US Manufacturing Exam Question

A lot more than just the standard Model T.,,,

HenryFord.jpgSource of picture: cCSU Archv/Everett/Rex Features



By John Richardson

THE question on my exam paper this Monday morning is what this outstanding article by the author, Charles Fishman, in The Atlantic magazine, means for the petrochemical industry.

We have all become used to the idea of the constant “hollowing out” of manufacturing in the Western world – a theme that the blog has discussed on many occasions during ICIS training’s Petrochemicals I – An In-depth Introduction course.

Our slides are being adapted. What’s clear from Fishman’s article, and from plenty of earlier evidence about the recovery in US manufacturing, is that the old outsourcing model is changing.

Innovation in finished products will enable US companies to re-discover the lost skills of constantly improving the design of products made impossible by the tyranny of geographic distance – a big fault with outsourcing.

It will also become much easier to create niche products to serve ever-smaller groups of customers, as a result of the absence of long supply chains and the advent of 3D manufacturing.

For components suppliers, such as plastic processors, this will require an equal amount of innovation.

They, too, will take increasing advantage of 3D manufacturing to help with constantly improving the design of products, and to make much-smaller batches of products to suit niche groups of customers.

If the mass-manufacturing model for plastic processing is now under threat, what does this mean for petrochemical producers in the US?

Will they also need to also re-consider the current model of building huge million tonne-plus petrochemical complexes to serve homogenous “plain villa” manufacturing industries?

The enticement for all the cracker projects in the US - which is also helping to drive the overall recovery in the country’s manufacturing industry - is of course the shale-gas boom.

But will building big, based on cheap feedstock, be of less importance in this new environment than providing speciality grades of polymers in order to serve constant innovation in manufacturing? By their nature, the profitability of such grades is driven as much, if not more, by technology rather than feedstock advantage.

Or are we oversimplifying this? Perhaps we shouldn’t get too carried away into thinking that the revival of US manufacturing signals an end to the whole outsourcing model.

Low-value manufactured goods will likely continue to be made in the developing world, increasingly maybe in South America, even if China has become too expensive. The US manufacturing revival will probably only be in mid and high-level products where labour costs are less of an important element of overall costs.

Thus, there could be plenty of room for lots of feedstock-advantaged new US crackers that can export their surpluses of basic polyethylene (PE) around the world, while making a few speciality grades to serve local markets.

But what about the total demand picture? We still worry about demographics and what this means for the US, and many other economies. We are concerned that there will simply not be enough demand to absorb all of these new crackers.

And further – the Chinese might build a lot more capacity than some people think, in order to boost their self-sufficiency in petrochemicals, and take advantage of their own cheap feedstocks. The Middle East could also find a great deal more ethane.

Where will the US place of all it surplus perrochemicals? 

Let’s finish on a really positive note, though: The return to innovation in local manufacturing in the US could help make all the products that don’t even exist today, that will be needed by the Babyboomers as they get older.

This should also provide lots of meaningful work for young people in manufacturing industry.

Please let us know our grade for our answer to this morning’s exam question.

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