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Raw material costs hammering metalformers
The worldwide congress of metalforming trade associations that met here last week made the point loud and clear: Raw material costs are skyrocketing, and the problem isn't confined to the U.S. — it's global.
"Costs of the basic materials we need in industry to make parts, components and assemblies have skyrocketed this year. Steel prices doubled in the first five months of this year," said Bill Gaskin, president of the Precision Metalforming Association. "That was initially a phenomenon in the U.S. but the rest of the world caught up quickly."
Next to the cost increase crisis, the metalformers were most concerned with the economic situation in general around the world.
"Lower business levels is a very challenging situation, and that's global right now," said Gaskin, noting that the Europeans and the Japanese were enjoying strong business conditions in the first few months of this year. "But those economies have softened, in part because of the growing credit crisis here in the U.S."
The Precision Metalforming Association is the American trade association that hosted the 16th International Congress of the International Council of Sheet Metal Presswork Associations at DeVos Place, which drew hundreds of metalforming industry executives from nine countries. Metalforming associations in the U.S., France, U.K., Germany, Netherlands and Japan are members of the congress, which has held a world congress every three years for the past 50 years. Representatives from China, Mexico and Canada were also in attendance.
The Precision Metalforming Association, based near Cleveland, has 1,200 members, mainly in North America and mostly from the U.S.
Gaskin said metalforming is a $91 billion segment of the U.S. economy. About 50 percent of it involves automotive manufacturing, but it also involves office furniture, appliances and many other types of products made of metal.
In metalforming industries, raw materials are generally about 50 percent of the cost, but it can range from 30 percent to 70 percent.
Gaskin said the jump in steel prices is partly due to the jump in price of the raw materials that go into making steel, plus increasing demand for steel in China in the last several years for major construction of infrastructure such as roads, bridges and buildings.
"China in the last five years has become a huge consumer and a huge producer of steel," as has India, said Gaskin.
In the U.S., the steel industry has become more concentrated since the bankruptcies of some steel companies in 2001 and 2002, leaving a consolidation of the industry in three major companies: U.S. Steel, Nucor and ArcelorMittal, plus a few small companies. Gaskin noted that about 10 years ago there were about 30 companies in the U.S. making flat-rolled steel used by metalforming companies.
Keynote speaker at the congress was John Snow, former U.S. Secretary of the Treasury and now chairman of Cerberus Capital Management. His appearance coincided with news of the bankruptcy of Lehman Brothers and the other Wall Street crises last week. Snow said it was the result of an excess of risky investments on Wall Street.
Another key speaker was Jack Perkowski, chairman and CEO of Asimco, one of the leading auto parts manufacturers in China, with 17 factories there and 13,000 employees. Asimco operates a network of 52 sales offices in China in addition to regional offices in the U.S., England and Japan.
Perkowski's comments centered on what the future holds for the largest national market in the world.
Jim Zawacki of Grand Rapids Spring & Stamping, past-chairman of the PMA and one of the local individuals who helped bring the ICOSPA congress to Grand Rapids, said Perkowski's point was that American manufacturers "really shouldn't be afraid of China."
"If you are going to China, go there to serve the market in China, not to export low-cost goods, because that's not the strategy that's going to help you survive," said Zawacki.
Zawacki said that, unfortunately, most multi-national and international corporations that set up shop in China did so with the plan to export products back to the U.S.
"But they're finding that a 12,000-mile supply line and the cost of transportation is beginning to hurt them. So some are rethinking that strategy," he said.
Other featured speakers were Fred Keller of Cascade Engineering, Jim Hackett of Steelcase and John Kennedy of Autocam Corp.
ICOSPA attendees were taken on tours to a number of West Michigan metal manufacturing plants, including G.R. Spring & Stamping, Pridgeon & Clay, Steelcase, Haworth, Trans-Matic Manufacturing, Shape Corp. and Grand Haven Stamped Products.
The last two of the ICOSPA congresses in the U.S., which were in 1979 and 1993, were in Chicago, making this one a significant first for Grand Rapids.