end user outlook 2022
Surveyed by ISM, a purchasing manager in the metal fabrication sector reported being unable to hire hourly personnel or machine operators due to few applicants.
Exceeds Supply
Exceeds Supply
Exceeds Supply
// ‘All segments’ of the U.S. manufacturing economy struggle with commodity shortages, long lead times and high prices
By Corinna Petry

t is rarely the case but manufacturers are talking about an “upside-down world” where multiple price increases are accepted because the material they need is far more valuable to them than ever before. Shortages in labor, port berths, trucks, semiconductors, resins, steel and other resources have not allowed manufacturers to take their production rates to the next level or to keep much inventory for a rainy day. It’s been “raining” for months.

The purchasing managers index (PMI) for manufacturing registered 59.9 percent in August, up slightly from July’s reading, indicating a small expansion in the overall economy for the 15th month in a row, after shrinking in April 2020.

The New Orders Index registered 66.7 percent, up 1.8 points from July; the Production Index moved to 60 percent from 58.4 percent in July. The Backlog of Orders Index registered 68.2 percent, 3.2 points above July.

Timothy R. Fiore, who chairs the Institute for Supply Management’s Manufacturing Business Survey Committee, says that committee panelists reported that their companies and their suppliers continue to “struggle at unprecedented levels to meet increasing demand. All segments of the manufacturing economy are impacted by record-long raw-materials lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products.”

U.S. manufacturers’ after-tax profits during the second quarter of 2021 totaled $262.4 billion, compared with $39.4 billion during the second quarter of 2020.
Pandemic issues
The new surges of COVID-19 are adding to pandemic-related concerns: worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems. These issues continue to limit manufacturing-growth potential. Sentiment remained upbeat, however, with eight positive comments for every cautious one, says Fiore.

U.S. durable goods new orders during the first seven months of 2021 increased 25.4 percent compared to the same period of 2020.
ISM’s Supplier Deliveries Index softened while the Inventories Index moved into expansion territory due to improvements in raw material deliveries as well as work-in-progress inventory being held longer due to key part shortages. The Prices Index expanded for the 15th consecutive month, indicating continued supplier pricing power and scarcity of supply chain goods.

Primary metals producers and fabricators are among the 15 industries that reported growth in activity during August.

A purchasing manager in the metal fabrication sector reported being “unable to hire hourly personnel or machine operators due to few applicants. Steel and aluminum remain in short supply. New business continues to grow and come in. [But] we are unable to handle the influx of orders without staff, both hourly and salaried.”

A survey respondent at a machinery manufacturing company reported that customer order backlog continues to climb “because we are unable to raise production rates due to supplier parts and manpower challenges. We continue to see price increases for key commodities, and logistics is an ongoing challenge that has no end in sight.”

the world is learning to live with the COVID-19 virus.
sara johnson, ihs Markit
A purchasing executive for a manufacturer of electrical components and appliances said that business activity remains strong. “Part shortages are our largest constraint. We cannot fulfill orders to customers in reasonable lead times. [We are] now booking out into 2022, and it will get worse as we hit our cyclical high demand in the fourth quarter.”

Fiore says that disruptions from COVID-19, primarily in Southeast Asia, are having dramatic impacts on many industry sectors. “Ports congestion in China continues to be a headwind as transportation networks remain stressed. Demand remains at strong levels, despite increased prices for nearly everything,” he says.

The commodities that rose in price in August, according to the PMI survey, include not only a host of aluminum, copper, carbon and stainless steel products but also freight, diesel fuel, temporary help, packaging, semiconductors and resins. Most of those same products continue to be in short supply.

IHS Markit expects that equilibrium in the container shipping system won’t be fully restored until mid-2022 or later.
Vaccines’ impact
Global real GDP is projected to rise 5.7 percent this year as economic expansion moves forward through headwinds from the Delta variant of COVID-19, says Sara Johnson, executive director for global economics at IHS Markit, a Boston-based consultancy.

Western Europe rebounded from its double-dip recession last year, while the United States and mainland China sustained robust growth. These gains offset setbacks in India and parts of Southeast Asia and Latin America.

Global GDP is projected to increase 4.5 percent in 2022, led by strong recoveries in consumer spending and business investment, IHS Market predicts. This growth will settle to 3.2 percent in 2023 as pent-up demands are satisfied, and fiscal and monetary stimuli are withdrawn.

The Federal Reserve’s Industrial Production Index stood at 101.1 in July 2021, the highest rate so far this year. It compares with a low of 84.2 in April 2020.
“The resilience of the global economy amid a lingering pandemic suggests that the world is learning to live with the COVID-19 virus,” Johnson says. In North America and Western Europe, a return to strict lockdowns is “unlikely. In these regions, vaccination rates are relatively high and rising, reducing the risks of severe illness or death. “Consumers and businesses have adapted [and they] continue to spend and produce, including online shopping, use of delivery services, work from home, and new health and safety measures.”

Regions with low vaccination rates face greater risks from the Delta variant. Outbreaks in Asia-Pacific have led to new containment measures, disrupting production and trade in a region that accounts for 37 percent of global merchandise exports.

“The U.S. economic expansion is durable,” Johnson says. Second-quarter real GDP grew at an annual rate of 6.5 percent. Expansion is being driven by fiscal and monetary support, release of pent-up demand and restocking of depleted inventories. Job openings remain at record levels.

“Asia-Pacific’s manufacturing hubs are the current hotspots for COVID-19. The spread of the Delta variant in the region is aggravated by relatively slow progress of vaccination campaigns outside mainland China. Supply chain disruptions and shipping delays persist. Semiconductor shortages have led to more global production cuts in the automotive industry [through] September,” says Johnson.

IHS Markit expects that equilibrium in the container shipping system won’t be fully restored until mid-2022 or later.

Please check out the following pages for outlooks on six metals-consuming industries: aerospace, appliance, automotive, construction, energy and transportation.

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