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2018 forecast: Another year of growth for metal fabricators

Lack of people, not demand, will hinder future expansion

2017 wasn’t a bad year at all, and 2018 is shaping up to be even better.

“The last couple of months have been really good to us,” said Jared Lotzer, vice president of sales and quality for Detroit Lakes, Minn.-based BTD, in early November. “And I know other fabricators have told us the same. It’s about time.”

The Conference Board is expecting U.S. GDP to expand by about 2.5 percent next year, while capital spending will jump to 4.7 percent. Economic expansion has been going on so long that many are asking when the next downturn will be. That said, some of the industry’s largest fabricators aren’t expecting a downturn next year.

“We’ve been running at a 10 percent compounded annual growth rate,” Lotzer said, “and we’re expecting 5 to 10 percent growth over the next several years.”

“We’re expecting we’ll be at plus 10 percent growth [in 2017], and that’s a fairly good number for us,” said Ryan Raber, vice president of sales and marketing for MEC, Mayville, Wis. “We’re expecting high single-digit to low double-digit growth for 2018.” That’s saying something for a fabricator as large as MEC, a $290 million operation with 16 plants.

The construction sector is on a tear for some shops, while the oil and gas sector is showing signs of life. “Still, the energy sector [including oil and gas] wasn’t what it was five years ago,” said Andrea Fisher, director of marketing for Merrill Technologies Group, a $77 million operation based in Saginaw, Mich. “But we are expanding in aerospace, defense, and the heavy industrial areas. All in all, we feel very optimistic going into next year.”

The lawn and garden sector is holding steady, and agriculture is finally making a rebound after several years of mediocrity, particularly for large farm machinery. Related markets are hitting their stride, too, including the recreation market.

According to Lotzer, demand volatility is on the rise as OEMs reduce their inventories and rely more on fabricators to deliver on demand. “We see a lot of exhausted suppliers out there,” Lotzer said, adding fabricators who can deliver are gaining market share. “A lot of fabricators were struggling with OTD [on-time delivery] this past year.”

This isn’t to say all small shops are struggling, especially those that perform well and find a niche. “We had double-digit growth this year, and we expect double-digit growth in 2018,” said Alan Bear, vice president of DLC Manufacturing and Fabrication, a small custom fabricator in New Ulm, Minn., that specializes in thick plate laser cutting. Bear is also president of Bear Market Intelligence, a firm that works with metal consumers on purchasing strategies. “Sales volume [for DLC] is very strong, and it’s across the board. People are feeling pretty good.”

As Bloomberg BusinessWeek put it in early November, 2018 may well meet high expectations “unless someone does something stupid.” The implied “someone” is, of course, the government. Foreign conflict or unintended consequences of new laws and regulations could throw a humming U.S. economy off track.

At this writing a new tax plan aiming to cut the corporate tax rate is making its way through the House and Senate. Another uncertainty is infrastructure spending. Fabricators are watching Washington, but they’re also expecting the market for construction equipment to remain robust thanks in part to recent natural disasters, which has had a ripple effect in the automotive industry as well.

Some are concerned about the president’s stance with NAFTA. Consider Itasca, Ill.-based Millenia Products Group. One of its operations in California supplies parts to plants in Mexico, both in the automotive industry and in the electronics sector. Any change to NAFTA will have winners and losers.

All the same, Millenia President Frank San Roman said, “2017 is shaping up to be the best year in the history of our company, and we anticipate 15 to 20 percent growth next year.” The $84 million operation is vertically integrated, handling everything from coil processing to final assembly. “This has allowed us to reshore a lot of work,” he said.

Another big area for growth will be distribution. A few of Millenia’s customers, for instance, are providing racks to fill Amazon’s ever growing distribution infrastructure. “Amazon is changing the world,” San Roman said.

Then there is the concern about what was until recently a little-known law called the 1962 Trade Expansion Act, specifically Section 232. The Trump administration is looking at whether steel imports present a national security risk, and the potential of tariffs.

As of early November, Bear suggested to many of his clients that they lock in long-term contracts. “I think [action due to] Section 232 is coming, perhaps by the end of the fourth quarter or the first quarter of 2018,” he said.

Not everyone agrees. “I really don’t think it’s going to have any major effect,” said William Douglass, president of LexCentral Steel, a service center based in Bedford Park, Ill.. “The mills just want a decision. [Commerce Secretary] Wilbur Ross is a very smart man.” He added that material prices will likely increase somewhat anyway, thanks to increased demand.

Another challenge is an old story: worker shortages.

“The skilled labor issue is going to pace people’s ability to add capacity in this growing market,” Raber said. He added that the industry will need more people, new ways to further automate, or (ideally) both.

The industry may well be at an inflection point that will force it toward new ways of thinking about worker productivity and automation. The focus may be on part flow within and between processes—conveyors, automated guided vehicles, and the like, all connected via software and communicating constantly. Thanks to growing demand strains on capacity, the fab shop of the future may look very different.

About the Author
The Fabricator

Tim Heston

Senior Editor

2135 Point Blvd

Elgin, IL 60123

815-381-1314

Tim Heston, The Fabricator's senior editor, has covered the metal fabrication industry since 1998, starting his career at the American Welding Society's Welding Journal. Since then he has covered the full range of metal fabrication processes, from stamping, bending, and cutting to grinding and polishing. He joined The Fabricator's staff in October 2007.