Costs pushing U.S. metal, chemical makers homeward-study
* High shipping costs make Asian factories less attractive
* Cheaper U.S. natural gas also a factor
* Changing energy prices "game-changing," consultant says
By Scott Malone
BOSTON, Sept 12 (Reuters) - Makers of metal industrial components and chemicals are the manufacturers most likely to shift production back to the United States from Asia in the coming years due to the rising cost of shipping their products, according to an analysis by PricewaterhouseCoopers.
Higher shipping costs, coupled with lower energy prices at home that have resulted from a surge in U.S. natural gas production, will have an outsized effect on those industries since their factories use more energy than average and the heaviness of their products makes them costlier to ship, the study said.
"The energy story is certainly game-changing for manufacturers," said Bob McCutcheon, a partner at the consultancy who specializes in industrial products. "Heavier manufacturing tends to benefit."
A range of factors, including rising wages in China and a need to respond quickly to shifts in demand, have prompted manufacturers from conglomerate General Electric Co to farm equipment maker Agco Corp to shift some production back to the United States from outside the country in recent years. That reverses a decades-long trend of companies closing U.S. factories and moving abroad in search of lower costs.
The reversal has begun to show up in U.S. manufacturing employment -- about 12 million Americans worked in factories in August, according to U.S. Labor Department data, up 3.6 percent from a 2010 post-recession low.
In the steel sector, the economics are clear, the study said. It found that shifts in labor and transportation costs meant that in 2010, using the most recent data available, it was 2.1 percent cheaper to make and sell a steel pipe in the United States than to manufacture it in China and ship it. That was a change from 2006, when China was 3.6 percent cheaper.
The study noted that steelmakers Nucor Inc and U.S. Steel Corp were boosting their U.S. production, in part to meet demand for steel from new projects to tap the nation's natural gas reserves through fracking.
Another common thread among the industries likely to shift back home due to rising shipping costs is that their highly automated factories are less dependent on manual labor than makers of electronics and apparel, which are assembled by hand.
Over the long term, a shift in manufacturing of metal and chemicals will depend on where makers of products that use their materials locate their factories, McCutcheon said.
That shift has begun. GE last year moved much of its appliance manufacturing from Mexico to Louisville, Kentucky, while South Korean automaker Hyundai Motor Co this month began running its Montgomery, Alabama, factory 24 hours a day in response to growing demand for its cars.
"If end-market production - if automotive and appliance and other markets begin to shift production to the U.S. - the steel and the aluminum industries will supply those businesses from the U.S.," McCutcheon said.