This issue finds us at the end of 2024’s second quarter, with the economy at an anemic 1.6 percent growth rate and an inflation rate of 3.48 percent.

The manufacturing industry continues to face headwinds in 2024. Manufacturers are expected to face economic uncertainty, the ongoing shortage of skilled labor, lingering and targeted supply chain disruptions, and new challenges spurred by the need for product innovation to meet company-set net-zero emissions goals. 

Deloitte’s analysis of Purchasing Managers’ Index data reveals that the manufacturing sector was in contraction for most of 2023. 

The Institute for Supply Management’s (ISM) Manufacturing Index slipped back into contractionary territory in April, dipping to 49.2 from 50.3 in March. Even so, nine of 16 industries reported growth in April — the same as in March.

Demand softness was reflected by new orders and export orders. The manufacturing sector’s flirtation with expansionary territory in March proved brief. 

ISM characterizes demand as being at “the early stages of recovery” and focuses on the fact that production continued to expand. The path toward recovery for the manufacturing sector has been bumpy, and April’s dip may prove to be a blip on a continuing uptrend, given the overall strength in the U.S. economy. 

The index is often a market mover, but today, investors are waiting to see how the Federal Reserve will address higher inflation levels.

Energy Project CapEx Lowered

Phillips 66 Co. set a capital program of $2.23 billion, including $923 million for sustaining capital and $1.3 billion for growth capital, down from $2.42 billion in 2023.

Devon Energy Corp.’s 2024 capital expenditures (CapEx) budget is set at $3.3 billion to $3.6 billion, 10 percent lower than the 2023 capital expenditures.

Marathon Oil set a $1.9 billion to $2.1 billion CapEx budget for 2024, down from $2.03 billion in 2023. About 70 percent of it is allocated to the Eagles Ford and Bakken Shale regions.

On the positive side, Valero Energy Corp.’s consolidated CapEx portfolio for 2024 is $2.17 billion, compared to $1.92 billion in 2023. Sustaining capital investment will be $1.62 billion in 2024, compared to $1.49 billion in 2023.

Valero’s refining segment is set to receive $1.6 billion, up from $1.49 billion in 2023.

Oil Prices Could Stall Inflation Fight

With Israel (as of this writing) initiating its attack on Rafah (Gaza’s southernmost city) and the collapse of the hostage negotiations, oil prices are rebounding from the softness seen in recent weeks.

Oil prices gained, with Saudi Armco raising its selling price for June to Europe and Asia. As of this writing, WTI is at $78.93/barrel and Brent is at $83.53/barrel.

The World Bank indicates that Middle East escalation could trigger an oil price shock that fuels inflation. Oil prices could average $102/barrel as a major conflict erupts in the Middle East involving one or more oil producers.

An oil price shock of this magnitude could stall the fight against global inflation. 

“A key force for disinflation is falling commodity prices that have essentially hit a wall,” notes Indermit Gill, the World Bank’s chief economist. Commodity prices are plateauing, with the global financial institution forecasting a modest decline of 3 percent for 2024 and 4 percent in 2025. 

Exacerbating the situation regarding the production and pricing for oil and gas in the United States is the Biden administration’s restricting new oil and gas drilling leases on 13 million acres of Alaska’s petroleum reserve to preserve wildlife.

Sen. Dan Sullivan of Alaska accused the administration of undermining U.S. national security interests by both the restrictions and the rejection of the 210-mile road in the northwest part of the state (the Amber Project) to allow mining of critical mineral deposits, including copper, cobalt, zinc, silver and gold.

Rivian’s EV Manufacturing Plants 

Rivian’s $5 billion grassroots electric vehicle manufacturing facility announced for construction startup in Georgia has been placed on hold without an indication of when the project will go forward.

It plans, however, to invest $1.5 billion in expanding its Normal, Ill., plant that produces its R2 SUVs. The state offered the company an incentive package of $827 million over 30 years for the expansion. 

However, Rivian has not, as of this writing, confirmed the details of the building plans or the contractors for the project.

Manufacturers-Suppliers-End-User Notice

The Department of Justice, the Department of Commerce and the Department of Treasury released a new Tri-Seal Compliance Note cautioning non-U.S. companies and persons about the risks of poor compliance with U.S. sanctions and export controls. 

Treasury’s Office of Foreign Assets Control (OFAC) outlines the applicability of its sanction programs’ regulations, including U.S. persons wherever located, U.S.-incorporated entities and their foreign branches and, in certain instances, foreign entities owned or controlled by U.S. persons and foreign persons in possession of U.S.-origin goods. 

An example of a scenario warranting enforcement action, OFAC states it has and will take enforcement action against foreign persons who caused a U.S. person to violate U.S. sanctions or conspired to do so. 

 Commerce’s Bureau of Industry and Security (BIS) explains when its regulations, the Export Administration Regulations, extend to items located abroad and nonpersons who deal with them. “To put it simply, the law follows the goods,” according to the note. It briefly describes examples of when this may occur, such as re-exports, in-country transfers, de minimis thresholds and the foreign direct product rule. 

BIS continues, stating in no uncertain terms that export controls may not be circumvented by transshipping goods through third countries, and it enforces its export control regulations regardless of where the violating party is located. 

 Additionally, Justice, OFAC and BIS each provide recent enforcement examples to illustrate their points that foreign companies and individuals are subject to civil and criminal enforcement under their authorities. To mitigate those risks, the last page of the note lists steps in the section titled “Compliance Considerations for Foreign-Based Persons” that companies should employ. 

Pricing and the availability of commodity carbon steel butt-welding fittings and forged-steel flanges remain stable. However, with tensions rising in both the Pacific and the Mideast, along with the shipping constraints at the Panama Canal and the Red Sea, supply chains remain vulnerable to disruptions and higher costs.

It is wise to remain in close contact with your manufacturer/supplier to avoid surprises regarding compliance, pricing and the availability of pipe, forged flanges, butt-welding fittings, valves and other PVF-related products.

PVF Roundtable News

The PVF Roundtable Golf Tournament scheduled in May was canceled due to extreme flooding. It will be rescheduled; however, as of this writing, a new date has not been determined. Please continue to check the website (www.pvf.org) for updates.

The PVF Roundtable TroutBlast is scheduled for Oct. 3-4, 2024. The Captain’s Dinner is Oct. 3, followed by the tournament on Oct. 4. Again, check the website for further details.

The PVF Roundtable Golf Tournament and TroutBlast are the major fundraising events scheduled for 2024. The Weldbend Corp., Ferguson Industrial and MRC Global are key sponsors of these events. 

The next Networking Meeting of the PVF Roundtable will be Aug. 13, 2024, beginning at 4 p.m. at Houston’s Bayou City Event Center, 9401 Knight Rd., 281-501-6720.

As a member of the board of directors, and I speak for all members, we sincerely thank you for your participation in these events.

With the geopolitical uncertainties in the world today and the influence they have on the PVF market, these networking meetings are of the utmost importance for you and your associates. They provide the platform to share information, discuss pertinent issues, meet new contacts, develop long-lasting friendships and pursue new opportunities in the industry.