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Thanks I-Man Interesting day on tap.Manufacturers Face New

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JD400   Tuesday, 11/19/19 08:57:03 AM
Re: I-Man post# 1883
Post # of 1947 
Thanks I-Man Interesting day on tap.Manufacturers Face New Threat From Fracking Slump; Drilling decline means lower sales of machinery, engines and pipe

8:21 am ET November 18, 2019 (Dow Jones)

Heartland Enterprises of Fredericksburg, Texas, has been trying to reduce its dependence on drilling by expanding sales of machined metal parts to manufacturers in the aerospace industry. PHOTO: Callaghan O'Hare for The Wall Street Journal

Slowing shale-drilling activity is the latest damper on U.S. manufacturers that had come to rely on a booming domestic energy market.

Advances in fracking and drilling transformed global energy markets over the past decade, raising U.S. oil-and-gas production to record levels . That has created big business for American factories supplying drillers with cranes, engines and pipes. The oil-and-gas industry bought $48 billion worth of manufactured products in 2018, the U.S. Bureau of Economic Analysis said, four times as much as was purchased in 2009.

The boon has left manufacturers more vulnerable to the energy industry's next slump. Manufacturers have reported sales declines in recent weeks as lower energy prices prompted a slowdown in domestic production growth . The number of new wells in the U.S.—known as the drilling-rig count—fell by 20% in October from last year, hitting a two-year low.

Heartland Enterprises Ltd., a machining company based in Texas, has seen sales to energy producers fall 20% this year. Jay Mallinckrodt, vice president of business development, said he is concerned that the slide will continue into 2020 and is trying to limit Heartland's dependency on drilling by expanding sales of machined metal parts to manufacturers in the aerospace industry.

"It's going to be up and down, and you just got to be somewhat prepared for that and not get too exposed," he said in an interview.

The energy slowdown is adding strain on a manufacturing sector that is also contending with lower global trade and new tariff costs. Factory output is down 2.2% this year through October from a recent peak at the end of last year, according to the Federal Reserve .

Low oil and gas prices used to buoy manufacturers for two reasons: They heralded lower input and transportation costs, and encouraged consumers to spend more on cars, trucks and construction equipment.

The domestic energy boom has changed that equation. Now low prices also mean lower demand from energy companies. Natural-gas prices are down sharply, and oil prices have hovered around $60 a barrel for much of the year after reaching $74 in 2018. Investors are putting more pressure on fracking companies to focus on profitability over rapid growth.

As a result, drilling and service companies are retreating from oil fields, storing or scrapping unused equipment, and turning in rented gear in anticipation of a prolonged spell of inactivity. That is hurting manufacturers that sell them equipment and materials.

Kennametal Inc ., which makes fracking-drill bits, this month reported a 20% decline in quarterly sales to energy markets from a year ago. Schlumberger Ltd . and Halliburton Co ., major manufacturers and service providers, both reported downturns in their energy-dependent U.S. businesses in the latest quarter, and their shares have fallen more than a quarter over the last 12 months. Machinery giant Caterpillar Inc . and Allison Transmission Holdings Inc . also reported downturns.

Will Perry, chief executive of Worldwide Power Products LLC , a Houston-based distributor of engines for generating electricity at well sites, estimated sales of that equipment are down about 25% nationally this year.

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"We're going to see a lot of distress in the energy-sector with equipment," he said.

The falling rig count also has choked demand for steel pipe for drilling and casing inside those wells. The U.S. average price for a ton of well-site pipe is down 17% from a year ago, according to market consultant Pipe Logix.

United States Steel Corp . in the third quarter logged a loss of $25 million in its unit that makes pipe for drillers, after recording a $7 million profit in the same quarter last year. Net sales of pipe products fell 17% in the quarter from last year.

Some companies have worked to scale back exposure to volatile energy markets. United Rentals Inc . said rentals of equipment to drillers and producers made up about 4% of annual revenue in the third quarter, compared with around 12% in the third quarter of 2014.

"We just won't chase business there because the highs feel great and the lows feel worse," said Ted Grace , head of investor relations.

Others have sold off businesses focused on sales to energy producers. Cleaning-supply company Ecolab Inc . said earlier this year that it would spin off its business making chemicals for the oil industry. Harsco Corp . sold a business processing natural gas in July.

Kyle Ramachandran, president and financial chief at Solaris Oilfield Infrastructure Inc., which makes sand containers for fracking companies, said rentals of that equipment have softened as frackers focus more on margins than growth.

"Now they're getting rewarded for profitability and cash flow," he said. "So that means a little less activity."

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S&P Futs Hit New All Time High As Tsunami Of Central Bank Liquidity Pushes Everything Higher



Tue, 11/19/2019 - 07:40


It was not very easy to glean from the disjointed overnight headlines and comments if the prevailing trader mood was one of "optimism" or "not so much optimism" when it comes to the daily US-China trade deal barometer, but one look at stocks which are a sea of green this morning...



... the narrative quickly becomes one of smooth sailing between Washington and Beijing, even though in fact none of that matters, and it's all been a diagonal line since the start of QE4, pardon, "NOT QE" on Oct. 14.





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