Manufacturing rules, again!
Massive feedstock deals prove the South's "manufacturing tear" is real and growing. . .and in its early stages.
By Mike Randle
Economic development is filled with "what ifs," "maybes," "might have beens" and "wait and sees." There is only one certainty in economic development, and that is 100 percent of all lost jobs come from existing industry.
It is almost a certainty, however, that over the next several years manufacturing will grow to heights in the American South not seen in generations. The clues are just too strong to ignore.
I recently read on RandleReport.com a story posted by one of our editors, Shelly Jo Jacobs, from The Washington Post titled, "Goldman Sachs: Sorry, U.S. manufacturing isn't coming back." That statement is partly true. It isn't coming back in much of the country, specifically the West and Northeast.
But manufacturing has already come back in legions in the Midwest, the South and Mexico. That is not a maybe or a wait and see. It's here, it's huge and we predict manufacturing of all types will continue to grow. In four of the last five years the manufacturing sector has set records for large projects announced in the South.
Yet, for those economists who focus their attention on the national economy as a whole, such as Goldman Sachs, they don't get this manufacturing renaissance. Data clearly shows that this boom is a Midwestern, Southern and Mexican thing. If you throw in data from the rest of the country, you get a vastly watered down report. For example, U.S. exports rose by about seven percent from 2011 to 2012. In the South, it was double that.
This entire hubbub about a rise in manufacturing began with a report written in the summer of 2011 by Hal Sirkin of the Boston Consulting Group titled, "Made in America, Again." If you've read the report – which I highly recommend – you will agree with me that it should have been titled, "Made in the South and Mexico, Again."
The most convincing sign that this factory expansion jag is far from over can be easily overlooked, even by Goldman Sachs. One must examine the type of manufacturing projects being announced in the South today to get it.
Unlike manufacturing waves the South has seen in the past, such as those in automotive and textiles, this swell is different. In addition to plant-to-consumer manufacturing, what we are seeing in the South is a massive feedstock wave; the very basic materials necessary to make virtually anything and everything for the global market.
This wave started as early as 2007 with companies pouring tens of billions into chemical plants on the Gulf Coast. Of course, the natural gas boom that started then assisted in that expansion and fracking mania has greatly reduced the cost of making feedstocks in the South.
It appears that foreign and domestic industrial giants are smarter now than when they shipped mass capacity in a herd-like manner to China chasing cheap wages. With this, they are nothing short of brilliant in building a manufacturing beachhead in the South and Mexico where newfound energy is cheap and abundant and labor costs are still competitive.
In addition to petrochemicals, the steel industry -- another feedstock -- was ramping up shortly after the recession. In more than 20 years of covering economic development in the South, we cannot recall a period like this for new and expanded steel production facilities.
Yep, when the sky was falling during the Great Recession, feedstock companies were starting a second industrial revolution in the South. Which begs the question, what is driving this fast-moving manufacturing train in the Midwest, the South and Mexico? Is it cheap energy, reshoring or demand?
Our take is it's all three and that's why SB&D has gone on record claiming that the moon and the stars are aligned like never before for a manufacturing revolution not seen in the South since World War II.
Since this is our Ten Top 10s edition, here are but 10 recently announced "feedstock" projects that prove the manufacturing wave we are experiencing in the South is just beginning.
Voestalpine - March 2013
Austria's largest steel manufacturer announced in March it is building a $700 million iron ore processing plant at the Port of Corpus Christi in south Texas. The Port beat out 17 other sites in eight different countries for the Voestalpine plant, the largest direct investment in the company's 75-year history. The company chose the San Patricio County site because of its proximity to cheap shale gas from the nearby Eagle Ford shale gas play and, of course, the Port. The plant is being built next to where China's largest seamless pipe maker -- Tianjin Pipe -- is building its massive facility, so I am sure there is going to be some synergy there.
Methanex Corp. - February 2013
It's not just new and expanded feedstock plants that are being announced in the South. . .there are relocations, too. Vancouver-based Methanex plans to relocate a second methanol plant from Chile to Geismar, La., because the company is having difficultly securing enough natural gas feedstock to run its South American facilities. Methanex is the world's largest supplier of methanol, which is used in everything from recyclable plastic bottles, to paint and plywood. The deal, when officially announced, will be in the hundreds of millions of dollars.
Big River Steel - January 2013
As of press time, this latest John Correnti project is not a done deal, although Arkansas Gov. Mike Beebe told me when I spoke at the National Governors' Association meeting in late February it was a "done deal." Regardless, the prospect of another steel plant in the South is very encouraging as feedstock plants continue to be announced and built in this five-year manufacturing run in the region. The proposed facility, a $1.1 billion "mini mill" to be built on 1,140 acres near Osceola, Ark., would house 525 workers. Correnti brought a steel mill to Arkansas before as head of Nucor, and one to Mississippi a few years back as head of Severstal.
Sasol - December 2012
South Africa-based Sasol recently announced what is most likely the largest single manufacturing project in the South's history and absolutely the largest foreign direct investment in North American history. The company is building a $16 to $21 billion integrated gas-to-liquids (GTL) and ethane cracker complex in Westlake, La., near Lake Charles. The company will convert natural gas from shale plays into high quality transportation fuels, including GTL diesel, a much cleaner burning fuel.
Benteler Steel/Tube GmbH - October 2012
Based in Paderborn, Germany, Benteler furthered the South's run of feedstock manufacturing when it announced in October 2012 a $900 million, two-phase facility that will include both a seamless steel tube mill and a steel mill. The project is being built on 330 acres at The Port of Caddo-Bossier near Shreveport, La. Once completed, the facility will be one of the largest manufacturing projects in Northwest Louisiana history and will house about 700 workers.
Cheniere Energy - April 2012
In April 2012, Houston-based Cheniere Energy won approval from the Federal Energy Regulatory Commission to build the nation's largest natural gas export terminal at its import facilities at Sabine Pass in Cameron Parish, La. As natural gas plays surge in the South, it was a no-brainer for Cheniere to convert the facility to export liquefied natural gas, or LNG, to energy-starved markets in Asia. The political hot potato is whether or not the FERC will approve a number of these multi-billion dollar LNG export facilities. Some argue that keeping the gas here in the U.S. will keep manufacturing costs low, fueling the factory building run in the American South. Cheniere now has a monopoly, for a while at least, on exporting LNG to markets throughout the world. The facility will compete with those in Indonesia, Yemen, Qatar and Australia that export LNG that costs as much as ten times the price of U.S. mined natural gas.
Chevron Phillips Chemical - April 2012
The Woodlands, Texas-based Chevron Phillips Chemical is currently building the world's largest chemical plant at its Cedar Bayou Chemical Complex in Baytown, Texas. The facility will produce on-purpose 1-hexene and will be capable of producing 551 million pounds of the product, which is used in the manufacture of polyethylene, a plastic resin used to make film, pipe and plastic containers.
Dow Chemical - April 2012
The Dow Chemical Company is building a new $1.7 billion, world-scale ethylene production plant in Freeport, Texas. As with so many of these new facilities, Dow is taking advantage of the cheap feedstocks available from increasing supplies of shale gas in the South. The facility will be Dow's largest ethylene cracker worldwide.
Carpenter Technology - October 2011
Pennsylvania-based Carpenter Technology, a manufacturer of stainless steel, titanium and other specialty metals, is completing construction of a 400,000-square-foot, $500 million plant near Athens, Ala. The plant is being built in response to strong demand for premium alloy metals by aerospace and energy industry manufacturers. It will be capable of producing 27,000 tons per year of premium metals, and will house over 200 workers when completed in March 2014.
Nucor - September 2010
Charlotte-based Nucor is putting the finishing touches on the first phase -- a $750 million, 2.5-million-ton direct-reduced iron plant -- of its $3.4 billion steel complex in St. James Parish, La. Nucor reported that construction of the massive facility is going well. Once all of the phases are completed, the complex will house about 1,250 workers and produce millions of tons of steel each year.
A timeline of manufacturing's rise in the South
In 2006 (right at the doorstep of the Great Recession), manufacturing projects of 200 jobs or more beat service projects of 200 jobs or more in the South for the first time in 11 long years. In the same year, the consumer economy was ending and manufacturing was replacing it.
In 2007, large manufacturing projects in the South topped the 300 mark for only the second time since 1990. Large service sector projects dropped to their lowest level since 1994. It was obvious that a huge shift was occurring in the South's economy.
In early 2010, SB&D featured a cover story titled, "The New Sustainable? Manufacturing continues its deal surge in the American South." We published that story based on the numbers we were seeing. In 2010, the South racked up 335 manufacturing projects meeting or exceeding 200 jobs and/or $30 million in investment, the highest number since 1990.
In 2011, the South's manufacturing sector posted 350 projects meeting or exceeding SB&D thresholds, a 23-year record. Something else was also occurring. Record numbers of manufacturing projects were also seen in the Midwest and Mexico. We realized then that the reshoring, nearshoring, "make it where you sell," whatever you want to call it phenomenon was occurring in three places in North America: the Midwest, Mexico and the South.