It’s a Good Time to be in U.S. Manufacturing

In 2009 the U.S. Department of energy estimated that natural gas accounted for only 25% of the nation's energy, versus petroleum's almost 37%.

The negativists see 8% unemployment, home foreclosures, Spain in free-fall, a Socialist winning in France, an Obama second term, and $4 gasoline. Plenty to moan about, but U.S. machining companies see an economic honey pot. Why?

Autos (not so much pickups) are still selling despite gas prices. This indicates that car purchases are more related to economic optimism than the price of gas.

Why do we have $4 gas? It is not lack of supply that hurts, because we have a glut of oil in North America. It just isn’t in the right place at the moment. The East Coast refineries get oil from Venezuela, the Gulf, the Middle East, and some domestic. They adjust prices according to the Brent crude price, which is $20 higher than the Nymex price. The lack of pipeline capacity from the Canadian Tar Sands and North Dakota’s huge new fields cannot easily go East because we lack pipeline capacity. Supply now overwhelms capacity to transport to Houston’s big refineries. Add the slow move to natural gas as a transportation fuel. It will happen eventually, not now.

Iran is the other wild card. Gasoline demand in the U.S. fell 7% last year, an enormous drop, but prices were bid up because of the fear of an interruption from the Mideast. Ironically, Iranian oil is not that important in itself. It’s the “what if” that pushes the futures market. A wounded or empowered Iran might move on the Saudi fields, which would make a mess.

But business in the U.S. is still humming and the immense new supply of natural gas makes for an interesting cross current. Cheap natural gas is killing coal as power plants switch over. The railroads, which carry so much Montana coal to the East and Midwest, are short of cargo now.

But chemical companies are in expansion mode because cheap natural gas feed stock from America means big profits for a long time. They are already lobbying against the export of gas as LNG (liquid natural gas) to China or elsewhere for fear it would raise the domestic price of natural gas.

I see several opportunities for machining firms from this situation. The conversion to natural gas for transportation will happen over the next five years, especially for trucks – big new market. New chemical plants and natural gas turbines mean a lot of fab and machining here. Stainless steel fittings and valves will be in demand.

We are also in the midst of a big replacement cycle for airplanes, and gas guzzling old cars. Add in China’s loss of advantage because of high energy costs and rising wages, and India’s inability to compete in world manufacturing, and you can see why American industrial firms like GE and Caterpillar are expanding in the United States now.

It’s a good time to be in manufacturing here. It’s about time.

Question: At what price point for gasoline would you change your driving habits or vehicle?

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11 thoughts on “It’s a Good Time to be in U.S. Manufacturing

  1. AvatarRay Frattone

    I drive about 25,000 mile a year at 20mpg and have a ball doing it so I would have to see about $ 10.00 a gallon to make me adjust.

  2. AvatarEmily Aniakou

    I drive a V6 2006 Chevy Impala I “purchased” from my grandfather with 14,000 miles on it for less than half of its value almost four years ago. I love the car – it’s smooth, comfortable and has been pretty reliable (it has 81,000 miles now). The problem is every 10 days or so I go to fill up my 15 gallon gas tank and the $50-$60 I have to spend just kills me. I’ve looked at trading it in for something more efficient, but it doesn’t make sense financially quite yet. I’m thinking I’ll drive this car into the ground and when it’s really time for a new car I’ll go smaller – maybe hybrids will be less $ by then. I’m praying I get five more years out of my Chevy, if my transmission will just hang in there! Too bad the good hybrids on the road right now are foreign. Hopefully by the time I’m ready for a new car GM and Ford hybrid technology will have caught up with Toyota and Honda.

  3. AvatarJohn Stratton

    I get 22 mpg with my current car and have only a 10 mile commute to work. So i am thinking it will need to reach $5 a gallon before I make any changes. I will also be in the market for a new car within a year and will go to much better fuel economy.

  4. AvatarDonald Green

    I’ve got a 2004 Subaru Forester with 130,000 mi. on it (it’s a great car, and I fully expect to get 200,000 before moving on). It’s got the turbo, and I get about 25 mpg on the hwy (usually at about 75 mph). I drive less than I used to (about 16,000 per year as opposed to 25,000 before), and about the only thing I’ve changed with the higher gas price is that I use middle grade instead of premium.

  5. AvatarGail Glidden

    Our vehicle gets about 22 mph, and we commute our 15 mile drive to work together. We looked into the Nissan Leaf when gas hit $3.00 a gallon but at the time the batteries were not designed to handle our Northeastern winters. We are not sure of the status of the batteries now, but it is hard to commit to a car payment when all our current vehicles are paid off. Maybe when daycare payments are done, we will consider a Hybrid or electrical car again. I also don’t want a first year model of anything new.

  6. AvatarSeth Emerson

    Good News – Manufacturing is up – Bad news? I went to the casting firm that bid a part for me last year, but I couldn’t commit. Now they are full up with work and no-bid it. I know, I know, my fault! On the gas front, as people have mentioned, poor mileage hurts when you have long hauls. At 5,000 miles per year, tops, my 11 year old paid-off Avalanche looks pretty good when compared to a new $30,000 truck. At $5/gallon even if my fuel mileage doubled, not likely, it would take 15 years to pay it off in gas savings. Oh, and I am saving the energy of building a new truck!

  7. AvatarDan K

    I’d like to ad my gloat…

    I have a ’92 VW Jetta Diesel
    I bought it in 2007 for $950 with over 150,000 miles
    Two months later someone backed into it in a parking lot causing minor damage to
    the drivers door. Their insurance paid me $985.

    This car has NO Computer or Batteries, and gets 46-50MPG.
    Last week my girlfriend changed out the 2 quarts of cooking oil in the Frybaby, and I filtered it thru a paper towel and then dumped it in the VW’s fuel tank. That should be good for about 20 miles anyway….rather than dump it in the trash or down the sink.

    This car did not qualify for “Cash for Clunkers” because there is no car that exists that gets 10% better mileage than it does (one of the qualifications for the trade in credit).

    The new VW diesels get 45MPG but have several computers on-board and are extremely
    high tech and expensive to buy and maintain.

    I LOVE this car
    Long Live Rudolph Diesel

  8. AvatarJeff Adamson

    I bought a VW Jetta TDI Sportwagon 2 years ago new. I get 40-45 mpg which really helps keep the cost of my 80 mile daily commute manageable. The 6 speed manual is a blast to drive and I’d recommend the car to anyone.

  9. AvatarKen

    Just bought a new car for my 18 year old daughter last night. A Hyundai Accent fully loaded model. Nice car.
    This baby gets 40 plus MPG.
    She will drive more miles in a day then either my wife or myself because we live only 5 miles from our house to our company. That said, it made sense to buy HER the car plus I just wanted to bless my lovely daughter.
    So, this is what I did.
    Next, in about one week I will buy my lovely wife a brand new car, a KIA SOUL. HEHE
    I love giving gifts.
    $5.00 per gallon will only hurt the poor and middle class who drive to work or buy food, or medicine or breath.

  10. AvatarFrank

    My habits have already changed and I like it. Instead of driving every day, I now drive 2 days / week and bike-train-bike the other three. As weather improves it will be 4 days / week. The change reduces stress, the train gives me time to read the morning paper, and I’m saving about $2.00 / day when I don’t drive.


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