MSCI Forecast 2017 Conference: Which Manufacturing Sectors Offer The Best Growth Opportunities For The Industrial Metals Supply Chain?
Keeping in mind that “bright spots” in this creepy-crawly economy are more like a low, steady glow than anything blinding, there are still manufacturing sectors that offer continued business and some growth opportunities in the industrial metals supply chain. That’s the broad conclusion from the 18 end-use market breakout sessions at MSCI’s Forecast 2017 Conference in September. More specifically the economists and industry experts who spoke at those sessions were most optimistic about automotive aftermarket parts and sales, residential construction, military ground systems including vehicles, missiles and munitions, energy and aerospace, particularly civil aviation.
Those who attended the Forecast 2017 Conference got detailed, graphic downloads of all the breakout presentations after they took a brief survey on the conference’s content. Aerospace, said Richard Aboulafia of the Teal Group Corporation, “is still the world’s strongest industry…and the only one that saw growth accelerate through the recession.” Commercial deliveries to China, he said, are setting a new record, but now, in part due to a lot of backorders on jets, “we believe that the civil aviation sector now offers the major opportunities for long-term growth.” Military aircraft, he explained, will be stable and profitable, but he could only muster “cautious optimism” for any growth over the next five years or so. On the other hand, the good news for steel and aluminum producers and processors is that both civil and military aviation will “continue to favor legacy products” in their manufacture. “It will be a very long time,” Aboulafia said, “before we see a real competitive threat from composites.”
The same will be true in the promising sectors, military and paramilitary shipbuilding, and private watercraft, meaning boats and pontoon boats for private use. Scott Ulnick of Ducker Worldwide Advisers, said we are seeing trends in the use of material “very similar to automotive, that is more aluminum flat rolled and extruded products for light weight, but with steel still dominant.” Ulnick was most bullish on the growth prospects for recreational boats of all types, which he said should see 6–8% growth, year over year, in 2016 alone. If you are in the renewable energy sector, there is also cause for optimism. If you’re not, you might want to take a closer look. “Federal tax credits are the heart of what is driving this industry,” said Andy Lubershane sector specialist at IHS Energy. “And those credits have now been renewed, so we are looking at a lot of strength for both wind and solar perhaps into 2021.” Costs are dropping in both segments, he said, and efficiencies are increasing, both good signs for industry strength.
Even in fossil fuels, with prices hovering at relatively low levels, the outlook is hardly grim. Yes, rig counts have dropped across the country, but, said Dr. Loren Scott of Loren C. Scott Associates, costs of production and efficiencies are also down and the rig count losses have been more in marginal wells. “Once prices start to bounce back,” Scott said, “the industry can now ramp up very quickly.” That “marginal well” and increased productivity phenomenon is easy to see in the numbers. Production has fallen about 535,000 barrels a day during the slump. But Goldman Sachs has just forecast that the United States will be pumping between 600,000 and 700,000 more barrels a day by the end of next year, more than making up for the losses during the bust. The recently announced planned production reductions from Saudi Arabia will also help U.S. producers.
A continued demand for new housing is adding muscle to residential construction, according to Ken Simonson, chief economist at AGC of America. He judged the outlook for this sector “very positive” for the foreseeable future.
Finally, Shane Norton, director at IHS Market consulting says Automotive Tier 2 and 3 aftermarket parts sales are set to grow at a 4.5% rate through the rest of this year, before settling down to a 3% rate through 2019.
(Note: This article, by Steve Lawrence, is reprinted from MSCI’s Edge.)