Reshoring to the US More Attractive for Metals, Chemicals Sectors

“Reshoring” manufacturing production to the U.S. could provide significant cost advantages for the chemicals and metals sectors, according to a PricewaterhouseCoopers report released Wednesday.

Lower energy and transportation costs, an educated workforce and a depreciating U.S. dollar are factors contributing to this new opportunity for manufacturers.

Shale gas has created new investment prospects for chemicals and metals producers because of more affordable energy and demand for their products from increased drilling, the report said.

PwC cited Nucor Corp.’s (IW 500/60) planned direct reduced iron, or DRI, facility in Louisiana as an example. DRI utilizes natural gas in its steelmaking process.

In addition, Dow Chemical Co. (IW 500/22) is building an ethylene plant in Texas to take advantage of lower natural gas prices.

Currency, Labor Gap Closes

The depreciating U.S. dollar and rising Chinese currency provides further opportunities for manufacturers in the U.S. The appreciation of China’s Yuan relative to the U.S. dollar has narrowed the cost gap between producing in the U.S. and importing from China, PwC reported.

This trend will likely continue as China’s economy grows.

China’s low-cost labor advantage is narrowing as well. Government policies and the rising cost of living in urban areas are leading to increasing wages in China.

China’s hourly manufacturing labor costs rose more than 80% from 2008 to 2011. At the same time, U.S. wages increased approximately 10%.

The talent gap between the U.S. and China is closing, but the U.S. still holds “a significant advantage,” PwC reported.

The available of workforce training resources, such as vocational schools, has been commonly cited by manufacturers as a reason to reshore production.

Transportation Costs Rising

Growth in global demand for energy, particularly in Asia, has made producing near the customer base more attractive.

“This can also cut down on lead times, reduce required inventory levels, mitigate some currency risks and give more control over intellectual property,” PwC reports.

This tips the possibility of reshoring in favor of heavy manufacturers, such as the metals and chemicals sectors.

Light manufacturers, such as electronics producers, that rely less on affordable transportation costs and more on labor costs will likely continue to manufacture in less-developed markets, PwC reported.