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trails only the West Germany as an import source. This volume of imports represents more than a threefold jump from $18 million during 1982. Over the same period, U.S. exports to Japan, primarily papermaking and pulp-making machinery, rose from $13 million to $29 million.
Paper Products and National Security Concerns
In a national emergency, paper products and the machinery to produce paper are essential to both the military and supportive civilian forces. Communication, educational, personal, and industrial needs all require these products. Equally important is the adaptability of the paper machinery industry to the production of military hardware. Historical experience well attests to this industry's successful convertibility to military applications. During both World Wars factories normally producing paper machinery were retooled to produce military goods. The configuration of the industry's plants made the facilities especially adaptable to the demands of military production. For example, Beloit Corporation manufactured naval gun barrels, powder Mills, and crank-pin turning lathes. 7. The geographical dispersal of the industry through northern small towns also increased the safety of the industry's plants in wartime. The industry's skilled labor force, heavy with scientists, engineers, and machinists, is an economic asset in a time of national emergency.
By comparison many foreign paper machinery plants in Finland and West Germany are located close to potential areas of conflict. Several of these firms, including the leading Finnish Company, also produce defense equipment.
The importance of this sector to national security underscores the fact that its competitiveness is vital to national as well as industrial survival. In the face of foreign penetration of the U.S. market and the rising incidence of joint ventures in the industry, the U.S. paper machinery industry must retain a sufficient domestecilly based component to serve national emergency needs.
7 Thompson, William F., A History of Wisconsin: volume 6, Continuity and Change, State Historical Society of Wisconsin, Madison, Wisconsin, 1968, pp. 93-94 describes World War II military contracting in Rock County (Beloit-Janesville).
ECONOMICS OF THE INDUSTRY
Any manufacturer faces various types of costs, with materials, labor, energy, and capital costs among the most significant. The manufacturer seeks to minimize these costs in the interest of maximizing profits and return to stockholders. The total cost to the U.S. paper machinery industry has increased significantly as the costs of major production inputs, materials and labor, have risen. Among the most effective means of shifting and-or reducing costs is the availašility of multiple manufacturing facilities, preferably both domestic and foreign. As production of paper machinery has globalized, the major producers have become multinational firms, able to source production and purchases of raw materials on different continents. This has applied to the major U.S.-based and foreign producers. In a highly competitive environment, these firms are now able to bid on mill projects, offering to produce in the country or countries in which total costs, financing, or both make it most attractive to do so. As a result there is no longer a purely domestic or North American industry but a worldwide industry in which the nameplate on the machine is no longer a guarantee that the product was largely produced in the country in which the home Office of the firm is located.
Materials costs represent the largest element in the cost of production. In 1986 the total cost of materials to U.S.-based paper machinery manufacturers was $860 million or 53 percent of the value of industry shipments. This represented an increase of 73 percent in the cost of materials over the 3-year period between 1983 and 1986. Over the same period, materials costs rose from 43 to 53 percent of the value of shipments. Since the start of the decade, overall materials costs rose by 28 percent from $672 million. In 1986 materials costs actually exceeded value added by manufacture by $15.4 million. In only one other year since 1967 has value added been below materials cost for this industry. In 1980 materials costs represented 51 percent of the value of shipments and exceeded value added by $20 million. Combined, the cost of materials and payrolls totaled 80 percent of the value of shipments in that year and had risen to 87 percent by 1986.
Additional data are also collected in the Census of Manufactures covering the cost of specific major materials consumed, which for paper industries machinery were primarily metals, gears, motors, and fluid power systems. Table 10 shows the major items purchased and consumed.
Table 10 shows that steel has been the major materials input consumed by the paper machinery industry and thus is a key indicator
MATERIALS CONSUMED: PAPER MACHINERY--1982
Type of Value of Percent of
Stainless Steel $ 28.3 5. 9
Copper and $ 30. 9 6.4
Malleable and $ 27.8 5. 8
Steel Castings $ 24.2 5. 1
Fluid Power $ 15.5 3.2
Bushings and $ 26.6 5. 6
Speed Changers, $ 17.2 3. 6
Electric Trans- $ 13.6 2.8
mission, Distribution Equipment
Total $ 479. 6 59. 3
Source: U.S. Dopartment of Commerce, U.S. Bureau of Census, 1982 Census of Manufactures, Special Industry Machinery, Materials Consumed by Kind, p. 35D-29. Total will not add to 100 percent because of items not shown. Total value is delivered cost of the selected materials consumed and will not equal the total of materials consumed shown in Table 11.
COST OF MATERIALS : HISTORICAL TRENDS
Year Cost of Cost of
1986 $ 86O. 6 52.8 1985 654. 3 46.5 1984 566. 2 44. 4 1983 596. 4 51 .. 8 , 1982 622 - 5 44. 9 1980 671 .. 6 50. 8 1977 357. 8 43. 3 1972 193 - 7 43.3 1967 265 - 5 48.2
Source: U.S. Department of Commerce, U. S. Bureau of the Census,
of this U.S. industry's cost competitiveness vis-a-vis foreign rivals. Table 11 sho? s that materials costs have remained in a range between 43-53 percent of the value of shipments. A review of prices over the last decade for U.S. and imported steel shows that U.S. steel producers generally have been at a competitive disadvantage (Table 12).
However, a closer look at prices for carbon steel by major countries shows that by 1986 prices of carbon steel plate, a principal materials component in the production of machinery for paper output, have shifted in favor of the United States. Much of this shift reflects the substantial depreciation of the U.S. dollar against Japanese and West German currencies (Table 13).
Total compensation costs in 1986 reached $551 million for an industrywide work force of 15, 400. This represented an increase of 27 percent over 3 years from a 1983 level of $433 million. Over the same period, industry employment rose by 11 percent, mostly representing a recovery of jobs lost in the 1982-83 recession. Labor costs totaled 34 percent of industry shipments in 1986, placing labor costs 19 percentage points below material costs as the number two cost of production. This percentage was 5 points below the 1985 level of 34 percentage points, reversing a rising trend that had prevailed earlier in the decade. The 1986 level of compensation was 18 percent higher than at the start of the decade
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PRICES FOR U. S. AND IMPORTED STEEL 1978–87
U.S. Prices World Export Prices Year List Discount Contract Spot 1978 431 423 3.43 347 1979 471 474 4.04 407 1980 513 499 431 422 1981 57.7 568 450 394 1982 605 569 427 -" 366 1983 610 523 397 323 1984 636 532 4.09 327 1985 640 505 4.09 301 1986 6O3 493 4.18 334 1987 602 489 414 330
Source: Paine Webber, World Steel Dynamics, March 1987.
when size of the industry work force was 20 percent greater. In 1986, 82 percent of the enumerated costs or $449 million was assigned to payroll. The remaining costs included $59 million in employer payments and other employee programs and $42 million representing social security payments. These costs did not rise substantially during the decade. Employer payments nearly doubled from a 1980 level of $33 million but social security costs actually Fell 12.5 percent from $48 million as payrolls Fell.
The production work force of the paper machinery industry is skewed
UNITED STATES, JAPAN, WEST GERMANY 1980, 1983, 1986
Year Composite Plate United Japan” West United Japan? West States Germany States Germany 1980 503 4.25 502 461 380 419 1983 586 4 37 421 566 378 375 1986 572 580 513 444 53.3 472
*Prices to big buyers.
Source: Paine Webber, World Steel Dynamics, November, 1987.