Manufacturing revival relies on the mundane

January 11, 2013

While high-profile gains at firms such as Apple and General Electric have been credited for the feel good factor coursing through the veins of the U.S. manufacturing industry, credit should also be given to the more mundane indicators of the current revival.

According to Bloomberg, anyone looking for proof that companies are taking a bullish approach to the market should keep an eye on the demand for plastic bottles, plastic bags and corrugated cardboard. All three products do not scream manufacturing renaissance, but instead are a sign that quality management in manufacturing extends to the packing and shipping of goods or products.

To put it simply, when manufactured goods are produced, they normally go in a box and with consumer spending also on the rise, there are indications that packaging companies are already increasing their stocks of domestic cardboard.

"These companies have their fingers on the pulse of manufacturing in the U.S. and abroad, because, as the primary producers of new boxes worldwide, they’re beneficiaries or victims of an economic recovery or contraction," said Steve Chercover, senior vice president and senior research analyst in Lake Oswego, Oregon, at D.A. Davidson & Co. "They don’t tell you what you want to hear, they tell you what they’re seeing."

The same can be said of companies that make plastic bags. With the price of domestic natural gas continuing to be a key factor in the desire by manufacturers to produce goods domestically, some firms are relying on plastic to drive demand for their products. The resurgence is most keenly felt in the ethylene market, with the chemical an integral component in the manufacture of plastic bags and bottles.

According to the MIT Technology Review, ethylene is expensive to transport but cheap to produce, especially if the price of gas remains low. It currently costs $300 to make a ton of the chemical in the U.S., compared to $1,000 only a few years ago.

To put this into a global perspective, a recent study by PriceWaterhouseCoopers showed that it cost $455 per ton to produce in Saudi Arabia and a staggering $1,717 per ton to produce in Asia, hence the enthusiasm being demonstrated by U.S. companies to engage in lean enterprise on the domestic front.

"Where cheap energy could matter most is giving existing U.S. factories a new reason not to close or move offshore," notes Michael Levi, a senior fellow at the Council of Foreign Relations. "Cheap natural gas might do more to keep existing manufacturing plants open than it will to get people to build new ones."