Category Archives: Swarfblog

Commodity Prices Unraveling

Copper prices are down almost 30 percent from the speculative hedge fund bubble. Brass rod is just beginning to follow with scrap prices down about 10 percent from the peak.

We are in the midst of the unraveling of the commodity price squeeze which was more about avarice than scarcity. Oil is hovering around $52 a barrel for crude, which is attributed to a mild winter in the United States, but really, how many people are still burning heating oil. The reality is that the speculators who went long on petrol are on the run. If we don’t get a Shia A-bomb soon, the oil bulls will be deader than the A-Team.

For Ben Bernanke, the commodity route gives him time to plan his next move. Gasoline at $1.75 a gallon is like a tax cut or a half point rate cut for the economy. It may be enough to stabilize the housing market which is already showing a heartbeat. The stock market analysts say they look forward, but they usually are obsessed with the current quarter’s comparisons with last year. They will probably miss the likely bounce in construction. Global warming also allows builders to work virtually year-round now, all the way to Manitoba, which skews old comps.

Weak steel prices are likely to give the auto companies and their traumatized suppliers a little boost. When the metal supply gets sloshy, the dynamic shifts power to the buyers even with the reduction in primary producers.

The acceleration of stock prices in recent weeks despite the Democrats grabbing Congress, Iraq dragging on, and a lousy Wal-mart Christmas indicates that the financial mavens believe the U.S. will get the prayed-for soft landing.

Amen.

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Meeting People the Old Fashion Way (Liberated from email!)

One of the great things about doing this magazine is finding out that people actually read it, and some even like it.

I received a call from Paul Ikasalo, the manufacturing manager at F.H. Peterson of Stoughton, Massachusetts. Paul liked my Swarf piece in November when I declared my self-exile from the email world. He called me at 708-535-2200 and on my cell phone (708-380-8530) to say hello and endorse my email boycott. He hates the sterility and pollution of web messaging. We had a hearty conversation for twenty minutes discussing the business approach at his sixty-person job shop near Boston. Peterson does short-run stuff. Medical apparatus is an important component of their business. They run old school toolroom equipment, but have invested in CNC Toshiba boring mills in recent years, which are now their core machining capability. Business is good. They have been able to hold on to their machinists over a long period of time because they pay well and listen.

I also had a great conversation with Scott Volk of MetalQuest in Hebron, Nebraska, near Lincoln. He wanted to talk about my “radical proposal” Afterthought column regarding enlistment of young people in the machining world. He is heavily involved in an outreach effort at a local high school and junior college to tell them about the cool opportunities available. He says there is an active group of grass roots communicators in Nebraska and Kansas who are quickly getting traction in recruiting students into a manufacturing track. Their approach has been to get to know career counselors and invite kids into their factories for show and tells. When kids see the fun stuff in today’s CNC shops, they bite. He says local junior colleges have filled their manufacturing-oriented classes to overflowing, because kids can see the payback.

Paul and Scott love the thrill of making things that are important. This is the story of manufacturing which has been so poorly told to the uninitiated french fry fryers of America. The new world of customized manufacturing, which is coming soon to a company or a war near you, is going to open up more opportunities, as making things when and where they are needed eliminates the advantage of off-shore manufacturing.

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Can We Stop a Culture of Failure?

In the last few days, in New York and Chicago there have been killings of young African-American men by the police, inciting the black communities in those cities. Neither victim was a hardcore criminal. It is quite possible both young men were in the wrong place at the wrong time and were confronted by cops who were extremely scared.

It is a lousy time to be a young black man in America.

I write this from the vantage point of a well-off 61 year-old white guy who happens to live right next door to Black America. I get a pretty good view of it right over my fence in the Village of Olympia Fields, Illinois.

Olympia Fields is now a predominantly African American community. The elementary school adjacent to my house is made up of over 85 percent black students. The high school Rich Central, within walking distance of my house, is also over 85 percent black. The villagers’ homes (there are no apartments) range from $200,000 to $500,000, except for a few which have been gerrymandered into another school district that has less black students – those are more valuable on the market.

I see an interesting phenomenon now in Olympia Fields. Black people are moving out because they don’t want to send their children to the predominantly black schools of Olympia Fields.

One African-American friend of mine, who is looking for a new home now, told me he would not buy in my village because he doesn’t want to pay the “tax.” I asked him what the “tax” was, and he said the tax was the cost of sending his children to private school.

My longtime next door neighbor recently moved because she was afraid to send her daughter to Rich Central high school. She thought the crowd would be bad for her daughter’s development.

I look at the South Suburbs of Chicago where I live, and I conclude sadly that while life has gotten much better economically for many African-Americans over 30, it looks grim for the younger generation. The irony is that our next president may be Barock Obama and that the most influential person in the Bush Cabinet is Condoleezza Rice; and the heads of American Express, Time-Warner and Merrill-Lynch are black.  Ken Williams, general manager of the Chicago White Sox, and Tony Dungy, the coach of the Indianapolis Colts, are symbols of the triumph of my generation’s black American peers.

It is encouraging to read Juan Williams and John Ridley laud the black achievers and decry the culture of victimization that has overtaken a new generation of African-Americans, just when the parents of that generation are reaching middle and upper class America.

I do not know how it has happened, but a new generation of kids who do not believe they can compete in the educated world have taken over my local schools. Achievement in school is ostracized. Teachers are giving up. Marriage and two parent homes are fading away. White culture has seen a similar lean towards entropy, but from my vantage point, the swing backward by Black America is so sad and disappointing following the big gains of the baby boomer generation.

My hope is that the new prominence of the Juan Williams and Bill Cosby critique of the “Culture of Failure” in the book Enough will hit home. I’ll be watching over my back fence in black Olympia Fields Illinois.

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Don't Want to Get Passed Up

What do you do if your core business is imploding not because you are bad at what you do, but because the world has suddenly changed. Ask the Tribune Company, parent of the Chicago Tribune newspaper, the Los Angeles Times, the Chicago Cubs, and part owner of WGN television network and the Food Network cable channel.

Tribune Company’s newspapers are losing circulation and advertising weekly to Craigslist, ESPN and themselves on the web. America’s newspapers have a mass case of Parkinson’s for which there is no current cure. Younger people want their news on the Internet. It’s that simple. The big city newspaper as we know it is dying.

Big city papers like the Trib still make a lot of money, but the future is shrinkage. The stock market hates for that. It worships growth and despises shrinkage. The Tribune Board is now almost forced to sell the papers to a private equity firm, which will milk them to pay debt and fees. The tough decision is whether to keep the other media aspects together as a package or sell off everything and count the money.

The Tribune Company is in a fix like a lot of guys in the screw machine business today. The multi spindle business, high volume, medium accuracy is being dismembered by movement of work to China and India. The trend ebbs and flows, but the long term shift of high volume commercial manufacturing is clearly toward low cost labor markets. As these low cost suppliers hone their skills they will take low volume, high value added work too.

Using the Tribune Company logic, this is the time to sell out of the screw machine business to a smaller private equity investor who will do the eminently logical thing – squeeze it and pay down debt, then flip it to somebody else.

I think that the big city newspaper and the big manufacturing company analogy holds up fairly well. The niche publication, which is not time sensitive, can succeed in the marketplace. And the niche machining company with great expertise and swift response capability will be able to prosper in the American market. Medical, aerospace, military, specialty auto and hundreds of other specialty machining markets hold great promise for well positioned firms. The web will foster numerous export opportunities.

The Tribune is doing the right thing to dish off the papers. They are too big to fix quickly. Huge manufacturing concerns are also correct to shut down fat old factories, but little niche players should have an open field in both publishing and manufacturing in the next several years.

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November

As I am writing, the Congressional elections are an unknown. The conventional wisdom is that the Democrats will win the House and possibly the Senate. Is this a big deal if it happens?

From a legislative standpoint it is a nonevent.

But from a political point of view it is significant. The Republicans have held the House for 12 years. Six years of Bill Clinton and six years of Bush, the political climate in Washington continues to sour. The animosity between the parties is stronger than I can ever remember. This is good and bad.

Legislatively we will have gridlock. This is a wonderful thing for business because usually the best outcome we can hope for in Washington is stalemate. The mantra of doctors and Congress people should always be “do no harm.” If the government can’t get anything done, we are normally sheltered from gross stupidity.

So the Congress will probably become a vitriolic star chamber of investigations of the Bush administration with the Dems attempting to brand George the 43rd as Charles Manson’s twin brother.

But no matter what happens in the 2006 election, 2007 will be an important year for debate about the Iraq war and containment of North Korea and Iran.

The possible presidential candidates will be formulating their war messages next year. Al Gore, Hillary and various unknown governors will be testing their rhetoric on the left wing power brokers in the Democratic party. They will have to appease the La Monsters to get the nomination, but if they go too lefty, they will alienate middle America, which also dislikes an endless war of refereeing between Muslim gangstas in Iraq, but realizes that the U.S. needs a military presence in the Oil loaded desert.

It will be a signal event if the euphemism “War on Terror” finally is renamed by the candidates as the ”War against nihilist Muslim Jihadists.” It will be a long fight, like the Cold War was.

On the Republican side, the 2006 election will also shape the message of the presidential contenders. Senator John McCain appears to really want it. If the Bushies get whomped in the Congressional elections, he will be a logical alternative for the party, but the unalterable fact remains – senators usually lose Presidential elections. You have to go back to 1960 and John Kennedy to a senator who moved directly to the presidency. For this reason I think Rudy Giuliani has a good shot at the nomination despite a lot of health and personal issues which will disappoint the party’s Social conservatives. Whoever gets the GOP nod will position himself or (herself) as the counter-Bush candidate. History may vindicate Bush-Cheney-Rumsfeld’s foreign policy, but 2008 will be too close for happy reminiscences.

If the Democrats take the Senate with 51 seats, it will be extremely difficult for Bush to name a Supreme Court Justice if a vacancy occurs. About the only sure bet to pass a Democrat Senate would be Bill Clinton. Now that would be one way to get him off the campaign circuit in 2008.

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Scrap Pays the Bills

A recent conversation has me thinking that the old screw machine world has been turned on its head and the change is falling out of its pockets.

I was talking to an old machining client, and he mentioned that in the last quarter he derived more money from his scrap than from the components he had made. This fellow runs a sophisticated machining company—no dumb washers—so he adds a lot of value to his machined components. Still, this quarter his scrap brought in more dollars than his product. This is a testament to global sourcing and manufacturing efficiency, but it also may be pointing toward diminishing viability of metal machining in the age of scarce and expensive raw materials. If copper and brass prices stay over $3.00 per pound, we are going to see the engineers figure out methods to get around using them. We are beginning to see lead engineered away because of health and disposal issues. It could happen with copper, brass and stainless. Composites are changing aerospace and will soon make their mark in the automotive. The parts printing paradigm (see “Ex One Revolution below) addresses the scrap from machining with a scrapless process, which also trumps the messy fluids issues. Heading, EDM, injection molding, waterjet and laser are all pointing in the direction of scrapless part making.

Eaton Corporation recently closed a big brass fittings plant in Oklahoma because they felt that they could deploy their capital more efficiently than investing it in brass bar, chips and nipples.

Another statement about the price of scrap was made on eBay in a recent Graff-Pinkert auction. A used 1100 E, Burrett 30” chip wringer brought $13,000 in a competitive auction. Spinners rise in value when chips become more dear. This is the highest price I’ve ever seen for such a model. The recent commodities slide may temper the focus on chips, but as long as China is committed to its frantic infrastructure build out, brass and copper will be short, and scrap will stay hot.

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Ex One Revolution

For me, the highlight of IMTS was the Ex One exhibit. This company, led by former head of Extreme Hone, Lawrence Rhoades, and former CEO of Gleason Works Theaters John Burns, is revolutionizing the world of machining. Perhaps not revolutionizing, but replacing much of machining as we know it, using a three dimensional process, which incorporates a layering of metal powder by a version of inkjet printing.

Ex One is already using this process to make sand models for casting. It is also beta testing a similar mode of making dental crowns using gold powder added layer by layer to make a perfect crown in a fraction of the time as in the conventional process.

Rhoades envisions this approach replacing many of the dental laboratories making gold crowns. Dentists are already bringing the technology into their offices making the turnaround time a fraction of that with conventional methods.

Ex One’s vision of the world diminishes the role of Fed Ex and UPS because production would be on the site with virtually no waste.

Watch this video excerpt from interview I did with Mr. Rhoades. It will later appear in the print addition of Today’s Machining World.

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Today's IMTS Reflections

Mazak looks like a big winner. Their exhibit is almost always swarming, and they have focused on big machines well suited for the boom in energy production and distribution.

Haas seems crowded. They have a million machines and hordes of salesmen and technicians. I have done a sampling of attitudes of show attendees regarding the company and its products in light of Gene Haas’s indictment. I have found a general awareness of the tax problems, but the people I have talked to feel positively about the products and service. This seems to trump anger or dismay about the court case. Several people were sympathetic towards him, having fought with the IRS themselves. The exception was people in the machine tool field who seem to be delighting in Gene Haas’s problems.

I find it difficult to assess the attendance of this show. Aisles are not crowed. It often seems like more people are working the show than attending, but I know this is symptomatic of the dramatic decentralization of manufacturing in recent years. The GM and Fords are not sending big teams of people. Lean companies send key people because production must go on. IMTS 2006 may be a successful event despite comparatively low numbers. The people I have talked to, both buyers and sellers, are feeling successful and optimistic; it’s a buying climate. Midway through, it looks like this will go down as an excellent show for most exhibitors.

One of the weakest exhibits was by the organizing body of IMTS. Their IMTS TV on big beautiful plasma screens strategically placed was watched by nobody because it was a series of canned advertorial interviews, which reeked of inept PR. When will people ever learn that nobody has time for unauthentic fluff, whether written or on video?

AMT had booths at the front of the North hall. Great location near the hot dog seller, but I couldn’t figure out what their message was. There was a list of senators and a printed message about the R & D tax credit, but the call to action was unclear. AMT probably does good work, but nobody but the members of the club would know it from the display.

IMTS generates a lot of energy from the exhibitors and attendees. From my observation, AMT does a weak job of galvanizing the buzz of IMTS into anything that propels manufacturing in America forward politically and intellectually.

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New Life at Tornos

Welcome to the 21st century Tornos. At the Tornos press conference, I was impressed with Scott Kowalski, who has taken the reins at Tornos in America. Tom Dierks, who led Tornos for many years, was a fine person, but the business in America deteriorated under his watch. Market share slipped to also-ran status, despite having a superior piece of hardware to sell.

Tornos appears to realize the problem. They have improved the software by partnering with PartMaker and developing a Windows-based product.

They are building a “Center for Excellence” in Naperville, IL, outside of Chicago, which sounds like it will eventually be a home for the brand. They are taking a cue from Index, which moved from a cozy building in a small Connecticut town, to a state of the art plant near Indianapolis. Tornos has also granted a multi-spindle representation to Hydromat, which has a chance to really make something out of it.
Kowalski impressed me as a high energy mover and shaker. He has a clear idea of what he has to do – build the brand with service and support. Convince the best dealers that Tornos is on the rise again. Show passion and commitment to the customers.

I think this guy is really going to stir things up for the better.

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Three days and counting…….

Eight days of IMTS. Are you kidding? This is an idea from yesteryear. If you compressed IMTS to three days, everybody would come for those three days. Comdex, the National Hardware Show, big medical conferences – nobody does more than three or four days anymore.

The programming doesn’t even fill three days now. The weekend is slow, especially Sunday. Perhaps the downtown restaurants and hotels like the added traffic, but IMTS should be for the participants, not the city it is located in. And for the participants, eight days or six days is a big inconvenience and physically bone crushing.

We are in a period when manufacturing lives under constant pressure to reduce costs – go lean.

IMTS continues to be the show of excess – too big, too long, too expensive. This may temporarily serve the interests of the organizers, but ultimately the exhibitors will expect the same lean performance from IMTS as their customers demand from them.

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