Elevated status caps a fulfilling industry career
BY MORRIS R. BESCHLOSS
PVF and economic analyst
It’s with great pride, gratitude and still unfulfilled accomplishments that I look forward to my official role as The Wholesaler’s industry, PVF and economic analyst emeritus. This approach will allow me to combine my intense involvement in global economical research and writing with my 50-year plus industry activism.
It’s my intention to interact with the PHCP industry in general, and the PVF sector specifically, to provide The Wholesaler’s readers with valuable economic input on an ongoing basis.
Since I write an average of two daily blogs on economic events as they occur in the ongoing happenings of both the U.S. and the world at large for the Gannett Publishing’s Desert Sun, I’m hoping that you will also log on to my blog (www.theworldreport.org).
I will also utilize my “PVF On the Pulse” column to tie in global economic events with their impact on our industry as a whole.
I’m looking forward to your reaction to my blogs, as well as my extended columns and viewpoint editorials, scheduled for future issues of The Wholesaler. Your comments are most welcome.
PVF sector adjusts to depressed market levels
With the prices of crude oil and natural gas hunkering down at depressed levels, the PVF sub-sectors depending on the expansion of their core businesses are obviously in hiatus at this stage of the international recession. However, offsetting this downturn is the red-hot development of power generation development that is vainly attempting to catch up with the increasing demand and the waning supply.
This has become of growing concern as the utilization of coal and the expansion of nuclear power stations have been increasingly curtailed because of political opposition from the Obama Administration.
Whatever happens, the development of an indispensable power generating infrastructure depends on a massive amount of this industry’s pipe, valve and fittings, which continues to underpin the business of most sector manufacturers as well as distributors, fabricators, turnkey constructors and engineers.
Natural gas is increasingly replacing the use of both coal and the diminishing use of oil in power generation. That is a major reason that pipe in the transmission of natural gas is still exceeding the production of that fossil fuel, which has accumulated one of the greatest gluts and lowest prices in years.
PVF manufacturers and turnkey constructors, who have consummated available projects in the past few months, are benefitting by the resultant expanding margin of materiel costs that have plummeted dramatically since the first of the year. This will at least temporarily benefit manufacturers — and eventually distributors — in their reorders.
Most concerning to the large group of PVF distributors and contractors who focus on commercial development and maintenance are the serious credit problems facing major developers controlling much of the new office buildings, hotels, motels, shopping centers, and multi-story apartment buildings. Although the recently conceived Treasury Department’s TALF program, and support from the Federal Reserve Board holds promise for future credit easing, commercial project activity has practically come to a halt. Business in this arena has effectively been reduced to maintenance and repair activities.
On the good news side of the ledger is the reawakening of global trade. This has resulted in an upward bump on exports in the first quarter 2009. Two-thirds of the trillion-dollar-plus U.S. exports are comprised of industrial products, much of which are PVF oriented.
My outlook at this point is that the PVF sector will continue to do fairly well, as the general world economy gropes to find its footing during the remainder of 2009. With oil, natural gas and the shipment of coal to China and India, expect PVF manufacturers, distributors, contractors and others involved in this sector to regain momentum as the year 2010 beckons.
Inventory liquidation may spur business in 2009 second half
A recent personal evaluation of shrinking activity in the industrial arena indicates that shipments from stock are increasingly exceeding orders from manufacturers who have accumulated these inventories in the past year.
This trend has also manifested itself in the residential building industry where home sales, even at traditionally low levels, have consistently exceeded the addition of new housing. Even the depressed automotive industry is following this path toward inventory liquidation. With Chrysler’s going through a surgical bankruptcy, and several General Motors plants shutting down for a nine-week hiatus, a major availability reduction is assured.
Although it may be too early to call this stabilization a turning point toward increased production, it seems likely that the surge of inventory building, which proliferated after last summer’s production implosion in practically all sectors, has come to an end.
This is not only showing up in the domestic manufacturing, housing and automotive sector, but has translated into an unprecedented reduction of imports from such leading trading partners as China, Japan, South Korea, Canada and Mexico.
The one international bright spot in the resumption of mass purchasing is China. However, China’s return to mass commodity acquisitions may be more a factor of astute purchases at a discount, rather than reflecting a return to the high levels of production, prevalent before the Beijing Olympics last July.
We hear that several component manufacturers, benefitting from China’s accelerated purchases are hinting at price increases in rock bottom listings of nickel, a prime factor in the production of stainless products. Also targeted for higher prices are such rare metals as molybdenum and chrome.
With a heavy surplus of these inventories still available, it’s doubtful that such price increases will hold at this time. More realistic price increases will await the influx of new orders, reflecting a worldwide upsurge in the processing of oil and gas, biofuels, and even wind energy. This is unlikely to happen until later this year. Stimulus plans in the U.S. and China will help. But there is no substitute for the resumption of demand, which will eventually be accompanied by higher prices across the board.
Domestic oil drilling dead as a doornail
With the price of oil skyrocketing last summer, President George W. Bush opened up offshore oil drilling by executive decree, pending state approval from California and Florida. As the price of oil surged to $147 per barrel simultaneously, the Republican Party embraced “Drill, baby, Drill,” as a battle cry to close the $700-billion price tag of foreign oil imports, with massive domestic activity.
This issue took on a major political twist, as coal liquefaction, oil shale and even drilling in the Alaskan National Wildlife Reserve were opposed by the Democrats. This was despite the fact that gasoline was exceeding $4 per gallon. At the time, even the vice presidential nomination of Republican Alaska governor Sarah Palin, an outspoken advocate of exploiting ANWR oil resources, added thrust to this increasingly partisan issue. But this confrontation disappeared with the GOP’s presidential hopes, as commodities joined an unexpected housing depression, and a potential worldwide credit freeze to plunge the U.S. into a lightning-fast economic downward spin.
But the total abandonment of additional domestic drilling by the Obama Administration will face the nation with dire consequences as America, and likely most of the world, will eventually increase the consumption of oil products and its derivatives. What has quietly accompanied America’s ‘demand destruction’ of 2.5 million barrels a day, compared to 2007’s peak usage, is “supply attrition,” which could substantially undercut productive capacity — as the exploration and oil and natural gas developmental infrastructure is being severely curtailed.
Although current oil inventory surpluses mask the eventual reduction of potential supply to increasing demand, expert analysts believe a severe price outburst could bedevil the world by the second half of 2010. This would likely cause a new and more permanent spike than the speculation-induced peak reached in mid-July 2008.
With the Obama Administration hostile to domestic fossil fuel development and making no provision for nuclear power expansion, the U.S. will be left with renewable energy alternatives that, at best, are years away from development. Solar power and wind energy will contribute little to power generation development, and nothing to the displacement of oil as the global transportation’s resource factor.
The consequences of this governmental apathy will weigh heavily on America once the economy and consumer activity return to a more normal level.
Morris R. Beschloss, a 53-year veteran of the pipe, valve and fitting industry is industry, PVF and economic analyst emeritus for The Wholesaler.