Market Analysis

Despite worries about Irish and Club Med country debt and auto sales continuing to decline across Europe, in some cases back to levels seen in the 1990s according to an AFP article, steel producers still plan to raise prices as the year ends.   A Steel Business Briefing note advised most medium section mills are sold out for December as distributors scrambled to take up December production prior to anticipated January increases. A Steel Guru article mentions that in spite of an estimated 40-90 million tons of excess capacity in the region, rebar prices, which were at 410 euro per ton EXW ($545/t) in southern Europe earlier this month, jumped to 450 to 470 euro per ton EXW ($600-625/t) for December. ArcelorMittal reported section steel increases of 25 euro per ton in October and 50 euro per ton in January. Spot prices in the flat steel market increased about 10 euro per ton since early November, while HRC is being offered at 450 to 500 euro per ton EXW ($600-665/t). The price increases span both the south to the north across Europe. Galvanized steel prices were reported in excess of 550 euro per ton EXW ($730/t).

As in North America, European producers have done a much better job during this recession in managing excess capacity and therefore maintaining a modicum of profitability in what would otherwise be dire times. A Rusmet-sourced article reports ArcelorMittal stopped three blast furnaces at two mills in France and one in Poland this summer. Last week it stopped steel smelting in one of two furnaces at its Romanian steel mill and during December it plans to idle some capacity in France and Germany. In addition, the company plans to temporarily idle seven rolling lines to bring supply of steel products in line with reduced demand. Early indications suggest US Steel may follow ArcelorMittal’s example —   this summer it stopped one blast furnace at its steel mill in Serbia, and it may stop the second soon, removing all of its steel smelting from its Slovak mill. The article estimates idle capacities at European integrated iron and steel mills total around 20 to 25 million tons per year and by the start of the next year it may reach even 30 million tons.

The mills’ ability and willingness to adjust capacity in line with demand is a testament to the consolidation that has gone on over the last ten years. Production is held in the hands of fewer but larger producers better able to take such strategic steps. While consumers would obviously like to see lower prices, rising raw material costs point to price trends in the opposite direction regardless of capacity utilization. To survive, it is important steel makers continue to make a profit. As recovery in European manufacturing does materialize, at least a steel industry will be there to service it in the years ahead.

–Stuart Burns

Though recently MetalMiner has covered many aspects of the aluminum market, we often encourage alternative points of view in particular, alternative global points of view. A frequent commentator on this site, Paul Adkins, has one such alternative point of view regarding some of the happenings within the Chinese aluminum market. Paul should know because he lives in Beijing and works closely with several aluminum producers within China. He also writes the blog Black China Blog and runs the company AZ China. If you seek alternative viewpoints within the aluminum industry in China, you need go no further. Paul Adkins is your man. Paul has taken an alternative point of view on the subject of China aluminum industry output reductions in order to drive down energy intensity. In a recent post on that very subject, Paul explains the Chinese aluminum industry likes to perpetuate that story, “According to our sources, the industry is delighted that the world’s press publish stories about capacity limitations and import growth.     Their view is that these things only help promote the metal price, which is why the industry is putting these stories out in the first place.

He’s not kidding. According to his latest monthly report, he sees fourth quarter China aluminum prices reaching $2500/ton (for what it’s worth, the LME closed on the 26th at $2242/ton). But overall, Paul sees the aluminum market within China very much in balance (though he concedes the Strategic Reserves Board has recently sold some of its holdings and inventory levels have dropped). Furthermore, he makes the distinction between China being a net importer of “primary aluminum vs “scrap imports. China is already a net importer, according to Paul, of scrap (and they will pay more for it given the country’s relative high energy costs).

Paul also reports that coke prices have started to increase as a result of rising oil prices and this will impact downstream markets. The combination of coke price increases and some smelter cutbacks could lead producers to turn toward export markets “that have a better capacity to pay.

If your company buys aluminum from China, you may wish to attend a special session of the Metals Society annual conference in San Diego from Feb 27 March 4 entitled, “China Aluminum Briefing led by Paul Adkins. That briefing will be held on Saturday February 26 at the Marriott Hotel. More information can be found at the AZ China website. In addition, the China Aluminum Briefing will feature a discussion of China’s aluminum imports with our friends from Harbor Aluminum, Mr. Jorge Vasquez.

Another exciting speaker who may join the conference includes Mr. John Garnaut (MetalMiner readers may know of John Garnaut who broke the now-famous Stern Hu Rio Tinto story last year when Mr. Hu famously said to Mr. Garnaut on the phone, ” I better hang up, I think my phone is being tapped.) Not one to shun controversy or public debate, Paul included a link to this article by John Garnaut that will sit well with anyone who feels China’s export trade policies are in need of an overhaul.

Additional speakers will cover the bauxite, alumina and coke markets and Paul will also address the aluminum fluoride market.

–Lisa Reisman

A Reuters US article reported earlier this week of how the copper price fell after the release of figures showing Chinese imports of refined copper had fallen. The fear is China’s economy is cooling after imports fell nearly a third in October, fueling concerns that credit tightening is rapidly cooling demand. However, local analysts blamed falling supply as the cause rather than lack of demand even though, curiously, stocks on the SHFE rose by 21.3% during the same period, according to a Reuters London article. Certainly one month does not necessarily mark a new trend, but several months of figures might, and China’s imports have been gradually falling this year over last — some 10.5% lower compared to 2009. Even this, though, should be seen in the light of 2009’s massive re-stocking program boosting apparent demand, a large part of which went into both trade and speculative stocks. Real demand has probably grown over last year and the recent drops should be seen in the light of current high prices dissuading consumers from further buying and encouraging the draw-down and use of stock bought last year at lower prices. Incoming material has therefore found its way onto the SHFE rather than having been taken up by consumers, suggesting that while prices remain at this level, consumers may prefer to live off lower-priced stock material rather than come back into the market for new supplies. That is a temporary situation, however, and a combination of stock depletion and slightly lower prices following recent LME price falls may encourage buying towards the year end. Certainly the market gets bought after each scare creates a dip in prices.

Two issues are driving the copper market at present. The first is fear that China’s growth may slow dramatically next year. Nearly everyone expects there will be a slowdown in growth but to what extent there is much debate. The second issue is the level of the US dollar, which is getting support from the European debt crisis and from the Korean artillery exchanges causing tension in Southeast Asia. Every time there is tension over these two issues, the dollar gets stronger on the back of a risk sell-off and metal prices fall. Interestingly, on a side note, you would expect gold to get stronger on the back of the flight to safety, but it hasn’t moved anywhere near as much as may be expected.

Copper, no doubt, is supported by its fundamentals. World refined copper consumption exceeded production by 363,000 tons between January and August this year, compared with a deficit of 47,000 tons in the same period a year ago, according to a Reuters article reporting on the International Copper Study Group’s latest monthly bulletin. World refined copper output in January to August reached 12.653 million tons, while consumption amounted to 13.016 million tons. If China demand does no more than stay flat and OECD demand gradually increases, that deficit is not going to go away. Data out this week suggests Europe’s largest economy and by far the strongest manufacturer is more upbeat about growth prospects in the next six months than at any time since the IFO think tank estimates began. Growth in the US, while not strong, does now look as if it will avoid a double dip and manufacturing in particular is doing well.

The industries’ tendency to buy copper on the dips is therefore understandable; any respite from recent highs is to be welcomed particularly, as there is little prospect of significantly lower prices next year.

–Stuart Burns

Well, observers have been predicting the onset of inflation in China for months, and now the first official signs suggest that for some commodities like food, it has been running rampant for the last year. Minxin Pei, writing in the FT, says M2, a broad measure of money supply, has risen by more than three times in the last seven years, reflecting massive excess liquidity in the economy. The combination of negative interest rates (bank rates were almost zero) and massive credit increases injected by state banks, particularly following 2008, are the most direct contributors to China’s frothy property market and the broad inflationary forces at work in the economy.

Food and housing costs are fueling an official rise in inflation to 4.4% from 3.6% before, and significantly above Beijing’s target of 3.0%. A separate FT article quotes Li Wei and Stephen Green at Standard Chartered in Shanghai as saying that on a seasonally adjusted basis, consumer price inflation increased at an annualized rate of 12.1% in October, up from 5.2% the month before. Industrial production increased 13.1% in October compared to the year before, while retail sales expanded by 18.6%, year-on-year.

Despite efforts earlier this year to reign in bank lending, China’s banks are on track to lend RMB 587.7 billion ($88.7 billion) in October, suggesting there will need to be a sharp contraction in new bank lending in the last two months of the year if Beijing is to meet its full-year target of RMB 7.5 trillion.

Food prices appear at the forefront of the inflationary charge. According to an article by Geoff Dyer, the average price of 18 staple vegetables was 62.4% higher in the first 10 days of November than over the same period the year before. Some, like garlic and ginger, two key Chinese ingredients, have risen about 90%. Price controls may well be introduced, but as in the past, may not be strictly applied. The intention is said to be more of a warning to the supply market to control prices voluntarily.

As worrisome as food inflation is to Beijing, it has been the cause of social unrest in the past. Food costs are just a symptom of a deeper underlying cause, according to James Kynge, editor of China Confidential. China has a vast and unregulated underground financial market, according to Mr Kynge’s research. The system includes off-balance-sheet lending by state banks, funds under management by “private funds and the assets of a booming multitude of unregistered banks and loan sharks. Their research suggests that total assets under management by the almost unregulated “private funds industry involved in investing funds for wealthy individuals may total up to RMB 1,000 billion. The off-balance-sheet lending by state banks this year was said to have reached at least an additional RMB 2,000 billion by the time the China Banking Regulatory Commission recently announced a clampdown, which appears now to be slowing lending from this quarter. The total assets contained within China’s twilight economy may well be in excess of RMB 6,000 billion, Mr. Kynge believes. If this number is added to the 2010 official lending target of RMB 7,500 billion, then it becomes clear that China’s record 2009 lending splurge was no “one-off.”

If China fails to control this unregulated source of liquidity, no amount of whining about US QE and capital inflows is going to resolve the inflationary pressures within. Yet imposing control cannot be achieved without sacrificing growth. The combination of actions Beijing may be forced to adopt, including raising bank reserve requirements, interest rates, prices controls, release of key farm and metal commodities from reserve and so on, will increase volatility in China this year and next. But one thing seems clear: to bring down inflation, Beijing will have to sacrifice some degree of growth. The World Bank predicted Wednesday China’s GDP growth in 2011 will slow to 8.7% after more than 10% growth in 2010. Even that could look optimistic a year from now.

–Stuart Burns

Industrial job training, and retraining, is now in focus nationwide as companies shed jobs and look to rehire more skilled labor. We’re continuing to look at the welding occupation specifically, especially through the lens of new welder recruitment and experienced welder retraining.

For context, in a 2009 survey of 779 industrial companies, issued jointly by Deloitte, Oracle and the Manufacturing Institute, 32 percent of overall respondents reported “moderate to serious skills shortages. However, that figure was 74 percent for aerospace and defense companies; as we know, that sector is a large employer of welders and welding-related workers.

The National Center for Welding Education and Training, also known as Weld-Ed, began in 2007 as a cooperative venture between the American Welding Society (AWS), private companies, and many colleges and universities to explicitly close the gap between trained welders and industry demand.

Contrary to what we heard, in a recently issued report, Weld-Ed noted that between 2002-2009, there was actually a surplus of welders on the market rather than a shortage 10 percent of welding jobs were lost, mostly due to the economic downfall. But an appointed National Skill Panel projects an increase of “at least 238,692 new and replacement welding professionals between 2009 and 2019, much of it due to baby boomers retiring. How to restock those ranks is problematic.

Arguably the biggest challenge facing the industry is controlling the perception of welding, and figuring out ways to keep welding beginners and seasoned professionals up to speed on the ever changing technological needs in the industry.

“The more types of welding you master the more you can earn, says Richard Seif, senior vice president of global marketing at Lincoln Electric in Cleveland, on the Careers in Welding Web site. “If you have math and science skills, going to college to become a welding engineer just about guarantees [sic] good pay: more than $50,000 a year to start and thousands more a year after that, the site quotes him as saying. In our last post on this topic, we found that claim to be a bit too bold.

Weld-Ed’s report found discrepancies in program content and length of training from state to state. They noted that no national education standard exists for welders; therefore, certification varies from state to state, or worse, from job to job. Hopefully, Obama’s “Skills for America’s Future initiative will make steps in the right direction, but for those welders not in a position to go back to school, it might not be the savior the government is hoping for.

AWS and Weld-Ed are already trying to bridge the gap between industry demand and the worker supply pipeline (they work through a consortium of publicly funded universities and Weld-Ed is based on the campus of Lorain County Community College in Elyria, Ohio) and will continue to gather statistics on what ails the perception of the industry.

If it seems a stretch for metal sourcing professionals to pay attention to the trends in something as specific as welding employment, it shouldn’t be. With production likely to continue a sustained increase due to global demand, companies will need increasingly skilled workforces, and it’s in their best interest to have a hand in cultivating them.

–Taras Berezowsky

Many ask, are metal prices in yet another bubble phase and are we likely to see them drop back again to their historical average? We hear a lot about China demand, but is it just the hype? Once the Chinese economy cools a bit, will we see prices fall back to the level they averaged for much of the 90’s and first half of the last decade? It isn’t just an academic question; such a return to historic price levels is not likely to happen anytime in the next few months, but for product designers working on long-term project viability issues, material selection questions come down in part to expectations of current and future prices. Copper has already experienced demand destruction during the last price spike in 2006-8; should designers plan for it to stay at current near-record levels through the middle of the decade, or will it fall back again?

The biggest change from the (relatively) steady days of the 70’s to 90’s is the rise in emerging market demand. During much of this time, demand followed economic cycles in developed countries and while growth occurred, it was single-digit, not the double-digit we have seen these last few years.

Source: ETF Securities

China alone now accounts for between 25 and 50% of demand for every base metal. In many ways, it is both the biggest consumer and the biggest producer, creating a huge new dynamic to the supply-demand equation. Because China is an emerging market, it is in a state of rapid change with violently conflicting forces at work. Energy costs are high, and environmental degradation (an issue of minor significance over the last five years) is now a hot topic and helping to drive policy changes. China is not the relentless and all-conquering success story we are sometimes led to believe; China and other emerging markets have a lot of problems too.

Having said that, the urbanization of 1.3 billion Chinese, 1.1 billion Indians plus another billion assorted Brazilians, Indonesians, Pakistanis, Russians, etc., etc., also has an unstoppable momentum to it. That momentum may slow and speed up from time to time, but it is headed in one direction. The buffer it has already come up against is limited supply. Due in part to decades of relatively flat pricing and demand, the mining industry was completely unprepared for the surge in the middle of the last decade. The boom and then bust post-2008 has created turmoil, resulting in three years of underinvestment. There are shortages of equipment, skilled personnel, water resources and, for many new developments in some parts of the world, a lack of viable infrastructure.

New sources of mine supply are increasingly of lower and lower grade, viable at current high metal prices but vulnerable to significant price falls. This not only makes the supply base more precarious but increases the cost of production. As we have seen with aluminum in China, volatility in power costs and, in the case of Ferro Chrome in South Africa, unreliable power generators can result in loss of significant production capacity over very short time periods. In the region of one million tons of aluminum capacity has been idled in China over just the last few months, prompting the Reserves Bureau to release metal from strategic reserves to ensure adequate supply.

Source: ETF Securities

Perhaps the biggest moderator of supply going forward will be this issue of cost of production. Rising production costs are partly a result of rising commodity prices impacting both raw materials and power production, but also rising wage costs, the cost of capital, higher expectations of royalties as in Australia and higher extraction costs in regions and countries with limited infrastructure, such as West Africa and Mongolia. This makes much more of the world’s mining capacity marginal at price levels considered unsustainable just a few years ago.

Source: ETF Securities

This disconnect between supply and surging demand has resulted in a deterioration of global inventory days of supply. Those with the most acute supply constraints such as copper and tin have fallen the most, while others that were rising following the crash in demand post-2008 are flattening and showing signs they may turn down next year.

Source: ETF Securities

So should designers assume metals like copper will become more affordable in years ahead? The answer is probably no. Although historic graphs suggest at some stage we will return to price levels that prevailed for decades in the last century, the reality is we won’t; moreover, we can’t. The cost of production is so much higher today, twice as high in the case of platinum, that most of the world’s mines would be idled if prices dropped back to such levels now. More volatility, yes, almost certainly, the astute will not be waiting for a return to 2000 prices but rather making a judgment on what constitutes being close enough to the bottom of a trough to buy forward and carry them through the next upswing.

–Stuart Burns

This is Part Two of a two-part series. Read Part One here.

I read an interesting article yesterday that explored a field quite opposite the metal market the legal profession but nonetheless relates nicely to our previous discussion about the state of job training and technical schools in the US.

The Economist makes the case that law schools and law firms sometimes have trouble seeing eye-to-eye in terms of the duties and responsibilities expected of each other. “The lousy job market is, of course, not the law schools’ fault, the article reads. “But law schools could still do more to help their graduates prepare. It goes on to quote Evan Chesler, head of Cravath, Swaine and Moore, a New York firm, lamenting that “they teach few of the practical skills of lawyering, leaving the firms to do much of the training in a recruit’s first years on the job. Richard Revesz, the dean of New York University’s law school, replies that most firms’ needs are so specific that law school should not be expected to provide them.

Based on industry reports, this issue manifests itself in the welding profession as well. We’d heard anecdotally that US manufacturers are experiencing a shortage of welders, and with comparably high starting salaries, there seemed to be a disconnect between able welders hooking up with suitable employers, such as Thermadyne, ESAB and Caterpillar.

Although certain specialized welding positions earn higher salaries than the majority of Americans, such as a welding engineer in the shipbuilding industry (noted below), the range is reflective of most other production-category occupations:

With industrial companies cutting staff and/or wages, they are forced to run with a smaller staff that has newer more specialized skill sets. Those companies may not have the resources to act as de facto training centers to get those workers up to speed, effectively leaving that to technical schools and community colleges. But if workers have taken steep pay cuts or have been laid off, they may not feel they have the financial wherewithal to enroll in retraining programs no matter how hard the Obama administration pushes its Department of Ed initiatives. (Some people don’t see getting into more debt, via federal loans, as the means to get higher-paying jobs.) If there’s lower enrollment, as we’ve reported, training programs’ already-expensive equipment needs become unfeasible to sustain. Ultimately, this bolsters the perception that the manufacturing sector is washed up for good.

That perception may be the biggest obstacle to empowering future welders to optimally match their skills with actively searching employers. Of course, this takes personal drive as much as government assistance. A key aspect of the perception equation: recruiting young welders to replace soon-to-retire baby boomers.

–Taras Berezowsky

If some of our most recent calculations and analysis are any indication, the scrap metal markets are increasingly a bellwether source of future steel production, demand and price forecasting intelligence. The ferrous scrap market, on a measurable upswing of late, is rife with indicators on future overall steel prices, while the nonferrous market shows just as much activity.

In a Nov. 15 report, ISRI noted that overall, metals markets began on a “less than sure footing in the wake of QE2 and the notably underwhelming results of the G20 summit in Seoul, citing mostly “global macro growth concerns.

Indeed, this is evident in the nonferrous slate of LME activity, according to ISRI’s Monday report: every single metal’s three-month ask price began down Monday from last Friday, including aluminum contracts, nickel and copper. Aluminum alloy and nickel were the only metals to close above their weekly averages on Nov. 12, with NASAAC’s price showing a 3.3 percent drop to start the week.

Source: Reuters Metals Insider, Nov. 15

Speaking in response to the copper price in a Reuters report, David Thurtell, an analyst at Citigroup, said the “sell-off is continuing from last week, with jitters remaining over Chinese production and Ireland.

Turning to the ferrous scrap side: we’re looking to see steel prices rebound, albeit slowly, at the end of the quarter. Since the U.S.-based scrap recycling market accounts for 40 percent of the world’s raw materials needs (according to ISRI’s industry facts on their Web site), that should help keep U.S. scrap steel exports up. However, the dollar has been strengthening against the euro in the past few days, and that could certainly lead to some major week-to-week volatility in the near- to medium term.

ISRI also foresees a price rebound, but in another recent report, states that although ferrous prices are firming up, “the increases we’re seeing for November do not quite match the declines that we saw in October. To back it up, the report quotes: “The latest Scrap Price Bulletin, for instance, has its No.1 HMS composite price   @ $336.17/gross ton, up $18.34/ton for a month ago (the October decline was $32/ton.) WSD’s latest “SteelBenchmarker has its No.1 HMS price @ $318/ton with shredded figured @ $348/ton, and prompt material (No.1 bushelings) @ $385/ton.

The price rises in the domestic market should continue, as supported by recent numbers in other reports. In one index, for example, reference prices for HRC, CRC and rebar in U.S. mills all rose between Nov. 8-14, while the same categories saw drops or no change in Northern Europe, Southern Europe and Turkey.

Overall, however, ferrous and nonferrous scrap prices should continue to see a gradual increase, as global steel (and therefore scrap) demand remains strong in China, India and Turkey primarily global, rather than domestic, demand will drive U.S. exports. Last week’s ISRI Friday Report stated that “several nonferrous metals are way overbought, but general consensus doesn’t see now as the time to go short; we are inclined to agree.

–Taras Berezowsky

It has always been a source of surprise and not a little disappointment to some of us at MetalMiner that vast amounts of tax payers money and significant increases in consumers electricity bills are supporting power generation technologies that have such variable and unpredictable delivery profiles. We realize the most well established renewable technology – hydroelectric power generation – can be subject to drought and so is not exactly guaranteed but at least the on/off cycles can be predicted months in advance with weather patterns and monitoring of reservoir levels. Politicians’ short attention spans have been firmly focused on wind turbines and solar panels from developed to developing countries and while they have every excuse in landlocked, flat or low rainfall countries, they don’t in places like western Europe or the US. Finally attention, and some support in terms of tariffs, is being given to technologies that have hovered on the edge of commercial application for decades. We speak of course of tidal power.

We wrote a month or so back about the (slightly surprising) fact that Britain is a world leader in offshore wind farms, surrounded as it is by windy coastlines and with a world class offshore oil industry it has both the environment and engineering expertise to excel in such an industry. Those of us that live in the UK will testify that counter to the country’s image as being second only to Ireland for rain and wind we do actually have days of calm and on those days wind farms leave a big hole in the electricity supply map. Prediction techniques are getting better but it still requires either intermittent import of power from continental Europe or the firing up of standby generating capacity, or both, adding to the total cost of generation from wind farms.

Not so for tidal. Tidal flows can be predicted with great accuracy a hundred years into the future. Only the turn of the tide (also highly predictable) and mechanical failure will get in the way of steady power supply, and the latter is getting less likely with the arrival of major hydro-electric power generating OEM’s such as Andritz Hydro, Alstom Hydro, and Voith Hydro who for decades have manufactured some 80% of the world’s hydro-electric turbines according to a Hydro World article. Such firms will bring down the cost of manufacture by leveraging existing manufacturing facilities and technology. So far these majors are showing active interest but have not tipped their toes in the water by actually building tidal farms (that honor goes to pioneers like Atlantis Resources Corporation based in London and Singapore and with backing from Morgan Stanley as part of a joint venture called MeyGen). The partners have been awarded approval to build a huge tidal generating farm comprising 400 submerged turbines in the Pentland Firth. The Inner Sound, lying as it does between Scotland’s Caithness coast and the island of Storma, is said to one of the world’s most energetic tidal areas a BBC report advised. The 400 MW to be generated from this project will combine with up to 10 further wind, wave and tidal projects in the area to generate a projected 1.6GW by 2020 according to an environmental business website Green Wise Business.

Part of the reason tidal has lagged wind is the technical and engineering challenges involved. Although the conditions are predictable they remain harsh and with 18m (59ft) blades Atlantic AK1000 turbine is a significant engineering enterprise.

Source: Google Images

Even so a tidal turbine can be made one tenth the size of a wind turbine for the same power and yet consume only one twentieth of the materials material use rising roughly as the cube of blade diameter.

Clearly the UK has certain environmental advantages but it is far from unique in the world. While statistics such as “less than 0.1% of global tidal power could serve five times global electricity demand”   remain meaningless as much of the tidal power is not in locations where we can access, it is still broadly true that both the UK and US have enough accessible tidal power to meet about 15% of their electricity needs that’s an awful lot of coal that doesn’t need to be mined, transported and burned.

–Stuart Burns

This is Part One of a two-part series. Read Part Two here.

How to explain the gap between federal job retraining initiatives and low enrollment at a growing number of industrial training programs? Is there a correlation? What are the factors at work?

We’re hearing reports of factory jobs in the manufacturing sector being added as the economy continues its slow rebound. But at the same time, companies are unable to match up open positions with workers’ existing skill sets. What happens when nursing programs are started and funded in an area where predominantly blue-collar factory workers live? And how much money will those workers have to put in or borrow to switch careers to where the jobs are, or will be?

The Obama administration has recently announced a new job retraining initiative, which looks to specifically pair training schools (and their students’ curricula) with industrial companies in all 50 states, ultimately hoping to make job placement a firmer guarantee.

The initiative may be a response in part to the tide of bad press that “for-profit colleges have been receiving. Schools, such as those owned by Apollo Group and Kaplan, and their executives have been under fire for boosting their bottom lines while increasing numbers of graduates have been defaulting on their federal loans. (Roughly 90 percent of for-profit schools are federally funded, according to reports.)

But “Skills for America’s Future, as the initiative is called, may not work as well in practice as intended in theory. MetalMiner spoke with Steve Kay, principal of the William D. Ford Career-Technical Center outside Detroit. He said that due to abysmal enrollment numbers in their computer-aided machining (CAM) program, the school had to shut down the program entirely and auction off its training equipment. To replace it, they began an Emergency Medical Technician program.

Cultural perception, rather than federal funding or rule-making, may be playing a greater role. “Not only are the jobs that used to pay $28 an hour now paying only $12-$14, put parents are actively encouraging their students to do something else, Kay said.

He went on to explain that parents who grew up working in such historically manufacturing-heavy areas as Detroit are now seeing those industrial models crumbling before their eyes. This influences them to coach their kids to pursue computer programming or design, he said.

William D. Ford Career-Technical Center isn’t the only school to auction its machining equipment. Dennis Hoff, president of Hoff-Hilk Auctions in Minneapolis, has presided over five school auctions over the past three years, including St. Paul College.

Federal policy and the technical training programs may be at odds in another way. In one example, officials, while pushing for alternative energy investment, are decrying the fact that certain training programs (think the DeVrys and University of Phoenixs’ of the world) are not offering sufficient job placement for students to repay their debt. Meanwhile, advocates for alternative vocational tracks may contend that for some of these industries, such as wind energy or biofuel production, many jobs simply haven’t been invented yet. Essentially, students are enrolling in programs to prepare them not for existing fields, but for ones they will eventually pioneer. Determining exactly which skills to teach under this approach has been just as difficult, said Fred Dedrick, executive director of the National Fund for Workforce Solutions, in a National Journal article. Ultimately, what good is a student’s vocational certificate if there’s no job to match on the other side of the rainbow? Who’s to blame?

This argument has yet to fully play out. As we follow the industrial jobs initiative, we’ll continue talking to those teaching and learning the trades in this current economic climate. Paradoxically, as unemployment levels remain high, industrial companies struggle to fill open positions.

In the next post, we’ll explore the welding sector and why there appears to be a nationwide welder shortage even with $50,000 starting salaries.

–Taras Berezowsky

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