The proliferation of data has transformed manufacturing into a high-tech business, and there is a scarcely any manufacturer that has not made a serious commitment of time, resources, and personnel to collecting and analyzing it. All data is subject to interpretation, of course; what is good news to some may not be good news for all. And, vice versa.
As 2015 ends and 2016 approaches, we went looking for data to define the state of the forging industry and its prospects for the year ahead.
The general analysis of U.S. manufacturing is not good. While the forecast for the broad U.S. economy is mostly positive, U.S. manufacturers are fighting for every decimal point of revenue growth, according to the national manufacturing data reported by the Institute for Supply Management. The latest ISM manufacturing index shows contraction in 13 of 18 industries surveyed, and the manufacturing recession that has been frequently declared based on varying evidence for the past 12 months is now gaining wide consensus among analysts and forecasters. The primary reason for this gradual realization has been the slow deceleration of global industrial demand, a problem that has restrained economic growth for materials, energy, capital goods, and construction, as well as manufacturing.
But the big picture can obscure clear facts, and while forgers are manufacturers in the fullest sense, their operations frequently show an ability to outperform the broader trends. Forgers know this better than anyone.
That’s one reason we conduct the annual FORGING Business Outlook survey each year. Every September and October, we survey readers to measure the outlook of men and women responsible for North America’s forging operations. We seek to identify the problems they face in the economy, in their markets, and in their businesses. We also seek to learn what plans they're making for the coming business cycle, and to understand better they're expectations for the year ahead.
This past fall we surveyed readers by email over a period of six weeks, with a detailed study that focused on their forging businesses, their activities and prospects, and the internal and external factors shaping their strategies. Their perspective is valuable not only because of their insights and their experience, but because they occupy positions that are critical (perhaps essential) to the prospects of so many other elements of the global industrial economy.
Notwithstanding the indications of softening industrial demand, domestic manufacturing remains a vibrant and creative sector of the overall economy. It’s still an attractive place for long-term investors seeking a healthy return, still a dependable stage from which to launch an engineering or managerial career, and an increasingly reliable venue for testing new technologies. In recent quarters, though, manufacturing has been an unreliable sector for economic growth.
U.S. manufacturing expanded in October but at the slowest rate in more than two years, according to ISM. Various indexes have shown orders for raw materials and capital equipment falling flat or declining through much of 2015. The ISM survey of manufacturers’ purchasing managers showed the index rising to 51%, where 50% indicates the separation point between expansion and contraction. The same survey found manufacturing employment at the lowest level since mid-2009, the bottom point of the most recent recession. Still, there is confidence among manufacturers, as ISM’s new-orders index rose to a three-month high.
Approach with confidence — That confidence is apparent among the respondents to the 2016 FORGING Business Outlook Survey. They are confident that their operations will report increased revenues for 2015, and they look for that growth to continue in 2016.
The executives, managers, and operators we surveyed represent the diversity of interests and experience across North America’s forging industry. They are producers of all major types of metal — alloy, carbon, and stainless steels; aluminum, brass and copper, and titanium. Their operations realistically reflect the various plant sizes of the forging industry, from less than 20 workers to 250 or more.
Furthermore, the respondents represent operations that perform all major types of forging, from open- and closed-die forging to impact extrusion, as well as ring rolling. Equally relevant, the scale of their production activities during 2015 shows a comprehensive range of commercial impact, from less than $1 million/year in shipments (25.5% of respondents) to over $100 million in shipments (14.5%.)
While the survey is designed to track shipments as a measure of business performance, we also seek information on production activity: Just 19.6%% of respondents indicated their operations have been active at 80-100% or more of installed capacity; 43.5% of all respondents indicate their operations have been active at less than 70% of capacity. Such details spark questions that are beyond the scope of the survey, but also provide some evidence of the top-level analysis of a manufacturing sector recession.
In line with this data, the FORGING Business Outlook survey respondents are almost evenly split in their assessment of their current business conditions: 33.3% of all respondents are confident their 2015 shipment volumes will rise over the 2014 record, 30.3% indicated their shipment totals will be down year-on-year; and 36.4% stated they expect results that are “about the same” as 2014. (For comparison, the Forging Industry Association reported the industry’s total 2014 shipments rose 10.8% in value from 2013, to $11,918.8 million.)
Looking more closely at respondents’ assessments of 2015 shipments, the positive evaluations show no particular bias toward any single metal, though impression-die forgers appear most confident that their 2015 shipments will improve on last year’s results. Among the major production classes, ring rollers appear least confident about their 2015 results.
Taking the same approach to the 2016 prospects, we can detect a slight bias toward the positive outlook (49.2%) over the “about the same” crowd (41.5%). Aluminum forgers (61.1%) and impression-die forgers (62.5%) are the most likely to expect rising shipments in 2016.
In general, the differences between those predicting increased shipments in 2016 and those predicting shipments to remain steady with 2015, are distributed fairly evenly across the various metal and alloy categories.
Accentuating the Positive for 2016
It’s helpful to note how well the respondents’ positive mood is sustained by factors other than shipment volumes. More than half of all respondents, 51.6%, noted their businesses are feeling increasing competition from imported forgings, while just less than one third of respondents, 32.8%, indicate there is no effect from imports.
More proactively, we make the assumption that forgers’ capital expenditures are indicative – at least – of confidence in their operations’ future prospects. 53% of all respondents have plans in place to add new manufacturing equipment at their operations; for nearly 14% of these respondents, the investment will encompass new building construction, either an addition to a plant or a separate, new plant. One third of all respondents have no capital spending plans during 2016.
For those forgers affirming capital spending plans, 47.6% indicate the value of their investments will be about equal to their 2015 totals; 28.6% indicate that value will increase next year, and 23.8% indicate the 2016 total will decrease. Nearly all of these investments are planned as “low risk” projects, in the sense that only 7.8% of all the spending will be accomplished with debt facilities: 48.4% of respondents indicated they will maintain their 2015 debt levels through 2016; and 17.2% indicated they expect to reduce or retire their current debt in the coming year.
Sorting through the respondents’ investment plans for 2016, is a clear trend toward new forging and forming machinery: nearly 40% of all respondents indicated as such, and nearly 30% indicated plans to invest in new forging furnaces. Heat-treating equipment is also a popular objective for forgers making capital equipment choices.
New robotics and/or forging manipulators are investments indicated by 22.6% of the survey respondents.
Other notable categories for 2016 investments include new testing and quality-control/inspection systems, and training and/or education programs.
A not-insignificant percentage of respondents, 16.1%, indicated plans to invest in new simulation software and/or related computing hardware during 2016. The evolution of simulation technologies represents an important factor in manufacturing information technology, in the forging industry but equally in other process industries.
Among the 2016 FORGING Business Outlook survey respondents, more than half (54.7%) are currently operating with some simulation capability in place, but a sizable element (45.3%) have none. Most of those using simulation technology are using the capability as part of the process design stage, as well as to perform post-production analysis of finished parts.
Among non-users, the most common reason given (37.9%) for their decision is the cost of such investments. More than a quarter (27.6%) of this segment of the respondents do not see the value of such technology for their operations.
Touching on intangibles — The survey takes a similar approach to identifying the less tangible aspects of forging operations: the issues and problems that managers and operators must address (or resolve) in the course of their business activities. We asked respondents to identify (by multiple choice) the issues that have been significant problems for their operations during 2015. More than half (50.8%) of all respondents identified a lack of new orders among their problems — a result that bears relevance in light of the separate factor of under-utilization; and 36.1% indicated foreign competition has been a problem during 2015 — a factor that is relevant in view of a separate question on imported forgings.
Other 2015 problems identified by survey respondents included energy costs, a general shortage of labor, lack of available capital, and raw materials lead times and quality.
Many of the same problems loom for survey respondents as 2016 approaches. Again with multiple-choice options, they identified the lack of new orders as their most common concern for their businesses during 2016, followed by foreign competition, energy costs, availability of labor, availability of capital, and raw materials lead times.
2016 FORGING Business Outlook survey respondents do not lack for a long-term vision. We asked them to identify factors that would have the greatest impact on the successful growth of the forging industry, in 2016 and beyond: 41.9% noted that more qualified workers would be the most impactful development; lack of such workers, and a lack of programs to grow the forging workforce also emerged as formative factors.
On that premise, when asked to prescribe effective plans for professional development in the forging industry, 43.1% noted active participation in professional associations would be an effective strategy; 32.8% offered that additional and/or alternative training programs are needed.
As forgers look to 2016 and beyond, we sought to know the downstream markets in which they anticipate their best opportunities: automotive parts and systems – perhaps the most traditional forging application — drew over 30% of all respondents. Oil and natural gas sector applications were identified by 24.2% of respondents, and aircraft/aerospace applications were identified by 22.6% of respondents.
The standard downstream markets continue to hold the most hope for forgers responding to the 2016 FORGING Business Outlook survey, indicating that changing times may not necessarily demand changing strategies.
