The strength of the U.S. dollar is making it difficult for much of the world to buy American-made products. This has a particularly negative impact on companies within sectors that rely heavily on exports for revenue and growth; aerospace, computers and electronics, machinery and appliances. Unfortunately, many of these sectors have historically served as good sources of revenue for sheet metal fabricators. And while exports are expected to continue falling in 2017, the future does hold some promise. Here are some insights for consideration when planning your strategy for the year ahead.
Steel Prices Will Rise
While the price of steel has been falling since June, and is expected to continue declining slowly between now and the end of Q4, the trend should reverse course by early next year. Recently passed legislation in congress extends 200-500% tariffs on certain imported steel products out of China. These regulations have reduced overall imports of steel by nearly 30%. The reduction of cheap steel has not yet been reflected in current market prices here in the U.S. because of large stockpiles that were imported before sanctions were imposed. Those inventories of cheap, foreign steel will be depleted sometime in early 2017, triggering an uptick in U.S. production and will likely result in higher steel prices for fabricators.
The increase in U.S. steel prices has unavoidable consequences to profit margins. And while raw sheet metal is difficult to import, steel fasteners and other class “C” parts can still be manufactured and imported from overseas at a significant cost advantage. As a sheet metal fabricator, purchasing from a direct importer and/or a master distributor of major parts manufacturers might be one of the best ways to recoup some of the lost profits.
Growth Markets of Interest
- While many industries like aerospace, farm equipment and food processing expect to see retraction in 2017, the electronics industry is expecting a 3.1% positive bump in domestic production next year and 5.3% growth in 2018. This paves the way for an increase in metal fabricated products like custom encasements.
- The Non-residential construction market is also expected to grow an additional 6% in 2017. Metal roofing, HVAC, steel supports and other complimentary building products will also see an increase in demand.
- If consumer automotive is a big part of your business today, it will likely remain that way in 2017, but don’t expect to see big growth numbers here. Consumer auto sales are expected to remain flat at about 17.1 million units. However, after seeing significant declines this year, down almost 39%, Class 8 truck manufacturing is expected to rebound. Following a year of big layoffs, companies like Freightliner®, Volvo® and Navistar® expect large fleet operators to start ordering replacement vehicles in 2017. Targeting OEMs and tier suppliers in this category may provide new growth opportunities for metal fabricators.
- The price for a barrel of oil is expected to exceed $60 next year. Many experts believe that once it surpasses this threshold, it becomes advantageous for domestic oil producers to reignite exploration and production operations. New pipelines, rigs, storage containers and other metal fabricated products are expected to be in greater demand throughout the industry in 2017.
- The election is behind us, but when it comes to infrastructure spending, the winner was almost irrelevant because both parties have acknowledged the need for increases. Estimates predict budgets to grow between $275-500 billion over the next 5 years. A big part of this spending will be comprised of airport repairs and construction, road repairs, bridges, railways, new stations and waiting platforms. Opportunities for metal fabricators can be found throughout.
Partnership Can Increase Revenues
The added cost of shipping heavy, metal-fabricated products from one part of the country to another can sometimes prevent you from being awarded a great order. Additionally, if your manufacturing facilities are not located near a potential customer, they may not have the confidence that you can reliably support their needs. This limits a large portion of your sales to the geographic region that immediately surrounds your manufacturing facilities. Physical expansion is not always a financially viable option, but partnership usually is. Small to medium-sized fabricators across the country regularly have unused capacity, and renting it at slightly lower margins is often a better alternative for them than letting equipment sit idle. Developing relationships throughout the industry can help you offer quicker delivery dates, lower shipping fees and open access to previously untapped markets for your company. With the right non-disclosure and non-compete agreements in place, you can develop a geographic network comparable to that of larger competitors.