Transcript Global I-RTS Outlook - February

Industrial Outlook – What next?
LORD Corporation
Karen Sy-Laughner
Company Confidential
Global Outlook
Who Knows?
Data changes daily
Government projections differ from that of the
economists - even for the different countries
Couple of points:
•US Economy is expanding, but at a slower pace than
earlier this year
•China and India continue to grow strongly, but they are
highly dependent on the growth of both the US and
European economies
•Growth in the Americas is primarily in Brazil, Mexico,
and Argentina. Canada’s growth is a bit faster than the
US but very dependent on US trade
•Europe is showing growth in Germany and England, but
slower growth in England beginning to show.
•Issues with debt and liquidity for Greece, Portugal, and
Ireland
Global Overview
Key World Economic Outlook projections from January
2010 with September 2010 updates
• World growth. After contracting by 1 percent in 2009, global activity is forecasted to
expand by 3.9% in 2010 and 4.3% in 2011. Numbers have been since revised
downwards to 3.7% for 2011 as of September 10, 2010 by Scotia Bank Group
• Advanced economies: Medium term prospect of sluggish growth. Output in the
advanced economies is now expected to expand by 2% in 2010. In 2011, growth is
projected to edge up further to 2.1%. The US economy is expected to grow at 2.5%
for 2011, slower than the original 2.8% projected earlier this year. Eurozone expected
to be 1.1% for 2011 with stronger numbers for Germany and England. Core inflation
remains under control.
• Emerging and developing economies: Outpacing the rest. Growth in Emerging
and Developing Economies is expected to rise to 6 percent in 2010. In 2011, output
is projected to accelerate further. Between 6.5-7% Stronger economic frameworks
and swift policy responses have helped many emerging economies to cushion the
impact of the unprecedented external shock and quickly re-attract capital flows. China
is expected to grow 10% for 2010, and 9.3% for 2011. India’s numbers have been
revised upwards to 8.3% for 2010 ( some as high as 8.8%) and 7% for 2011.
Source: World Economic Outlook Update: Policy-Driven, Multispeed Recovery – January 26, 2010, Scotiabank group 2010,
Morgan Stanley Economic Forecasts September 2010
July 2010 Data on recovery remains mixed. IMF and the Fed predict that the
factors for growth are solid - HIGHER THAN THAT OF ECONOMISTS
Advanced Economies
2010 Projections
2011 Projections
Advanced Economies
2.6
2.4
US
3.3
2.9
Euro Area
1.0
1.3
Germany
1.4
1.6
France
1.4
1.6
United Kingdom
1.2
2.1
Japan
2.4
1.8
Canada
3.6
2.8
Emerging and Developing
Countries
6.8
6.4
Central and Eastern Europe
3.2
3.4
China
10.5
9.6
India
9.4
8.4
ASEAN
6.4
5.5
Middle East and North Africa
4.5
4.9
Sub-Saharan Africa
5.0
5.9
Brazil
7.1
4.2
Mexico
4.5
4.4
Reference: WEO Update July 2010 Data
World Economic Outlook
 Historical Gross
Domestic Product
Growth 2006 –
2011
– World
– Advanced
Economies
– Emerging
Developing
Economics
Latest OECD Projections - note how with the numbers slow
in the 3rd abd 4th quarters for US and UK.
Source: OECD, System of National Accounts database; Datastream;
MarkitEconomics Limited; OECD Economic Outlook 87 database; and OECD
Indicator Model forecasts.
Business Confidence has weakened – Purchasing Manager’;s Index
What is happening now? - Tepid growth except for developing countries
 China GDP is expected to grow in 2010 between 10-10.5% and next year closer to 9-9.5% as the
government tries to head off inflation.
 China Daily from 09-06-2010 reports:” In spite of high jobless rates, Europe is registering strong
economic growth and the recovery base in the US is broadening……For Chinese decision makers, all
these sentiments and judgments are of no slight significance because their country’s economy is
already deeply interwoven with the rest of the world.”They further proceed to state that “ The coming
five years can be divided into two parts. After massive stimulus investment and because the global
economy is more likely to grow at a slower pace, China’s economy may achieve moderate rate of
about 8-8.5% in 2011-2012. After the first two years, China can have a stable 9% growth when the
global economy is in better shape.
 India’s economy is strong, with numbers revised upwards to end 2010 at 8.8% and 2011 at 8.4%.
 Brazil will most probably end 2010 at around 7% growth, but that will slow to closer to 4.1% growth
for 2011.
 The US economy has started to slow in its growth projections from earlier this year. It is expected to
grow 2.4% for 2011, which is slower. The adjusted numbers for GDP growth for the 1st quarter of
2010 is 2.4% and for the second quarter, it projected at 1.6%
 Germany and England are showing strong recovery from the Eurozone –due to overseas demand for
their products. China is the largest market for German automobiles, high luxury goods, and
specialized equipment. Countries associated with similar export industries are also doing well like
Sweden and France. However, Spain, Portugal, and Greece are still mired in some challenges.
How can Asia keep growing?
 Asian economies are still highly dependent on exports – so as the
global economy improved, greater demand for their products
 Sub-Saharan Africa’s economy has been growing at a steady pace,
with Asia being their largest trade partner
 Private domestic demand maintained momentum with the growth of the
middle class and buying power of overall population
 Demand for high item luxury goods continues to increase with
increasing wealth.
 Robust corporate profits and favorable financing in India
 China growth is driven by export rebound and domestic demand
coupled with government intervention to prevent over heating and
maintain financial stability.
 Risks are that any stalling in the European or American economy can
slow growth. European bank situation is still tenuous. Asian banks,
however, have the ability to deploy stabilizing measures.
Some positive indicators for the US economy
 Companies are reporting strong earnings – hopeful that
they would gain confidence that they would start hiring soon
 Retail Sales (MoM):July Retail & Food Sales Revised to +0.3% from
+0.4%; U.S. August Retail & Food Sales Ex-Autos rose +0.6%; U.S. August
Retail & Food Sales rose 0.4%; Compared to Consensus of an increase by
0.3%.
 Business Inventories (MoM):
U.S. July Business Sales rose 0.7%; Gain is Biggest in Four Months; Increase
in July Business Inventories is Biggest in Two Years; U.S. July Business
Inventories rose 1.0%
 IBD/TIPP Economic Optimism:
U.S. September IBD/TIPP Economic Optimism Index 45.3 versus 43.6 in
August.
Economic Markers 2010 for US
Markers still show improvement, even if slower
Statistics
Data
Industrial Production
93.4%, up 7.7% over 12 months
Consumer Confidence Index
53.5% for August versus 51% in July.
Mining Output
Mining output grew 0.9% over June,
and is up 7.5% over July 2009
Manufacturing Output
At 90.6%, up 7.7% over 12 months,
rose 1.1% after declining 0.5% in June
Capacity Utilization Rate
Reached 74.8% in July
Production index for durable goods
manufacturing
Jumped 2.1% in July. Increases were
widespread, with the larges in motor
vehicles and parts, and in mineral
products.
US Federal Reserve, August 2010 release
912
More positive news- Americas and Europe
 In the Eurozone, it is expected that 10 out of the 14 industries will grow in 2010, led
by motor vehicles by 19.5%. In 2011, 6 our the 14 will grow, primarily in the
machinery and equipment building areas. For Central Europe, growth in 12 of the
14 industries for 2010 but in 2011, electronics will see some volatility.
– For Europe, production in non-high tech industries is expected to increase by 5.1% in
2010, and by 4.3% in 2011.
 Latin America’s economies are showing a sharp V shaped recovery from 2009.
Brazil, Argentina, and Mexico are responsible for more than 80% of the
manufacturing output for the region. Overall Manufacturing output will grow 8.3% in
2010 and will decelerate to 3.7% growth in 2011 which is more manageable.
– Most of the growth in Latin America will be in food and beverage, machinery and
equipment production, along with motor vehicles. These three categories make up 4045% of total manufacturing output for the region.
 US numbers while slowing still show that the manufacturing sector is recovering.
The industrial rebound is stronger than the rest of the economy. Manufacturing has
added over 100K jobs since the beginning of the year.
– Economic activity in the manufacturing sector expanded in August for the 13th
consecutive month, and the overall economy grew for the 16th consecutive month, say
the nation's supply executives in the latest Manufacturing ISM Report On Business®.
China and India
 India -14 of the 16 sectors for India show growth, with transportation equipment
and parts leading the pack at 17% and 15% respectively. Machinery and
equipment are also growing strong at 12%. Other industrial, such as pulp and
paper are expected to grow at 10%.
 Stimulus related infrastructure investment will decline in China, but
manufacturing production is still expected to grow swiftly. China’s growing
middle class is growing faster than that of any other country’s and their need
for consumer goods and necessities will help set the tone for China’s industrial
output.
What is preventing us from faster growth?
– Advanced Economies:
 Banking crisis in Europe is still far from over - only purchaser of Greek Debt were
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other European governments.
New banking rules formed in Basel will further tighten lending standards:
– The new rules would make banks roughly double the amount of capital set aside
as a buffer against possible losses, slash stockholder dividends and executive
pay if that stockpile falls short, and limit lending during economic boom times.
Goal is to curb lending in good times in the hope that asset bubbles won't give
way to a costly bust.
– Arguments that this would further slow down the economic growth - Some
financial industry analysts and groups have argued that the stricter standards
would slow lending and economic growth.
Fiscal deficits, mounting public debt
Broad unemployment. August unemployment numbers remain high - at 9.6%. Belief
that in 2011, unemployment will remain high at 9.1%. No lowering in numbers until
2012 where it is expected to go to 8.4% and then 7% by 2014.
Only started adding jobs, but 7.6MM jobs were lost in this recession and GDP
contracted 4.1%.
Consumer Spending remains tight
Companies are showing great profitability but hiring is still meager.
Housing and construction still showing poor recovery. Only Lennar and Toll Bros
show some progress but it is from buying up loans
New Home sales, pending home sales, and mortgage applications are at a 13-year
low. New home prices have plummeted 30% on average. 8 million home loans are
in some state of delinquency and another 8 million have less than 5% equity in their
homes.
Wall Street Journal – September 21, 2010
Unemployment Data
Deflation ?
 With mounting public debt, large fiscal deficits, concern
about deflation in the US .
 Possibility – highly unlikely -
if economy shrinks, we would just
enter another recession - recession officially declared over as of June, 2009 –
means period of declining activity has ended, not that the economy is healthy.
– Reasons:
 Institutional structure around the Fed and the political economy
is highly adverse to deflation
 Fed’s goal is not just monetary policy but also the inclusion of
employment. Fed’s inflation goals are made clear each
announcement so investors understand. Accountability of Fed to
Congress and need to testify before Sentate and House plays a
huge role in terms of responsibility.
 Fed has tools they can deploy to head off deflation.
Dollar’s international role encourages discipline on US policy
Aging US population is not as rapid as that of Japan’s.
US has run deficits for many years and is dependent on foreign
nations for financing. Japan has always balanced their budget,
but yen is a more local currency.
Morgan Stanley-Global Economic Forum September 10, 2010 – “Crisis, Credit, and Capital”
Focusing on this region…..
 The Mid-American region looks stronger than the national
economy, said Creighton University Economics Professor
Ernie Goss.
 "Over the past several months, for example, the region has
been adding jobs at a very healthy pace while U.S. job
growth has been nil," he said in a statement. ( Reuters
September 1, 2010)
Midwest Manufacturing Index
Interesting to note his the output is 13.1% higher than a year ago,
much higher than the national average of 8.1%.
Individual key sectors for this region
Auto index is 27% above last year, Steel, highly dependent on auto is
also significantly up. Auto industry still looks strong for 2011. Industrial
production and Machinery is slower but still recovering. We expect
strength in the agricultural and off-highway segments
Key sectors for this region – their performance
Industrial Rubber Goods- Outlook still shows growth on a
macro scale
 Global demand to rise 4% annually through 2011 –
– World rubber consumption is forecast to increase 4.0 percent
annually to 26.5 million metric tons in 2011. US, China and Japan
dominate global rubber consumption, and will continue to do so,
collectively accounting for more than half of the market in 2011.
– China has become the leading consumer of rubber worldwide,
following more than a decade of strong growth in motor vehicle
production and industrial goods manufacturing. The country
overtook Japan as the second largest rubber market in the late
1990s and by 2001 had essentially caught up to the US as the
world's leading consumer. While China will continue to extend that
lead, the US and Japan will remain leading markets worldwide.
Industrial Rubber Goods- Outlook
Non-tire rubber demand to outpace tire rubber –
– Non-tire rubber will outpace tire rubber demand through 2011, based
on a favorable outlook for mid-range elastomers(e.g.,ethylenepropylene, nitrile and polychloroprene) used in components such as
hoses, belts, gaskets and weather stripping.
Natural, synthetic rubber to both expand at strong pace –
– Demand for both natural and synthetic rubber will expand at a strong
pace, but the division of the market will remain essentially unchanged
through 2011, with synthetic rubber continuing to hold approximately
55 percent of demand and natural rubber holding the remaining 45
percent. General-purpose synthetic commodity elastomers -- typically
defined as SBR (styrene-butadiene rubber), BR (polybutadiene
rubber) and IR (polyisoprene rubber) -- account for the vast majority
of synthetic rubber demand.
Resources
 Bharat Book Bureau – Industrial Rubber Products forecasts for 2010 &
2017
 US Department of Housing
 U.S. Census Bureau News– 2009-10 – U.S. Department of housing
and Urban Development – New Residential Construction in January
2010 – January 2009
 World Energy Outlook - Online
 International Monetary Fund – Online
 Bloomberg, Citigroup
 Nomura Global Economics - 2010 Global Economic Outlook
 HSBC Purchasing Managers Index & Emerging Markets Index
 www.metalsplace.com - Metals and Mining Stock Review – Jan. 2010
– Industry Outlook – January 7, 2010
 www.federalreserve.gov/releases
 S&P Indices
 www.chicagofed.org
 Bureau of Labor and Statistics
 Morgan Stanley Reports
 OECD Reports