| Robert Brooks |
After two-plus years of economic uncertainty, do you doubt that circumstances are improving for metalcasters and other manufacturing companies? Take note: Bradken Engineered Products is expanding molding and coremaking at its steel foundry in Amite, LA, to supply customers in mining, construction, dredging, oil-and-gas, and marine markets. Similarly, ME Elecmetal is expanding two foundries in Minnesota and Arizona too, in response to rising demand for iron and steel wear parts for mining.
There are growth opportunities also for foundries and diecasters that, during the 2008-2010 recession, strengthened their financial resources and now are able to invest in new operations. Harvey Industries, a holding company with operations producing aluminum and iron castings (as well as machined and assembled parts, and polymer injection moldings) acquired an aluminum diecaster, R.E. Phelon Co.
Even more opportunistic has been Revstone Industries, backed by private equity and eagerly building a portfolio of metalcasting operations. Its latest additions are a magnesium diecasting plant and a cast iron pipe foundry, both in Mexico. Also shopping in Mexico has been Grede Holdings LLC, metalcasting’s most spectacular example of financial reformation and reemergence: it’s buying two automotive foundries there, capping the first year of its establishment during which it logged over $160 million in new orders and grew its business in several notable aspects.
Though it’s possible to list various positive developments in metalcasting and manufacturing over recent months, these headlines just since February 1 make it clear that there are positive trends in manufacturing, but are they indicating an economic turnaround?
It’s more likely that these improving circumstances are the latest indicators of an emerging global supply chain. “Global” is quite a literal term in this sense, meaning that national or regional factors are declining in significance.
Every economic trend must start with demand, and whatever economic problems exist today the world needs fuel and food. Thus, the most dynamic economic activities continue to be resource development and infrastructure projects in the emerging economies. So, demand for cast products is driven by demand for heavy construction, mining, and agricultural equipment. Foundries like Bradken-Amite and ME Elecmetal don’t have to be in Indonesia or Brazil to benefit from this demand, because they have established themselves as first-class suppliers of castings for those products. More important, they have committed their operations to producing and supplying castings according to global market standards — including global supply costs.
Good news stories like Harvey, Revstone, and Grede show a parallel development: businesses with sound financial structures are finding growth opportunities because so many competitors have been cleared out of the market. They’re in the process of building organizations to meet future demand.
All these organizations have probably been helped in their progress by the Federal Reserve Bank’s policy of increasing the U.S. money supply — “quantitative easing” — in its apparent attempt to encourage banks to expand small business and consumer lending. It’s a controversial move because the availability of more cash inflates prices for all manner of goods and services without any collateral rise in the value, thus increasing debt levels.
But if you are in the right place at the right time — selling castings to thriving markets, or accumulating assets while cash is flowing — then this is just speeding up the progress of your own program for success.
And, in addition to spurring inflation, the Federal Reserve’s monetary policy shows how narrow and limited the influence of central banks is becoming. In the recent recession we learned that the federal, state, and local governments do more economic harm than good by trying to direct economic activity. Now it appears that the Fed is also less than effective at creating the conditions for economic growth: It cannot create demand, and it by encouraging inflation and debt it creates new obstacles. The individuals and organizations that set their own policies will prosper in the global market, while the Fed continues to try cleaning up its previous mistakes.