By: Bill Bregar
March 14, 2014
WESLEY CHAPEL, FLA. — U.S. injection press cost rates are higher than rates in China, but thanks to stable domestic energy prices and rising energy costs and wages in China, the gap is narrowing, an official of Plante & Moran PLLC reported at the Plastics News Executive Forum.
“We expect that gap in press rates to continue to compress,” said Ted Morgan, senior consulting manager with the accounting and managing consulting firm. And the China price advantage is much higher on small-tonnage injection molding machines. On big presses, the U.S. rate is pretty close.
The hourly machine rate data, part of Plante & Moran’s 2013 North American Plastics Industry Survey, reinforces common industry knowledge that automation helps undercut China’s major advantage of lower labor costs.
“To the extent that there are low labor inputs into the products you’re competing on, I think the U.S. has got a great story right now, and will probably have for quite some time. It’s difficult to overcome that, though, if you’ve got high labor inputs into the cost of your product. So it’s all about that balance of how much automation you have vs. how many post-mold operations you have and how many bodies you have to put into that product,” Morgan said in his presentation at the Executive Forum in Wesley Chapel on Feb. 24.
Throw in Mexico — priced between the U.S. and China on small tonnage press cost and about the same as the U.S. on large-tonnage machines — and North America becomes a potent base for work returning from Asia, Morgan said.
“We’re very favorable for continued reshoring to the U.S. and Mexico,” he said.
Plante & Moran used press rates in Indiana to represent the U.S. rates. Shanghai is used for the rate in China, and the Mexico numbers are from eastern Mexico. (The firm also has numbers for the interior of Mexico and China.) Morgan discussed rates for a 200-ton press and a 3,000-ton press.
The rates are for 2013. Morgan pointed out the numbers are just hourly press rates. It does not include other business costs involved with production in China, such as transportation and an extended supply chain.
“The two bullet points: it’s energy and it’s labor,” Morgan said. Plante & Moran also figures in real estate costs, which also have gone up in China and Mexico.
China had a bigger advantage — 35 percent cheaper — on the 200-ton press rates, at $37.35 an hour vs. $50.40 an hour in Indiana. The big reason: On small machines, labor costs are a larger proportion of the total cost, so China has the edge.
“The expensive labor in Indiana is outweighing the expensive utilities in China,” Morgan said.
Hourly wages have jumped by 76.5 percent in Shanghai from 2010 through 2013. The U.S. labor costs are relatively stable. But Morgan cautioned not to overstate that trend.
“We still have two-and-a-half times the cost of labor in Indiana and as we do in Shanghai,” he said.
It’s a different story on the 3,000-ton press, where China only has a 12.5 percent price lead — $157.86 an hour in Shanghai vs. Indiana’s rate of $177.53. One reason is that, on a big press, labor is only about 30 percent of the total cost, much less than labor’s percent of costs on a small press. Electricity is a much larger portion of the cost of running a big press, and it’s more expensive in China.
Other factors are more important, cost-wise, on a 3,000-tonner.
“The cost of ownership is dramatically different,” Morgan said. “For those large presses, they cost a lot of money to buy and they take a lot of fixed-asset, floor space.”
And the U.S. shale gas drilling is giving the United States even more of an advantage on utilities and energy costs to run injection presses.
“We all know that utilities are far more expensive in China,” Morgan said, adding that they are increasingly rapidly.
“We expect things to remain stable in the U.S.” he said. “With shale oil and gas exploration, it’s exciting. But China, we expect those things to continue to rise.”
Mexico’s manufacturing economy is booming, accounting for more than half of the $12.6 billion in foreign direct investment in 2012. The fastest-growing manufacturing sectors are aerospace, automotive, appliance and electronics.
The average $5 an hour wage rate for manufacturing operators gives Mexico an advantage over Indiana in 200-ton press rates — $45.91 for eastern Mexico against the U.S. $50.40. But the two are about equal on a 3,000-ton press.
And Morgan said that Mexico can have higher real estate costs than China.
U.S. molders can consider Mexico a “long-term threat” to their business, Morgan said. Mexico has a young population, eager to move up economically. But Mexico still faces a limited mold-making sector and resin supply base, and is working to boost engineering and technical skills.
Press rates in Mexico will continue to be similar to U.S. rates, he said.
And Morgan said Chinese manufacturing will increasingly serve that country’s own internal markets, and become somewhat less export-driven in the years ahead.