Rarely does a year close with a such a general sense of relief, but there will be no regrets or nostalgia when 2020 ends. The new year cannot arrive soon enough, for manufacturers, developers, commercial and financial enterprises, distributors, or consumers. If no other lesson has been learned it is that a dynamic economy depends on strong and functioning supply chains – and that some disruptions in the supply chain may not be simply or satisfactorily reestablished.
The annual FORGING Business Outlook Survey explores conditions in North America’s forging industry according to the knowledge, insights, and impressions of the people who are actively engaged in the business and operations of forging. Our primary goal is to give FORGING readers the focused coverage of their market not otherwise available.
For anyone unfamiliar with “forging”, simply understand that the basic elements of modern life — cars, trucks, planes, engines, energy exploration and production apparatuses, power systems, industrial machinery, precision tools, even some surgical devices and medical implants — could not exist without the work of forgers. And, because of this, extensive and critical supply chains are incomplete without the work of forgers.
Each October FORGING conducts a month-long survey of readers by email to collect and evaluate their knowledge and impressions about the current year’s business conditions, how their operations have fared over the preceding months, and about their expectations for business conditions and their own plans for the year ahead.
We aim to document North America’s forging operations through the eyes and senses of those who understand it best, its strengths and liabilities, and to identify the critical issues that our respondents recognize. We hope to learn forgers’ opinions about the economy, their markets, and their business prospects. For example: “The thinking is that 2021 will likely be flat-to-slightly down in regard to revenue,” according to one respondent, “due to the slow-down in commercial aircraft slowdown.”
Beyond all this, we want to learn what plans forgers are making for the coming business cycle, and to understand better how their expectations for the year ahead are shaping decisions for capital investments or expansions.
A further goal of the survey is to give dimension to the extraordinary circumstances at work in 2020, and how these developments have affected forgers’ operations and prospects. “2020 is the most difficult year we have experienced since WWII,” one respondent confessed.
We want to know how and why that’s so.
Who says so? -- To properly appreciate the survey results we must know who is being surveyed. First, let’s describe what forging is and what forgers do.
Forging is the industrial process of shaping metal parts using heat and force or pressure, using mechanical or hydraulic press machinery. Many of these operations use dies to define a component’s shape, while “open die” forgers rely on force and technique to shape the part.
Forgers’ operations also rely on a range of other process technologies, including thermal systems to heat billets or ingots prior to forging; and heat-treating systems to set metallurgical and mechanical profiles after forging. There also are a range of material handling systems at work, die development and repair technologies, grinding and finishing machinery, and simulation software to define and evaluate forming and heating processes.
The survey respondents are executives, plant and division managers, and operators at North American forging businesses. They forge or form all major types of metal, in many cases working with multiple materials, to fill large-volume orders for major OEMs, custom designs for specialty manufacturers, or commodity-grade parts.
We asked readers to identify the metals forged at their operations, allowing multiple choices: 53.5% of respondents are forging alloy steel materials; and 49.3% process carbon steels. More than one-third, 33.8%, forge stainless steels; and 21.1% forge high-temperature alloy materials.
Nonferrous metals are well represented, too: 30.9% of respondents work with aluminum alloys; 23.9% process brass and copper alloys; and 23.9% work with titanium alloys.
The respondents are engaged in all the processes typically characterized as forging, including open-die forging (54.41%); impression-die (closed-die) forging (48.53%); ring rolling (16.58%); and impact extrusion (8.82%).
Other operations named by our respondents include powder forging, hand forging, orbital forging, spin forging, flow forming, and cold forging.
The survey respondents’ operations reflect various plant sizes at work in the industry: 30.4% are employed by forging operations with 250 or more workers; 17.4% are active at plants with 100-249 employees; 13.0% represent operations with 50-99 employees; 14.5% work at businesses with 20-49 employees; and 24.6% of respondents work for businesses with 20 or fewer employees.
Last, the respondents represent businesses across a spectrum of financial impact: 16.7% of respondents are active in businesses with less than $1 million/year in shipments; 13.6% are affiliated with businesses shipping $1 million- $5 million annually; 15.2% are with businesses shipping $5 million-$10 million annually; 10.6% are with businesses shipping $10 million-$20 million annually; 13.6% are with businesses shipping $20 million-$50 million annually; 10.13% are with businesses shipping $50 million-$100 million per year; and 9.1% are with business shipping more than $100 million of finished parts annually.
Look around, look ahead -- The FORGING Business Outlook Survey tracks shipments as a measure of business performance, and so we see the first specific evidence of 2020’s effects: clearly more than half of all respondents — 54.5% — confirm that their business’s shipments will decrease in 2020 versus the 2019 result, and just 10.6% indicate their results to improve over last year’s outcome. That leaves more than a third of FORGING respondents (34.8%) reporting that their 2020 shipment results will be “about the same” as the 2019 outcome — a better outcome than might have been assumed from assumptions about the broader economy during the past year.
Among those who expect 2020 shipments to rise, 5.9% foresee an increase of 90.0%, year-over-year; and 11.8% see an increase of 11.8%. A further 35.3% expect their shipments to increase 10-25% over 2019; and 47.1% expect the annual increase to be 10% or less than the 2019 total.
On the other side, among those 54.5% who foresee a year-over-year decrease in shipments, 4.9% expect that decrease to range from 76-90% of last year’s total; 26.8% peg the decrease at 26-50%; and 56.1% anticipate a year-over-year shipment decrease of 10-25%, while 12.2% see the drop coming in the range of 10% or less.
Applying the same technique, we asked readers to forecast their operations’ 2021 shipment prospect, and these results scramble the respondents’ 2020 response – optimistically, so: 54.5% expect shipments to rise in 2021, and 31.8% expect shipments to stay “about the same.” Only 13.6% expect next year’s shipments to decline over the 2020 total.
Among those expecting increases, about one quarter (24.4%) expect the year-over-year rise to be in the range of 10% or less, but 51.2% foresee increases of 10-25% and 14.6% expect shipment increases in the 26-50% range. Smaller numbers see even better improvement: 4.9% see shipment increases of 51-75% year-over-year; 2.4% expect an increase in the 76-90% range, and another 2.4% see an increase of 90% or more in 2021.
The smaller, less optimistic cohort expects their shipments to drop in 2021: 41.7% see the coming drop at 10% or less, year-over-year; and 25.0% see it in the range of 10-25%. A further 8.3% see the decline in range from 76-90%, and 8.3% see a decrease of 90% or more, 2021-over-2020.
The baseline for these expectations is respondents’ 2020 forging activity: 23.1% of all respondents indicate that during the present year their plant operated at 50% or less than its normal capacity; 30.8% report their plants operated at 51-65% of capacity; and 21.5% operated at 66-80% of capacity; 10.8% operated at 80-90% of capacity, and 10.8% operated at 90-99% of capacity. A fortunate 3.1% of respondents’ plants operated at 100% of capacity during 2020.
Uncontrollable factors -- Forgers know that what happens outside that plants is often inseparable from their own performance and results. The imposition of tariffs on steel and aluminum imports has roiled the forging sector — limiting raw-material sources for some forgers, initiating retaliatory actions by foreign governments against many of the forging sector’s most dedicated suppliers, but limiting competition for a certain number of forgers that produce their own (mainly steel) raw materials.
Asked what effect tariffs have had on their business during 2020, 50.0% of all survey respondents report there was no effect, but 20.3% maintain that imported forgings “remain a competitive factor” and 17.2% indicate that U.S. tariffs have impacted their customers’ demand for forgings. In addition, 7.8% report that imported forgings are becoming less of a competitive factor, and 4.7% reveal that their business has developed its own export business.
“The global expansion of the forging industry coupled with downturn in most sectors has led to desperation in terms of price quoted,” one respondent explained. “Additionally, some governments (China) have special packages to support their industry — which brings market imbalance. The domestic forging sector will need good government support in terms of tariffs and financial packages, too …”
Of course, 2020 will remembered for one thing above all: the COVID-19 pandemic. Asked how many days of production were lost due to shutdown related to the virus, 16.4% of respondents reveal that their operation lost 60 days or more of activity; and 8.9% lost 40-60 days of work; 14.9% lost 30-40 days of work, and 22.4% lost 15-30 days of work. 11.9% of respondents lost 15 days of work or less due to virus-related shutdown.
Among all respondents, 60.9% estimated that their operations’ shipments were reduced by 10,000 tons or less, but 12.5% lost 10,000-50,0000 tons of expected shipments, and 4.7% lost 50,000-100,000 tons of shipments, and 1.6% lost 100,000 tons or more of shipments due to the pandemic.
Capital ideas -- An evergreen indicator of manufacturing conditions is capital spending. In our survey, CapEx — including investments in personnel training and process technology — also indicates how forgers aim to improve their competitive standing, and what types of products and/or service the supply chain is demanding from forging operations. So, we asked survey respondents to describe (multiple choices) the improvements they have invested in during 2020.
Among all the survey respondents, 35.9% reveal they have invested in forging furnaces and/or billet-bar heating systems during 2020, and 32.8% invested in training and/or education for their workers. 29.7% invested in forging machine improvements or rebuilds, including modernization to process controls. 26.7% invested in air compressors; and 25.0% invested in testing and/or inspection technology.
Capital spending plans for 2021 show an encouraging mood of optimism. Less than one fifth of the respondents, 19.7%, will invest less next year than during 2020, and 45.5% will invest about the same amount in 2021 as during the current year. More than a third, 34.8% of all respondents, will increase capital spending in 2021.
Among those who will raise their investment levels next year, 16.7% indicate the year-over-year increase will be in the range of 10% or less; 40.0% will increase spending by 10-25%; and 26.7% will increase spending by 26-50%. Those with higher spending levels include 6.7% who will spend 51-75% more than during 2020, 3.3% who will invest 76-90% more, and 6.7% who will invest over 90% more in 2021 than they have done in 2020.
Among all respondents, 42.4% plan to invest in new production equipment during 2021, and 18.2% are planning plant expansions. An intriguing 9.1% of respondents plan to invest in new plant facilities during the coming year. Meanwhile, 39.4% have no major capital investment programs planned during 2021.
Among those with spending plans for 2021, 34.4% will invest $100,000 or less next year, and 12.5% will invest $101,000-$250,000, as well as 12.5% who will invest $251,000-$500,000.
Going further, 9.4% of respondents will invest $500,000-$1 million in 2021, and 26.6% will invest $1 million-$5 million next year, and 4.7% plan to invest $5 million or more in the year ahead.
Turning to the respondents who report they will be decreasing their investments in 2021, 23.5% report their plans call for spending cuts of 10% or less, year-over-year; and a comparable 23.5% indicate a plan to cut by 10-25%. A larger portion of this subset, 41.2%, will cut spending by 26-50%, and 11.8% will cut spending by 76-90% from the 2020 spending totals.
As for spending strategies, 43.5% of respondents plan to maintain their present debt levels, while 20.9% report they plan to retire debt during 2021, and 9.7% plan to increase their debt loads during the next year. An impressive 25.8% of respondents explain their operations are not carrying any debt at this time.
So many choices -- The survey recognizes that every manufacturing operation must plan to improve in multiple ways simultaneously, and so the inquiry to 2021 investment targets is a multiple choice affair. While past years have revealed common needs for heating or forming or handling equipment, for 2021 forgers appear to have a general need for “training and education services”: 31.0% of all respondents will be investing in such services during 2021.
Other high-ranking investment targets for the next year include “cleaning/finishing equipment”, 25.7%; “forge furnaces/billet-bar heaters”, 25.7%; “forging machine rebuilds/controls modernizations”, 24.1%; process control software/hardware, 24.1%; “process monitoring equipment”, 22.4%; and “forging handling/conveyor systems,” 20.7%. More than a dozen more investment targets have been indicated by respondents for 2021.
Managing a forging operation is more than planning how to spend money. More accurately, it may be said that managing is a process of planning how to fix problems. Using the same multiple-choice approach we asked 2021 FORGING Business Outlook Survey respondents to describe the problems that have challenged their operations during the past year. The top-ranking selection, for 40.1% of all respondents, is “lack of orders” — little surprise during a business downturn and mandated inactivity throughout the supply chain.
The next most common response points us toward the high interest in training and education programs: 34.4% of all respondents indicate a general shortage of skilled labor has been a problem for their operations during 2020. And 32.8% of respondents reveal that raw-material lead times have presented problems, a supply-chain issue that may be a consequence of lockdowns and/or tariffs.
Casting this question into the future, the survey respondents seem to expect their supply-chain concerns to continue into 2021: 41.7% foresee the “lack of orders” lingering into next year, and 28.3% anticipate “raw material lead-time” to remain a problem for their operations. Between these related concerns, 31.7% of respondents will continue to worry during the coming year about the shortage of skilled labor.
Revealing data -- One narrow point of inquiry in the annual FORGING Business Outlook Survey concerns forging operations’ availability to IT-based technology and services, not for process control but process evaluation and/or improvement. That is, are these operations taking advantage of forming process simulation, heating process simulation, or, more generally, the various Big Data/Internet-of-Things/Industry 4.0-enabled analyses that identify errors or inefficiencies in manufacturing operations. “Do you currently use computer simulation in the design or analysis of your forging process?”
In the results it is revealed that just 65.6% of respondents acknowledged they are using some type of technology to improve their process design and/or process execution; 34.4% indicate no such resources are in use at their operation.
While the question is narrow in its focus, the results are indicative of the wider state of the forging industry — and perhaps a view to its potential.
For reference, when the same question was posed to FORGING readers five years ago, the split was 54.7% “yes,” 45.3% “no.” And, in the 2019 results, the split was 62.8% “yes,” 37.2% no. So, in this basic industrial sector, there has been some increase in the embrace of these still emerging technological capabilities — and still noteworthy room for further growth.
It’s a fact that forging operations include a number of specialized processes for heating and forming, and handling, and that applying information technology to these functions can be impossible, or unrewarding, or too expensive or difficult to justify. In a follow-up question, the 38% of the respondents who affirmed they have adopted Big Data for their forging operation explain that it is part of their process design/set-up process; 8.0% indicate the resources are a part of their post-process analysis; and 52.0% confirm their usage for both of those purposes. According to one respondent, by embracing Big Data “we generally optimized process control by several design iterations.”
Opposite these, those operations that have not adopted simulation technology for either process design or process analysis, 34.4% explained that the cost of such technologies were the prohibiting factor. Another 15.6% indicated their resistance is based on the fact that they do not have the personnel skills on staff to apply the new capabilities; 9.4% responded that they do not see any value in simulation; and 6.25% were unaware of simulation technology that is applicable to their particular circumstances. Apart from these 12.5% attributed their lack of simulating capability to “all of the above.
Some “Other” explanations for not adopting simulation technologies include the time required to apply the analysis and evaluate results; that forging super-alloy materials is a very complex undertaking that involves a series of control parameters; while some confirmed their operations are currently evaluating an adoption of Big Data resources.
Still, the steady increase in adoption of these capabilities must be seen as proof of the engagement that forgers have with emerging technologies. It’s also true that a number of the “significant problems” identified for forging operations might be addressed or minimized by the application of Big Data resources, such as “energy costs” (18.0% of all 2020 respondents), on-time delivery of forgings (11.5%), and EPA requirements (8.2%.)
It’s important to note too that analytical technologies have advanced considerably in the past five years, and continue to add more capabilities based on the collection, analysis, and implementation of process data to production processes. Whatever needs or limitations have prevented forgers from embracing analytical or simulation capabilities up to now, an increase in the number of forging adoptees is surely ahead, and that is to be encouraged.
A broader picture -- A new year customarily invites new approaches or strategies. The survey invited forging respondents to identify how to address the skills shortage in the sector: 25.8% see the positive results from “increased availability of qualified workers,” while 24.2% recognize the problem as the “inability to retain current workers.”
A further 24.2% identified the problem as a lack of programs to train and grow the workforce (internships, scholarships, etc.); and 14.5% have concern for the lack of continuing education and/or training for the current workforce. Some respondents’ 2021 spending plans appear set to address that point.
Finally, we inquired of respondents which customer sectors — i.e., which supply chains — offer the most promise for their forging operation. The largest cohort, 28.8%, recognize the aircraft and aerospace components market (currently very much in recession due to the effects of COVID-19) as the most important for their business, while 21.2% of respondents see automotive components (other than engine parts) as their path forward.
“We struggle to gain entry to the electric vehicle sector: there are very few forged components required in those manufacturing programs, so we must find alternatives that demand forged products,” one respondent explained.
Another added: “Growth in the electric vehicles sector will certainly impact the forging industry in the future, so product diversification into non-automotive segments should get priority.”
Forgers’ business outlook for 2021 must be considered guarded optimism, according to the survey results. The problems are clear: some are ongoing, like the need for equipment replacement, and especially the need to train and retain skilled engineers and workers.
Other problems lie undefined, like a virus or a sudden trade disruption, which would impact demand for forgings and limit producers’ ability to navigate the supply chain toward their own, their customers’, and their stakeholders’ growth prospects. That they foresee better results in 2021 is proof of their confidence and determination to rely on their individual and technological abilities that are the strength of the forging industry.