LAUNCESTON, Australia (Reuters) – Such is the impact of the shale gas revolution in the United States that it’s quite possible that babies born today will no longer play with plastic dolls and cars made in China.
It’s almost become a fait accompli that China is the world’s factory, but the early warning signs that this may be changing are starting to show.
The advent of cheap natural gas in the U.S. is threatening to displace expensive naphtha in the production of petrochemicals, the key building blocks for plastics, synthetic fibres and solvents and cleaners.
While the shale gas boom is certainly no longer a secret, up to now its main impact has been in displacing coal in power generation in the U.S., and making inroads as both a heating and transport fuel.
While the U.S. is planning to export some of its shale bounty as liquefied natural gas, in effect it is already exporting more energy in the form of coal, which has helped keep Asian prices soft even in the face of record Chinese and Indian imports.
The same sort of dynamic is likely to start hitting the Asian petrochemical sector in the next few years, as U.S. output ramps up on the back of cheap natural gas and producers from India to China struggle to compete given their reliance on oil-derived naphtha.
When you walk into a hotel in the U.S. today, you’ll see many items – chairs, draperies, lamps – that were made in China, Vietnam, Malaysia or elsewhere overseas.
But that’s gradually changing, hotel designers and furniture makers tell Hotel Check-In.
There’s a small but growing trend among hotels to buy more items from local, regional or U.S. vendors.
Hotel owners, developers and designers are increasingly deciding it’s worth it, even if they pay a little extra for a U.S. product.
Why? There’s time and risk involved with ordering items from overseas, plus showcasing locally made goods can give the hotel a patriotic or community-minded spin.
The Hyatt Regency Minneapolis recently finished a $25 million revamp that used “Made in America” as its central theme. More than three-quarters of the items purchased for the renovation came from the USA, says designer Michael Suomi of New York-based Stonehill & Taylor. The guest bathroom counter tops, for instance, feature granite quarried locally and purchased from a century-old Minnesota company.
The Ritz-Carlton Lodge, Reynolds Plantation, in Greensboro, Ga., is in the midst of redecorating to give guests a lighter, more modern look with many U.S.-made products, says Megan Ybarra of the Dallas-based interior design firm Duncan Miller Ullman. The hotel found wall coverings from Kentucky, guestroom carpet from Georgia, and a Texas metalwork firm was hired to custom-make the metal branches that form the base of guestroom ottomans, she says.
The InterContinental Chicago’s 477-room renovation emphasizes locally-sourced materials and furniture, says Dan Egan, the hotel’s sales and marketing director. Guest rooms contain drapery from Union, Ill., headboards from Jasper, Ind., wall covering from York, Penn., and room signage in hallways from McCook, Ill.
Montague, a 20-year-old guestroom furniture maker, last April invested in its first-ever factory – and it’s located in North Carolina, says Misty Delbridge, who runs the company’s U.S. division. It made sense, because hotel owners are increasingly seeking products made here and the factory was in danger of closing down, she says. A Hilton hotel in Texas, for instance, is having the company prepare two model rooms for a renovation – one outfitted with furnishings made in Vietnam and the other with furnishings made in the U.S., she says. Montague still has about 70% of its products produced in China and Malaysia.
No. 1 priority: Put heads in beds
Another factor driving the growth in U.S.-sourced products is hotels’ rush to renovate in as small a window as possible so that rooms can stay filled with paying customers, says Delbridge. It’s especially true in New York City, where some hotels can be sold out or almost sold out most nights of the year.
“If the cost (to purchase U.S.-made furniture) is 10% higher and the hotel can gain revenue back in six to eight weeks, they’re all about it because then they could have a ‘Made in America’ story and gain revenue,” Delbridge says. “These companies wouldn’t do it just for the story. There’s got to be an advantage in it for them.”
Hotel renovations are faster paced than building new hotels from scratch, notes Ybarra, who worked on the Ritz-Carlton Lodge project. It typically takes about 18 months to renovate a hotel, which since the recession has been the most common activity among hoteliers, vs. about three years to build a new one, she says.
“Our clients are willing to pay an extra dollar or two to not have the hassle of waiting,” Ybarra says. There’s also the risk of complications, she says, citing long waits at U.S. Customs and a time when pirates took over containers filled with items for a Turks and Caicos hotel.
SHANGHAI (Reuters) – China’s cabinet may soon approve an aircraft engine development program that will require investment of at least 100 billion yuan ($16 billion), state-run Xinhua news agency quoted unidentified industry sources as saying.
China is determined to reduce its dependency on foreign companies like Boeing Co (BA), EADS-owned Airbus (EAD.PA), General Electric Co (GE) and Rolls Royce Plc (RR.TO) for the country’s soaring demand for planes and engines.
So far the domestic aerospace industry has failed to build a reliable, high-performance jet engine to end its dependence on Russian and Western makers for equipping its military and commercial aircraft.
Xinhua on Thursday quoted an unidentified professor at the Beijing University of Aeronautics and Astronautics (BUAA) with knowledge of the project as saying the investment would be used mainly for research on technology, designs and materials related to aircraft engine manufacturing.
The project was going through approval procedures in the State Council and may be approved shortly, the professor was quoted as saying.
Participants in the project include Shenyang Liming Aero-Engine Group Corp, AVIC Xi’an Aero-Engine (Group) Ltd <600893.SS> and research institutes including the BUAA, Xinhua reported.
Aviation Industry Corporation of China (AVIC), the country’s dominant military and commercial aviation contractor, had lobbied the government to back a multi-billion dollar plan to build a high-performance jet engine.
China’s military and aerospace industries have suffered from bans on the sale of military equipment imposed by Western governments after the Tiananmen Square crackdown and foreign engine-makers are reluctant to transfer costly technology.
Some Chinese aviation industry specialists forecast Beijing will eventually spend up to 300 billion yuan ($49 billion) on jet-engine development over the next two decades.
($1 = 6.2273 Chinese yuan)
(Reporting by John Ruwitch; Editing by Matt Driskill)
In his State of the Union address Tuesday, President Barack Obama talked about the importance of upgrading America’s aging infrastructure. He told the story of how our company, Siemens, recently created hundreds of manufacturing jobs in North Carolina. He quoted our U.S. CEO as saying that if America upgrades its infrastructure, we’ll bring even more jobs.
But there’s another important reason we chose North Carolina, along with more than 100 other manufacturing sites in this country. By manufacturing in the U.S., we get proximity to our largest market; highly skilled workers and crucial software engineers in the Research Triangle, educated at some of the world’s best universities; ready access to ports for export, and cutting-edge innovation that we can link directly to our manufacturing sites. All in a business-friendly atmosphere.
America is poised to lead the next manufacturing renaissance. Sophisticated software is the critical component — and that’s what America produces better than anyone. But smart public policy is also needed. So is a sharp focus on what will make U.S. factories more productive, efficient and sustainable.
When industry insiders talk about America’s improving manufacturing outlook, they usually cite four components of production that have shaped global manufacturing for the past decade. But these elements are now being radically rethought ‑ in a way that plays to U.S. strengths.
First, the idea that the world is “flat” has been supplanted by the idea that speed matters. Innovation speed is now understood to be a competitive advantage. So keeping design and manufacturing half a world apart – manufacturing in China, for example, when your design team is in California – makes less and less sense.
Second, the assumption that lower wages always correlate with lower total cost has proved to be false. Manufacturers increasingly recognize that months-long transportation chains can contribute to substantial direct and indirect costs.
Third, the belief that U.S. energy costs would be a long-term disadvantage has been deflated by unconventional fossil fuel reserves. The “shale gale” is driving U.S. natural gas prices to less than a quarter of those in much of Europe and Asia.
Fourth, the faith that outsourced “low-value” manufacturing jobs would be replaced by higher-value service jobs has been adjusted to the reality that manufacturing underpins the economy. It is crucial to create and sustain steady high-wage employment.
But the major reason why U.S. manufacturing is so well positioned for a renaissance is software that can bring the real and virtual worlds together in a way that erases all boundaries between the two. It connects everyone involved in product design and execution to the same network, sharing the same sets of data, to improve collaboration and decision-making.
Republican senators complained Wednesday that U.S. taxpayer dollars could end up boosting the Chinese economy, following reports that a Chinese firm is leading the pack of companies bidding for a majority stake in government-backed Fisker Automotive.
The troubled California-based electric car maker, which was backed by U.S. taxpayers to the tune of nearly $530 million, for months has been looking for a financial partner. Reuters reported earlier this week that China’s Zhejiang Geely Holding Group is favored to take over, though Fisker is also reportedly weighing a bid from another Chinese auto maker.
The development comes after Fisker’s main battery supplier — U.S. government-backed A123 Systems — was recently purchased by a separate Chinese firm.
Sens. John Thune, R-S.D., and Chuck Grassley, R-Iowa, voiced concern Wednesday that Chinese companies are benefiting from U.S. taxpayers’ investment.
“Obama’s green energy investments appear to be nothing more than venture capital for eventual Chinese acquisitions,” Thune said in a statement. “After stimulus-funded A123 was just acquired by a Chinese-based company, it’s troubling to see that yet another struggling taxpayer-backed company might be purchased under duress by a Chinese company.”
Grassley added: “Like A123, this looks like another example of taxpayer dollars going to a failed experiment. Technology developed with American taxpayer subsidies should not be sold off to China.”
Despite the Reuters report, Fisker stressed that the bidding process is still very much open.
“The company has received detailed proposals from multiple parties in different continents which are now being evaluated by the company and its advisors,” Fisker spokesman Roger Ormisher said in a statement.
The Obama administration also defended the Energy Department’s overall loan program, which originally extended the nearly $530 million loan to Fisker in 2010.
For more than a decade, deciding where to build a manufacturing plant to supply the world was simple for many companies. With its seemingly limitless supply of low-cost labor and an enormous, rapidly developing domestic market, an artificially low currency, and significant government incentives to attract foreign investment, China was the clear choice.
Now, however, a combination of economic forces is fast eroding China’s cost advantage as an export platform for the North American market. Meanwhile, the U.S., with an increasingly flexible workforce and a resilient corporate sector, is becoming more attractive as a place to manufacture many goods consumed on this continent. An analysis by The Boston Consulting Group concludes that, by sometime around 2015—for many goods destined for North American consumers—manufacturing in some parts of the U.S. will be just as economical as manufacturing in China. The key reasons for this shift include the following:
Wage and benefit increases of 15 to 20 percent per year at the average Chinese factory will slash China’s labor-cost advantage over low-cost states in the U.S., from 55 percent today to 39 percent in 2015, when adjusted for the higher productivity of U.S. workers. Because labor accounts for a small portion of a product’s manufacturing costs, the savings gained from outsourcing to China will drop to single digits for many products.
For many goods, when transportation, duties, supply chain risks, industrial real estate, and other costs are fully accounted for, the cost savings of manufacturing in China rather than in some U.S. states will become minimal within the next five years.
Automation and other measures to improve productivity in China won’t be enough to preserve the country’s cost advantage. Indeed, they will undercut the primary attraction of outsourcing to China—access to low-cost labor.
Given rising income levels in China and the rest of developing Asia, demand for goods in the region will increase rapidly. Multinational companies are likely to devote more of their capacity in China to serving the domestic Chinese as well as the larger Asian market, and to bring some production work for the North American market back to the U.S.
Manufacturing of some goods will shift from China to nations with lower labor costs, such as Vietnam, Indonesia, and Mexico. But these nations’ ability to absorb the higher-end manufacturing that would otherwise go to China will be limited by inadequate infrastructure, skilled workers, scale, and domestic supply networks, as well as by political and intellectual-property risks. Low worker productivity, corruption, and the risk to personal safety are added concerns in some countries.
This reallocation of global manufacturing is in its very early phases. It will vary dramatically from industry to industry, depending on labor content, transportation costs, China’s competitive strengths, and the strategic needs of individual companies. But we believe that it will become more pronounced over the next five years, especially as companies face decisions about where to add future capacity. While China will remain an important manufacturing platform for Asia and Europe, the U.S. will become increasingly attractive for the production of many goods sold to consumers in North America.
This report, the first in a series, examines the economic trends that point to a U.S. manufacturing renaissance. It also explores the strategic implications of the shifting cost equation for companies engaged in global sourcing.
The US on Friday deferred China’s first request to establish a WTO dispute settlement panel to mediate its dispute against the US and its practice of levying both antidumping and countervailing duties on imports from nonmarket economies (NMEs), such as China.
China filed its WTO complaint in mid-September, taking issue with US CV and AD duty measures on a variety of products, including steel. As reported, WTO documents show the suit pertains to import orders and investigations implemented by the US between November 20, 2006 and March 13, 2012. March 13 was the date the US signed into law the newest CVD legislation permitting it to levy both AD and CV duties against NMEs.
The implementation of CVDs in addition to AD duties in NME cases is called “double remedies” or “double counting” by opponents of the measure.
As reported, China is questioning “any and all determinations or actions” by the US Department of Commerce, the US International Trade Commission or US Customs and Border Protection relating to the “imposition or collection” of CVDs. The dispute also includes AD measures, “as well as the combined effect of these antidumping measures and the parallel countervailing duty measures.”
Imports covered in the dispute include circular welded carbon quality steel pipe, light-walled rectangular pipe and tube, circular welded austenitic stainless pressure pipe, circular welded carbon quality steel line pipe, pre-stressed concrete steel wire strand, steel grating, wire decking and OCTG. Also included are seamless carbon and alloy steel standard, line and pressure pipe; drill pipe and galvanized wire.