MARKETING MATTERS 2008: Then and Now Index Review STEVE LANE, SOUTHLAND METALS, MAUMELLE, ARKANSAS
review: August, September and Octo- ber had Purchasing Managers Indexes (PMIs) of 49.9, 43.9 and 38.9. In December 2008, I wrote about
T
thriving in a down market. By January 2009, we were all feeling the pain of the sudden recessionary economy. Based on the indexes, should we
have been able to predict the decline? And what can the past tell us about the future of our industry?
Following the Numbers Te PMI is a good overall
barometer of the OEM purchaser’s health. It has been a solid indicator of expansion or contraction of the economy since we began tracking it in 1948. Over time, the PMI has become more sophisticated and segmented and now offers regional and global data that is helpful to big-city analysts and country boys alike. We have seen an impressive comeback in the PMI over the course of the last few years from the low of 32.9 in Decem- ber 2008 to a high of 61.4 in February 2011. Te last quarter of 2011 saw a declining PMI, but it was still above 50, suggesting further expansion. Of course, PMI alone is not the only
metric we need to review. We must continue to watch the leading indica- tors in our markets. Metalcasters heavy in the housing market are probably not all that interested in a robust PMI, as their market is still extremely depressed. A leading indicator for housing is the new homes inventory. Until this num- ber drops low enough, neighborhoods will not be built, and the need for pipe, valves and hydrants will not increase. Small construction equipment is also affected by the new homes inventory, as many developers utilize backhoes and skid steers. Analysts say the housing market will remain depressed until 2014 at the earliest. On the contrary, the agricultural
market continues to be strong, driving new tractor and other related equip- ment sales to record levels. Metalcast-
he year 2008 was absolutely booming until the fourth quar- ter, when the wheels fell off. To
ers serving this market must watch commodity grain prices and review the tax laws. If commodities stay high and taxes are not in favor of our farmers, many of them will make purchasing decisions immediately and recapitalize their farms. Te buzz in the industry is that grain commodities will remain strong through 2014. Te oilfield industry has been a
wildcard that no one could have pre- dicted. Beyond the metalcasters provid- ing castings to the market segment, the
During this boom phase, I would
encourage moderation.
proliferation of the “fracking” process for harvesting natural gas in several regions of the U.S. has driven metrics crazy, and metalcasters in all end-use markets are just trying to hold the line on sand pricing and availability. On the plus side for those producing castings for oilfield companies, the price of a barrel of oil has remained at a level that has made it profitable for U.S. compa- nies to thrive over the last 18 months.
The Future
We also must consider the re- bounding automotive industry, the depressed wind market and others. Trow in some currency fluctuation and government regulation, and what in the world is going to happen next? Lack of capacity in certain metal
types like steel and iron castings seems to be of critical importance. With this type of demand and increasing need suggested by the latest forecasts, supplies of metal castings are already strained to the limits in some sectors. Our natural tendency during this boom phase is to increase prices to regain lost margins, pay down debt, rebuild our savings and facilities, and sort out the “winners and losers” in our customer lists. All of these are potentially good
March 2012 MODERN CASTING | 75
strategies, but I would encourage mod- eration, remembering the cyclical na- ture of our business, and maintain high levels of service to existing customers. Our industry has been decimated, but we can begin to rebuild in spite of those conditions by partnering with our cus- tomers, suppliers and government. Late 2008 marked the beginning
of one of the worst down cycles in de- cades, but three short years later, we are in a robust seller’s market. Don’t aban- don the basics and indexes, or we will soon be staring at another contract- ing market. If we can balance the segments we supply, we can take advantage of their ups and downs while staying stable. As always, stay in contact with your customers and markets to keep a close eye on their indexes and trends.
Stephen M. Lane is regional sales manager for Southland Metals Inc., Maumelle, Ark.
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