Table of Contents
This month’s Casteel Commentary further explores the challenges discussed last month. The financial excesses of the past 20 years have inflated the values of equities, resulted in excess debt and hollowed out our manufacturing capability. We are likely to need to plan for challenging demand that taxes our ability to produce and for business conditions that will provide the resources we need for investment for our future.
75th Technical & Operating Conference
Registration is now open for the 2021 T&O Conference, which will be held December 8-11 at the Loews Hotel in Chicago. https://sfsa.site-ym.com/event/TO2021
With the support of SFSA steel foundries, the T&O conference is the premiere steel casting event in the world. This year marks the 75th conference, which will continue the legacy of technical and operating topics of today that will provide value to the industry for many years to come. We look forward to celebrating the 75 years of collaboration to advance the industry!
Seven “diamond” presentations by SFSA alumni will be featured, covering several milestone SFSA projects (Project 80, Fundamentals of Steelmaking, and Project A-54) along with sharing expertise in chrome iron, HSLA, engineered investment shells, and GD&T. Conference sessions will include topics on Next Gen Mfg, molding, melting, foundry engineering, finishing quality, EHS, management, technical and featured research such as clean steel and cast preforms. The workshop will feature an extensive presentation on wash – the problems it can create instead of solve, along with Next Gen Mfg R&D from ISU on automation of foundry processes and development of improved NDT, and UNI on the Sensor Collective initiative.
Please start making your plans to attend the T&O on December 8-11, 2021 at the Loews Hotel in Chicago. There is a 10% discount if registration is paid in full by November 10.
Loews Hotel group rate: $125/night. https://www.loewshotels.com/chicago-downtown/sfsa-to-conference-2021
Conference program: https://cdn.ymaws.com/sfsa.site-ym.com/resource/resmgr/to/2021_Program.pdf
Iowa State University (ISU) is developing strategies on improving gage R&R of the Magnetic Particle Inspection (MPI) method by pursuing these 3 paths:
First, ISU put together a best practices document that provides an understanding of the MPI process and discusses factors that can influence the inspection process and the results. This best practices is published as Special Report #34 and is available on the wiki here. (https://wiki.sfsa.org/img_auth.php/e/ea/Sr34.pdf )
Second, ISU is developing a training video series that is consists of 3- to 8-minute videos that aim to guide new inspectors through the basics of wet MPI while also including the purpose of each procedure. The first video developed was shown in a recent SFSA webinar which is posted on the wiki here (https://wiki.sfsa.org/index.php/Steel_Casting_Technology_Videos#Magnetic_Particle_Inspection_Training_Videos_Discussion ). ISU is looking for feedback from foundries on format and content of these training videos to ensure it suits the industry’s needs. For any comments and suggestions, please fill out this survey. (https://www.surveymonkey.com/r/3N8MZCC)
Lastly, ISU is developing an inspector aid for wet MPI to assist the operator in locating potential indications. This will be done by training a model on a large dataset of images showing MPI indications so it can learn what an MPI indication looks like and identify where they are on an image. The goal is not to automate the MPI process but only to provide some guidance to the inspector on areas of the casting to focus on or to confirm if any indication was missed. Several foundries have already provided MPI images but more images are still needed to improve the model. ISU is currently working on establishing an easy, straightforward process for foundries to collect images. This inspector aid will be discussed in the upcoming T&O workshop.
Cast in Steel Competition
SFSA is pleased to announce the fourth annual Cast in Steel Competition! This year’s competition will be using casting technology to creatively design and produce a functioning version of a Celtic Leaf Sword.
Teams will perform all aspects of bringing their Celtic Leaf Sword through the manufacturing process from concept to use. Performance testing and evaluation will be held at the AFS CastExpo Conference in Columbus, OH in April.
Interested in getting a team together? Visit our website, https://www.sfsa.org/castinsteel, to register a team and for more event information.
Steel manufactures, want to get involved? Here are a few ways you can:
- Industry Sponsor – Provide resources, facilities, and technical guidance to university student teams.
- Event Sponsor – Provide a financial gift that helps to cover important program components, including celebrity guest, scholarships, location, etc.
- Team Sponsor – Provide a small gift to cover the costs of the program administration.
Appreciation for sponsoring is presented in all program materials and acknowledged at the event.
If you have questions or you’re interested in becoming a sponsor, contact Renee Mueller at email@example.com.
SFSA trends show that steel and stainless casting shipments and orders are still above year ago levels with slowing growth since June. Steel casting backlog is holding steady at 9 weeks while stainless edges up to 11 weeks. 80% of members anticipate an increase in bookings over the next 3 months.
Department of Commerce numbers support an upward trend for casting orders and shipments, with orders still leading shipments which would signal continued growth. Steel mill shipments continue to rise and are up nearly 20% YTD over last year.
Capital goods orders are trending significantly higher than pre-pandemic levels with manufacturing output only slightly above 2019 levels. This disparity between supply and demand will be a long-term issue given the ongoing supply and labor shortages.
Economic growth depends on growth in the supply side of the economy. Increases in demand without prior or concurrent increases to supply results in inflation. Savings can either be consumed or invested. Our current monetary policy (how much money is in the economy) has distorted the economy and results in mal-investment. The value of an investment is based on its claim on future earnings. This can be seen in the graph below which includes the cost of the S&P 500 divided by the discounted dividends and the Hussman P/E ratio (MAPE). https://www.hussmanfunds.com/comment/mc211015/
The high costs of equities are said to be justified by the low interest rate, but low interest rates are in fact the result of low growth rates. The reality is that low interest rates anticipate low growth rated in the U.S. economy as measured by the growth rate of the Gross Domestic Product (GDP). High equity prices relative to growth lowers the return to the low levels of dept instruments like bonds.
The growth rate of the economy depends on two factors as seen below, the increase in the workforce and the investment in productivity. The structural element of GDP growth has historically been the result of investment in more productive equipment and more recently in IT. The lack of investment in the supply side of the economy as a result of the public policy and macro-economic cultural trends has resulted in real slowing growth for the past 50 years. Nominal growth had a large increase in the inflationary 70’s and a decline to real levels since. The real level of growth in the economy has fallen from 4% to about 1.5%. Even this is unlikely to be improved as the workforce declines and investment remains low.
Investment in industrial equipment took a sharp dive after 2003 and is coincidental with the decline of structural GDP growth. The capital infrastructure of the U.S. was created in the investment boom of the 70’s supported by the high relative price of materials for durable goods. When these materials had a more modest but similar rise in 2004, investments were not made in North America but concentrated in China. Foreign policy saw this move from North America to China as a natural move to a more competitive global supplier that had the added incentive of a higher economic growth rate that the developed economies like North America.
This move was also seen as an incentive for China to adopt a more Western polity devoted to markets and individual freedoms. Alternatively, China saw this as a opportunity to gain power and leverage in the world. They move quickly to invest in manufacturing and to partner with Western firms to get modern technology and investments. Often these partnerships allowed China to get both foreign investment and technology.
This deliberate strategy was not recognized by policy makers and allowed China to create world dominating market shares of essential materials. The news is the same for common industrial materials.
“Based on an analysis of statistics published by the U.S. Geological Survey, VOA determined that China holds a dominant position supplying 21 of the 35 critical minerals. For these minerals, China is the biggest source of U.S. imports, or it has the world’s biggest deposits or is the largest producer.”
As can be seen in the graphs for steel and aluminum, China has the largest market share for both and is the majority producer for steel. They have no domestic advantage in raw materials or energy and the U.S. has some of the more efficient producers in the world for labor, materials and energy. China supports with their public policy, manufacturing to gain global power. International pricing is not primarily market driven but is an artifact of public policy.
The U.S. public policy give preference and support to service industries and burdens manufacturing. Even the most efficient manufacturers are often acquired by foreign firms. This is clearly not due to the lack of investors in the U.S. but is the result of policy dis-incentives for domestic investment.
The monetarization of the economy, dominated by financial concerns and supported by trade and public policy, has resulted in a hollowing out of our core manufacturing capability. U.S. manufacturers are not uncompetitive, they suffer from predatory and deliberate targeting in global markets. U.S. policy is naïve and failed to recognize the damage to our capability. This not only has limited our economic growth with limited productive investment it also damages our ability to provide for national security.
This is likely to lead in the near term to significant economic dislocations. The re-regionalization of economic activity and the concerns about China’s rise as a global power with the post-pandemic demand fueled by the excess money already in the economy will stimulate demand beyond the North American capacity. The excess value of equities shows that the inflationary excess cash has inflated the value of corporate entities and existing investments without stimulating regional investments in plant and equipment.
As an industry as mentioned last month, we need to plan for a period of excess demand and the need for modernization, re-capitalization, and automation.
|STEEL FOUNDERS’ SOCIETY OF AMERICA|
|SFSA Trend Cards||12 Mo Avg||3 Mo Avg||August||July||June|
|(%-12 mos. Ago)|
|Carbon & Low Alloy|
|Department of Commerce|
|Iron & Steel Foundries (million $)|
|Nondefense Capital Goods (billion $)|
|Nondefense Capital Goods|
|less Aircraft (billion $)|