Phase One Trade Deal with China Announced
U.S. and China agreed to a limited “phase one” deal on trade, tariffs and agricultural exports. Under the agreement, the U.S. calls for China to import $200 billion of U.S. goods over two years, including $40 billion to $50 billion per year in farm exports. Industries expected to benefit are agriculture, manufacturing and tech industries. In exchange, the U.S. will halve its 15% tariff to 7.5% on $120 billion of Chinese-made apparel, shoes and accessories and cancel a 15% tariff on $156 billion of smartphones, laptops and toys. Meat and poultry enterprises, farmers and ranchers stand to benefit if the deal leads to improved market access and lower tariffs.1 2
Industrial Production Index Continues to Experience Growth
The Industrial production index, a broad measure of factory, mining and utility output, rose by a seasonally adjusted 1.1% in November from the prior month. The rebound in industrial activity is largely attributed to the end of General Motors Co.’s nationwide 40-day strike. Utilities output increased by 2.9% while mining production fell by 0.2% over the period. Capacity utilization increased by 0.7% to 77.3%, slightly below the 77.4% predicted. Other factors contributing to greater production include easing trade tensions, brighter global conditions and a stable dollar.3
Boeing 737 Max Production Halt Impacts Upstream Suppliers
General Electric Co. stands to lose as much as $2 billion of quarterly cash flow as a result of Boeing Co.’s decision to pause production of its 737 MAX jetliners. GE manufactures all MAX engines through Safran SA. In April 2019, Boeing cut monthly production of the MAX plane by 10, causing a $400 million loss of cash flow to GE for the quarter. General Electric is seeking to pay down debt by selling its Chicago health-care unit, GE Healthcare, a cash cow with $20 billion in annual revenue, accounting for 16% of GE’s revenue and 36% of operating profit. Employing over 50,000, the biotech division manufacturing MRI machines and other hospital equipment hopes to fetch $21 billion.4 5
Manufacturers Are Investing in Recycling
Regulatory pressures and environmental initiatives are pushing large plastic manufacturers like BP LLC and Dow Inc., and packaging users like Coca-Cola Co. and Unilever PLC to invest tens of millions of dollars in the chemical recycling. The move aims to meet or forestall regulations aimed to cut emissions and waste. Beverage companies are especially under pressure, following the EU requiring plastic bottles be composed of 30% recycled materials by 2030 and the UK taxing bottles with less than 30% recycled content starting in 2022. Chemical recycling, unlike traditional mechanical recycling, can handle wider types of plastics and be turned into new plastic again while preserving quality.6
Industrial Output Climbed in November
Prices of copper, aluminum, zinc and other commodities rose as China’s economic data paints a bright future, reviving hopes of global growth in 2020. Industrial output for November was 6.2% higher than last year, and retail sales climbed by 8% in the same period. The rally in commodity prices are caused by optimism in construction and manufacturing activity. In addition, the U.S. and China “phase one” deal are also providing tailwind for commodities.7 8
Factory Outlook Index At 5-Month High
New York Fed's Factory Outlook Index jumped to a five-month high as U.S. production rebounded in November. Factory manager outlooks for sales, unfilled orders and delivery times rose. With the resolution of the General Motors strike, industrial production posted its biggest month-over-month increase since October 2017.9 10
Sales in Robotic Industry Increased
‘Robotic blacksmithing’, a technology that could revive US manufacturing, is a concept that could lead to more efficient production and a revival of U.S. manufacturing. Driven by the automotive industry, sales in the robotic industry increased 5.2 % through the third quarter compared to Q3 2018. This improvement equates to 23,894 robotic units worth $1.3 billion. The automotive industry remained the most significant consumer, representing 47% of robotic sales.11 12
Disappointing Harvest by Farmers Leads to Reduced Sales Forecast for Deere & Co
Deere & Co, the world's largest seller of farm equipment, forecasted lower sales and profit in 2020 as U.S. farmers faced a disappointing harvest and are predicted to remain reluctant to purchase new equipment. Deere had already cut production by 20% over the summer of 2019 to reduce inventory. The company is expected to initiate a voluntary layoff program for salaried employees, at an estimated cost of $140 million.13
Demand for Coatings and Additives Spurs Growth in Industry
Fueled by an increase in demand from the growing coating and additive industries, the global calcium carbonate market is predicted to grow to $37.8 billion by 2025, expanding at a CAGR of 7.4%. This growth is fueled by a high demand for the chemical by the paper industry, as calcium carbonate improves print quality, extends the shelf life of paper, and reduces paper production cost.14
Largest Transactions Closed
- Aviation Capital Group, LLC
- TC Skyward Aviation U.S., Inc.
- Milacron Holdings Corp.
- Hillenbrand, Inc.
- JR Automation Technologies, LLC
- Hitachi, Ltd.
- North American, Costa Rican, and Japanese businesses of Closure Systems International, Inc.
- Cerberus Capital Management, L.P.
- 6 River Systems, Inc.
- Shopify Inc.
- Morbark, LLC
- Alamo Group Inc.
- 55,000 Acres of Michigan Timberlands
- The Lyme Timber Company LP
- Thermoform Engineered Quality LLC/Plastique Holdings Ltd.
- Sonoco Plastics, Inc. and Sonoco Holdings, Inc.
- AutoGuide Mobile Robots
- Teradyne, Inc.
- Todd Pipe & Supply, LLC
- Morsco, Inc.
This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.
EBIT - Earnings Before Interest and Taxes