Monday, August 20, 2007

US Manufacturing: Rumors of death greatly exaggerated

According to the WSJ, many of the world's largest steel makers are adding capacity in the US. Yes, you heard that right. Contrary to the widely believed but largely unsupported view that the US manufacturing sector is doomed to oblivion, steelmakers are putting their money behind their view that the US is a great place to invest and produce.
This latest wave of steel investment by both foreign and domestic companies represents a long-term bet on the health of the U.S. steel market and its manufacturing sector as a whole.

The reasons for the renewed interest include:

...transportation costs, which have more than doubled in the past decade to about $50-$70 a ton from $20 a ton, and it makes shipping steel to the U.S less attractive.

Meanwhile, building in the U.S. has advantages beyond lower transportation costs. As U.S. manufacturing has become more sophisticated and customized, steel customers are demanding more technically challenging products that fetch higher profit margins. Some of the coming capacity additions come from integrated steel mills -- the traditional type that often use steelmaking ingredients like iron ore and coal, two minerals easily found in the U.S.

Other developed nations like Germany, which has high labor costs, or Japan, which has high energy costs, are seen as bad bets for new steel mills, says Mr. Marcus, of World Steel Dynamics.

1 comment:

Mr. Noah said...

With respect to the future prospects of U.S. manufacturing, I put a lot more stock in the "rising transportation costs" story than the "increasing productivity" story. Comparative advantage in unit labor costs is pretty volatile, but oil is not going to get cheaper anytime soon...