To date, our economic observations have looked at the steel industry and the oil & gas industry, doing a mash-up of various economic overviews for each of those industries. In this post, we’ll examine the 2018 economic outlooks for wood products and for textiles, including non-wovens.
Frere’s Lumber Co., Inc., in a report dated January 15, 2018, stated that 2017 ended on a high note and that the positive results were expected to continue in 2018. A number of reasons factored into this expectation, as follows:
- Housing starts are forecast to increase by 3% again in 2018.
- Builder confidence is high, and panel consumption is anticipated to be up by 7%.
- Demand for LVL (laminated veneer lumber, used in construction beams and headers) is up, having hit historical highs in 2017, though this is also contributing to higher prices.
- Forest fires in 2017 are still affecting supplies of raw materials, and this is expected to continue at least through the first quarter. This means lower inventories and high log costs.
The National Wood Flooring Association reported survey results in an industry outlook dated October 2, 2017. That survey showed respondents optimistic that the momentum gathered in 2017 will carry into 2018. A large percentage (70%) of the respondents expect growth of at least 3%, with one-third of respondents expecting growth to be 8% or even higher. This fits nicely with the AIA Consensus Construction Forecast which projects growth to be in the range of 3.5% to 4%. This demand is expected to be across all flooring types, with the remodeling market being a healthy contributor.
There are some negatives, though. They anticipate increased competition from non-wood products, and the entire supply chain is struggling to maintain adequate margins despite strong sales in all parts of the chain. But they still expect many producers to hold the line on pricing and to counter competition with more diversification of product offerings and creation of more direct sales channels.
The strong housing demand is causing challenges to retaining enough skilled labor to meet the market needs, likely leading to increased labor costs. The skilled labor shortages are pushing a stronger move to automated or computer-guided mill systems and more digitalization.
Regulations concerning crystalline silica and formaldehyde-containing products are a concern that producers are having to accommodate. And like other industries, there is concern about where trade policy is headed under the current administration.
A Statistics MRC report projects the spunbound nonwoven market to grow from $10.1 million in 2016 to $18.7 million by 2023; this represents a compound annual growth rate (CAGR) of 9.2%. Other reports suggest similar growth, with a Mordor Intelligence report projecting the nonwoven fabric market to have a CAGR of 7.3% for that period, and a Grand View Research report projecting a CAGR of 8.5% through 2025. Textile mills overall are anticipating accelerated performance, with a double-digit CAGR for the period 2016 to 2021.
This strong demand is dominated by the healthcare market (hygiene and medical applications, driven in large part by disposable diaper demand in the Asia Pacific region). The wipes market alone is expected to increase by 5.6% annually through 2020. Demand is also increasing for durable applications, the construction, geotextiles, and automotive markets.
Of course, it’s not all roses. A key challenge is the volatility of raw materials and the high cost of finished products. The industry is also facing stringent regulation on downstream petrochemical processing of polypropylene. Producers are countering with product innovations and development of new applications. There is also growing development of bio-based polypropylene to address the regulatory issues.
The NCTO (National Council of Textile Organizations), in their State of the Industry report from March 2017, considers the US to be well-positioned globally in fiber, yarn, fabric, and non-apparel sewn products markets. We ranked as the world’s third largest producer in 2015, the last year they had data available. NAFTA countries represent our top region for exports, with Mexico being the top buyer of man-made fiber, yarn, and fabric exports.
They report that industry fundamentals remain sound, with a continued commitment by the industry to make capital investments. An emphasis on quality and innovation make the US producers well-positioned to adapt to market changes. Unlike some other industries, the textile industry is generally supportive of the Trump trade policies and the withdrawal from the TPP agreement. However, a dissolution of NAFTA may change that perception.
Industry expert, Just-Style, in a post from January 2018, addressed a number of trends, some possibly disruptive, being projected for 2018. These include the following:
- An improving world economy will translate into increased consumer apparel demand, though oversupply remains a significant challenge. This translates into intense market competition, excessive inventory, and greater need for controlling costs.
- The sourcing base is already very diversified and is expected to increase. Producers are seeking alternatives to “Made in China”, with Vietnam being the rising player.
- Social responsibility and sustainability are growing in importance throughout the supply chain, forcing improved supply chain selection and management.
- Trade policy concerns include NAFTA and the Regional Comprehensive Economic Partnership (RCEP) impacting Asia-Pacific region sourcing.
- Trends to smaller order quantities and shorter lead times, plus e-commerce pressures, will lead to rising costs
- There will be greater focus on digitalization of the global supply chain. In addition, automation of apparel manufacturing will increase to reduce labor requirements. This will likely have social implications on female employment in emerging markets.
- Apparel industry growth of 1.5% to 4.5% is projected, but there are no “must haves” in fashion, so where will the demand come from?
There are numerous similarities across all of the markets we’ve discussed, steel, oil & gas, wood products, and textiles/nonwovens. All of the markets are projecting significant growth, with the weakest of the projections in the textile/apparel markets. All of the industries are experiencing a shortage of skilled labor and expect that situation to continue through 2018. And all of them, in one form or another, have concerns related to the trade policy of the current administration and the possible fallout from the implementation of tariffs.
What’s most notable to us is that every industry is projecting an increase in digitalization in the plants and throughout the supply chain, with greater investments in automation to address the labor shortages. If you’re one of the companies looking to leverage the financial rewards of the industry growth to plan and implement automation strategies, please contact us. We have the experience and expertise in each of these industries to modernize legacy control systems and take your controls and industrial networks forward to achieve greater business optimization.