21 September 2017

Rising Dollar Pressures U.S. Manufacturers

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The rising dollar is putting U.S. manufacturers through the equivalent of a new year’s fitness regime, causing pain for now but also promising long-term gains in efficiency. After more than a decade of weakness, the dollar began surging in mid-2014 against the euro and many other currencies. That is making U.S.-made products pricier in other countries and imports cheaper in the U.S.—a combination that is likely to expand the already gaping U.S. trade deficit.

Past periods of currency strength in Switzerland, Germany and Japan required manufacturers there to streamline processes and find niches that allowed them to charge premium prices. Here in Freeport, on the fringes of the Pittsburgh metro area, Oberg Industries is striving to hang onto its small share of the global economy. The family-owned company, with 750 employees and annual sales of about $130 million, makes metal parts for a host of products, including oil-production equipment and door locks.

Oberg is moving out of some markets where competition is based mainly on price. For instance, the company recently sold a plant in Mexico where it made doorknobs, competing with Asian manufacturers. Oberg is putting more focus on highly regulated markets, such as parts for medical devices and aircraft. Because quality standards are higher, there is less import competition, said Rich Bartek, Oberg’s chief operating officer.

Manufacturers have long been under pressure from intensifying global competition, but the dollar’s sudden ascent adds more urgency. Since mid-2014, the dollar is up nearly 19% against the euro and 17% against the yen.

The rising dollar already has forced U.S. poultry companies to accept lower prices for dark chicken meat, popular in overseas markets, said Mike Cockrell, chief financial officer of Sanderson Farms Inc., the third-largest U.S. poultry processor. Bulk leg quarters of chicken, a top export product that sold for 48 cents a pound in mid December, now are selling for 38 cents. Chicken processors still can turn a profit on those prices, as along as sales of white meat in the U.S. remain brisk. But if prices sink to very low levels, chicken processors may resort to selling frozen bags of dark meat in U.S. grocery stores at cut-rate prices, as they have done before.

Firstronic LLC, a Grand Rapids, Mich.-based maker of printed circuit boards used in cars and other products, serves its customers in North America mainly with production from its plants in Michigan and Mexico, said John Sammut, the CEO. It has set up joint ventures in the Czech Republic, India and China so it can produce circuit boards there as well, depending on customers’ needs and currency factors. For now, Firstronic is exporting from Michigan to Europe circuit boards used to control car seats. If the dollar stays strong, said Mr. Sammut, that production could be moved to the Czech Republic.

Woodward Inc., a maker of parts for aircraft and various types of engines, based in Fort Collins, Colo., is trying to help some overseas customers cope with the currency swings. On some contracts, it includes clauses that adjust the price of a large order depending on currency movements, so that the two sides share the risk. Bob Weber, chief financial officer of Woodward, said the company could import more parts from countries with weaker currencies. But that is difficult in highly regulated markets such as those for aircraft, where each supplier must be certified for quality.

Click here to access the full article on The Wall Street Journal. 

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