Industry Trends
Biden and Senators Agree on Infrastructure Plan
President Biden and a bipartisan group of senators have agreed to an infrastructure budget. This $1 trillion budget would include funding for transportation, water, and broadband infrastructure. Any final infrastructure plan will include spending for industrial machinery, construction machinery, and industrial conglomerates. Upon release of this news, Caterpillar’s stock rose, signaling investor optimism about the deal’s completion and the company’s corresponding future production level.1 2
Steelmakers Keep Older Plants Closed Due to High Reopening Costs and Competition
Despite spot-market steel prices climbing more than 60% since the beginning of 2021, many U.S. steel producers have determined that costs to reopen old steel mills would likely not provide value for the companies in the long run. Companies like United States Steel Corp. and Cleveland Cliff’s fear that the high costs of reopening their old steel mills using outdated machinery will prevent them from competing with rivals using newer, less costly production methods. New steel mills being built by Nucor and Steel Dynamics Inc. are expected to lower steel production costs after opening in the coming months and years.3
Industrial Production Grows
Total industrial production increased 0.7% in April, 0.8% in May, and 0.4% in June. Despite the industry-wide shortage of semiconductors, vehicle manufacturing rose 0.4% and 0.9% in April and May, respectively. June’s vehicle production decreased 6.6% from the strain of the semiconductor shortage. The rebound in factory output following February's severe weather in the south-central United States contributed to April's increase. Consistent gains through May seem to coincide with lifted coronavirus restrictions and a rise in vaccination rates, while the industry supply strain led to the modest increase in June. 4 5 6
Global Semiconductor Shortages Disrupt U.S. Automobile Production
Following Q1 recoveries from pandemic-related shutdowns, U.S. automakers have felt the effects of COVID-19 outbreaks in Malaysia, China, and Taiwan, which have reduced semiconductor production. According to the Malaysia Semiconductor Industry Association, lockdowns have reduced output by 15% to 40% as outbreaks continue to slow operations for many companies in the supply chain. Ford plans to lose half of its planned Q2 production, planning to shut down pickup truck factories for July and cut or eliminate July production of other models. Costs have increased for consumers, with three-quarters of all cars purchased at or above the MSRP price.7 8 9
Ford Faces Disproportionate Impact from Semiconductor Shortages
Ford’s computer chip shortage will lead to a decrease in its total output for the quarter. The company plans to cut or shut down more than six factories in July, impacting its truck and large SUV production. The factory shutdowns disproportionately impacted the company because 37% of its lost production comes from the truck and SUV categories, compared to competitor Stellantis’s (Ram truck maker) 13% and GM’s 1%. Ford will shift its focus to completing the production of vehicles awaiting computer chips. A fire at a Ford supplier of semiconductors is contributing to the company’s shortage. Competitor, Toyota, announced it expects near or full capacity production. Overall, industry sales rates slowed at the end of the second quarter due to depleted dealership inventory.10 11
China to Release Metal Reserves to Curb Rising Prices
China has begun selling copper, aluminum, and zinc from its government stockpiles to suppress the rise in global metal prices over the past year. The release of metals results from China’s producer-price index increasing 6.8% year-over-year in April and aims to reduce pressure on manufacturers in the industry. Copper prices have dropped nearly 9% since reaching record highs in May as a result.12
Middleby Corporation to Acquire Welbilt
The Middleby Corporation (NASDAQ:MIDD), owners of residential kitchen appliances, industrial foodservice and beverage, and food processing brands, have agreed to acquire Welbilt, Inc. (NYSE:WBT) for approximately $4.9 billion. Welbilt is a foodservice industrial machinery designer and manufacturer. This deal will expand Middleby’s industrial foodservice production business.13
Largest Transactions Closed
- Target
- Buyer
- Value($mm)
- Cantel Medical Corp.
- STERIS plc
- $4,912.49
- Nortek Air Management Business of Nortek Inc.
- Madison Industries US Holdings Corporation
- $3,625.00
- MTS Systems Corporation
- Amphenol Corporation
- $1,771.39
- Custom Truck/Utility One Source GP/Blackstone UOS Feeder Fund VI/Blackstone UOS Feeder Fund BEP
- Nesco Holdings II, Inc.
- $1,475.00
- SEACOR Holdings Inc.
- AIP, LLC
- $1,234.55
- General Finance Corporation
- United Rentals (North America), Inc.
- $609.91
- Dorner Mfg. Corp.
- Columbus McKinnon Corporation
- $485.00
- Airtech Vacuum Inc./US Valve Corporation and related entities
- IDEX Corporation
- $470.00
- Santek Waste Services, LLC
- Republic Services, Inc.
- $450.00
- Hixson Lumber Sales Inc.
- Doman Building Materials Group Ltd.
- $375.00
Source S&P Capital IQ as of 7/6/2021 and PCE Proprietary Data
Contacts
|
Data Assumptions 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. Glossary EBIT - Earnings Before Interest and Taxes Sources:
|
