked what they expected the trend in general economic activity to be over the next three months, 20% of the surveyed companies reported that conditions would improve, 50% said activity would remain the same, and 30% expected a decline in business conditions.

The number of metal fabricators with a portion of their work force on short-time or layoff fell to 14% in January, down from 18% in December.

Rising steel costs

Profits in 2008 will be challenged by constant pressure from customers and rising steel and energy costs, according to the PMA.

Overseas competition is a continuing threat, but a weak U.S. dollar and sales to developing countries have supported many companies here.

"A variety of our customers are doing very well when they are exporting," said Bob Schuemann, executive vice president at Signicast Corp., a Hartford foundry that makes metal-casted parts for Harley-Davidson Inc., Mercury Marine Group, Deere & Co., Volvo, Rockwell Automation Inc., Oshkosh Truck Corp., the Ariens Co. and dozens of other manufacturers.

Signicast is one of the largest foundries of its kind in North America.

U.S. companies that have taken work overseas haven't always done well, according to Schuemann.

"We are hearing about a lot of price increases coming from China, along with delivery problems and continuing quality problems," he said.

A Milwaukee-based trade group representing construction and agricultural equipment companies is predicting a flat year for North American sales, offset by growth overseas.

"We are not 'over the top' about the economy, but from a global perspective we are still feeling pretty good," said Al Cervero, a senior vice president at the Association of Equipment Manufacturers.

One of the AEM's largest members is Caterpillar Inc., the Illinois-based maker of bulldozers, mining trucks and other related equipment.

Last week, Caterpillar reported its machinery sales were up 9% overall, but down 11% in North America. Sales were up 24% in Latin America and 31% in Asia.

The global market is so strong that it's making up for shortcomings in the North American market, Cervero said.

But the continued crisis in global credit markets and high oil prices loom as risks to the world economy.

"U.S. weakness has a negative impact on the export prospects of many key countries," said Cliff Waldman, an economist with the Arlington, Va.-based trade group Manufacturers Alliance/MAPI.

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