Manufacturing Matters- Tuesday Top-Up 99

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• What’s been happening in our MAKE│NZ Community
• Upcoming Events
• News From The World of Manufacturing
• Other News of Interest to Manufacturing
• Fun Facts

What’s been happening in our MAKE│NZ Community

Next week is the big 100
As a thank you to those who have followed along on the journey since our very first issue back in July of 2024, we want 100 to be all about YOU!
Whether you have something you’d like to say, something you want to share with manufacturers, or even just something you’d like us to write about, let us know and we’ll do our best to include it in two weeks time.

Reach out to dieter@makenz.org to get your say in number one hundred!

Upcoming Events

How do we get the best from our people?

Finding good people is hard. Keeping them, developing them, and helping them become work-ready, productive employees can be even harder.

On Thursday 1 October, MAKE│NZ’s Calibrate – Growing Our Own series continues with a workshop exploring one of the biggest challenges facing manufacturers:

Accelerating Work Readiness & Getting the Most From Our People

We’re bringing together two outstanding speakers — Dr Joseph Houghton from the University of Canterbury and Dave Hoani from Motivationz — to challenge our thinking and share practical insights around developing people in the workplace.

We’ll explore questions that matter to manufacturers:

How do we better prepare young people for the realities of work? How do we get the most from apprentices and new employees? What makes people stay, grow, and contribute? And what can employers, supervisors, and mentors do differently?

This isn’t just for business owners. If you have HR staff, supervisors, team leaders, apprenticeship or training mentors, or anyone responsible for developing people, bring them along.

Both Joseph and Dave are generously giving their time and expertise to MAKE│NZ, giving our manufacturing community access to knowledge and experience that would normally come at a significant cost.

Thursday 1 October
5:00pm–6:30pm
Canterbury Manufacturing Centre, 131 Victoria Street, Christchurch

You can find out more and register here.

Good people don’t just happen. Come and be part of the conversation about how we grow them.

Connect. Learn. Grow.

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News From The World of Manufacturing

•Some good news first: Operating profits have been rising strongly in the June Qtr for manufacturers in key industries. Also worth noting is that quarterly changes are smaller, meaning profits are more stable, for manufacturers of elaborately transformed goods:

•In last week’s edition we presented an AI-generated, human-curated blueprint for accelerated wealth creation in New Zealand:

A set of comprehensive economic development policies for New Zealand that will grow industries producing elaborately transformed, high-value products for export, improve (labour) productivity and grow New Zealand’s skilled workforce.

It may be useful to remind ourselves what the claim that this will help to grow more wealth in New Zealand is based on. First question: Why do we need more exports? Among other things, because New Zealand is consistently running a Balance-of-Trade deficit:

There is the COVID-19 anomaly, but even during ‘normal’ years the net balance at year-end is negative, with quarterly fluctuations largely driven by seasonal primary industry factors. Running a negative balance of trade for a limited time is not necessarily a bad thing – for example, when the trade deficit is due to a strong inflow of capital goods that will subsequently facilitate economic expansion. But that argument can hardly be made in the case of New Zealand. It’s also not a good look when we compare ourselves with other OECD countries:

Second question: Why the need to improve productivity? Theoretically, we could ‘double export value by 2034’ as promised by the National Party by just doing more of what we do now. But there are limits to how much the national dairy herd can expand, for example. In reality, we need to do better with the resources we have. In manufacturing, improving (labour) productivity is often interpreted as working harder and/or smarter – improving existing processes and systems. That can be done and is happening incrementally all the time.

But the best way to make a big difference to productivity is to change what we make. The common measure for productivity is output per hour worked, and the more valuable the things are that workers make in an hour, the higher their productivity. A point Sir Paul Callaghan, who left us far too early, made over and over again years ago – here in a speech in 2011, and expressed in annual revenue per employee. That is a different measure from GDP/hour worked but works reasonably well as a proxy for the standard measure – GDP per hour worked. The example he included of F&P Healthcare, clearly above manufacturing in general, just illustrates the point.

It’s not that the point has been lost on (some of) our political leaders. Remember “From Volume to Value”, a phrase often used in his various portfolios by David Parker, for example here, and later picked up in the then-government’s 2019 Economic Plan . But identifying something as a goal is not the same as developing and promoting policies that would take the economy towards that goal.

We already have a good number of top manufacturers of globally competitive high-value-added products and associated services in Canterbury and other parts of New Zealand. They are mostly producing capital goods, or components thereof – we all know the names. But we need more of them – and a set of government policies that will facilitate their establishment and growth. It’s not about big subsidies to industry. It is primarily about getting policy settings right in key areas where the state plays a key role anyway, or at least should do so: infrastructure, energy, immigration and (vocational) education and training, to name some of them. All as part of a comprehensive plan – the systems strategy we mentioned last week.

Third question: Why the need to grow New Zealand’s skilled workforce? Based on what we said above about more valuable products, the answer is fairly obvious. In most cases, manufacturing higher-value products requires better skilled workers and higher levels of advanced technology in systems and processes – machinery and equipment, IT systems, etc, aiming at improving both labour and capital contributions to productivity growth.

As for the latter, the latest OECD Country Report just re-iterates what is often referred to as the mis-allocation of capital in New Zealand: “Household savings provide the funding “backbone” of successful capital markets. In New Zealand, reflecting, in part highly favourable taxation settings, between 60 and 70% of household wealth is allocated to housing and land, including rental properties and unincorporated farms.” Add to that – at least as far as the OECD’s analysis goes – New Zealand’s restrictive regime for Foreign Direct Investment [FDI]:

That is it – the case for A set of comprehensive economic development policies for New Zealand that will grow industries producing elaborately transformed, high-value products for export, improve (labour) productivity and grow New Zealand’s skilled workforce.

None of this is new, nor has it failed to be put in front of New Zealand’s politicians over and over again. Roger Proctor, then Chief Economist (and a brilliant one) at MBIE, wrote a series of 37 blogs in 2014 and 2015 that lay out the arguments for the above in a much more compelling way, and in much more detail, than we have space for here. Ignorance is no excuse, but there isn’t even a justifiable claim for ignorance in this case.

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Other News of Interest to Manufacturing

•Freight costs may matter to different manufacturers to a different degree. As a rule of thumb – the higher the value-add factor of your product, the less they will matter. But they will rarely be seen as irrelevant. The bulk of these costs will mostly fall to road freight, and here transport companies are using dynamic pricing to pass on to their customers (some of) the fluctuations in the price of diesel. A lack of reliable forecasting in the face of major movements over short periods of time doesn’t make life easier for the transport industry, and their customers, either.

We talked about recent movements in the price of diesel vs crude oil before, but the latest developments, including the threat of a US export ban, mean a closer look may be warranted. First, until recently, who were the top 12 producers (refiners) of middle distillate oil (diesel; kerosine; jet fuel; heating oil) and who have been the top 12 exporters? n.b. data in the tables below are estimates from different sources and may vary somewhat.

Top Producers:

Rank	Country	Diesel / gasoil	Jet / kerosene	Combined middle distillates	Approx. annual volume
1	United States	~5.0 mb/d	~1.8 mb/d	~6.8 mb/d	~2.48 bn bbl
2	China	~3.5 mb/d	~1.0 mb/d	~4.5 mb/d	~1.64 bn bbl
3	India	~1.8 mb/d	~0.45 mb/d	~2.25 mb/d	~0.82 bn bbl
4	Russia	~1.7 mb/d	~0.25 mb/d	~1.95 mb/d	~0.71 bn bbl
5	South Korea	~1.0 mb/d	~0.45 mb/d	~1.45 mb/d	~0.53 bn bbl
6	Japan	~0.9 mb/d	~0.20 mb/d	~1.10 mb/d	~0.40 bn bbl
7	Saudi Arabia	~0.75 mb/d	~0.25 mb/d	~1.00 mb/d	~0.37 bn bbl
8	Germany	~0.65 mb/d	~0.15 mb/d	~0.80 mb/d	~0.29 bn bbl
9	Brazil	~0.65 mb/d	~0.15 mb/d	~0.80 mb/d	~0.29 bn bbl
10	Italy	~0.55 mb/d	~0.10 mb/d	~0.65 mb/d	~0.24 bn bbl
11	Canada	~0.50 mb/d	~0.08 mb/d	~0.58 mb/d	~0.21 bn bbl
12	United Arab Emirates	~0.40 mb/d	~0.15 mb/d	~0.55 mb/d	~0.20 bn bbl

Top Exporters:

Rank	Country	Primary Middle Distillate Products	Indicative net middle-distillate exports	Key Refining & Export Hubs / Drivers
1	United States	Diesel, Jet Fuel	~1.26 mb/d	US Gulf Coast (USGC); world’s top diesel exporter supplying Latin America and Europe.
2	Russia	Diesel/Gasoil, Heating Oil	~0.9 mb/d	High distillate yield refineries; major exporter to Turkey, Brazil, and Asian markets.
3	Saudi Arabia	Diesel, Jet Fuel	~0.75 mb/d	Jubail (SATORP), Yanbu (YASREF), Jazan; modern low-cost export refineries.
4	India	Euro VI Diesel, Jet Fuel	~0.70 mb/d	Jamnagar (Reliance) & Vadinar; mega-refineries capturing high margins supplying Europe and Asia.
5	South Korea	Jet Fuel, Ultra-Low Sulfur Diesel	~0.68 mb/d	Ulsan & Yeosu; top Asian jet fuel exporter and major regional diesel supplier (~560k b/d).
6	Netherlands	Diesel, Gasoil, Jet Fuel	~0.50 mb/d	Amsterdam-Rotterdam-Antwerp (ARA); primary European refining, re-export, and storage hub.
7	Singapore	Diesel, Jet Fuel, Gasoil	~0.53 mb/d	Jurong Island; principal blending and trading hub for Southeast Asia.
8	United Arab Emirates	Diesel, Jet Fuel, Kerosene	~0.05 mb/d	Ruwais Refinery & Fujairah; major Middle Eastern exporter catering to Asia and East Africa.
9	Kuwait	Low-Sulfur Diesel, Kerosene	~−0.08 mb/d	Al-Zour & Mina Al-Ahmadi; recent mega-expansions surged its distillate export capacity.
10	Mainland China	Diesel, Jet Fuel	~−0.20 mb/d	Zhejiang Petrochemical, Sinopec, PetroChina; major swing exporter under state quota allocations.
11	Belgium	Diesel, Gasoil	~−0.25 mb/d	Antwerp; crucial European ARA cluster refiner and re-exporter.
12	Germany	Gasoil, Heating Oil, Diesel	~−0.35 mb/d	Rheinland & Schwedt; supplies regional inland Central European markets.

Thus, the USA have been the largest exporters by some margin for a while. But now things have changed, making the USA an even more important source of middle distillates globally:

The increasingly intensive Ukrainian attacks on refineries in the Russian Federation have taken their toll, and so have Iranian attacks on refineries in its Gulf neighbour states in retaliation for US and Israeli attacks on its territory, and its oil infrastructure:

At this point in time, we don’t know yet whether a US export ban will be forthcoming, nor what exactly the consequences would be. A further hike of diesel prices in New Zealand, however, would have to be consider a strong probability.

But even without further aggravation, an expectation that diesel prices at the pump will revert to around $2/l is probably wishful thinking. Refineries aren’t repaired or rebuilt overnight and unlike other transport fuels (gasoline; jet fuel) the demand for diesel is relatively inelastic, given the key role that diesel plays in a number of sectors beyond just transport: primary industries, infrastructure construction or mining, for example.

All this has to be seen before a long-term trend of declining per-capita production and consumption of diesel, driven by a variety of factors such as more efficient engines and the electrification of transport …

… resulting not so much in a decline overall, but a major shift in the location of refining infrastructure:

Fun Facts (some of them not so funny)

•GDP-per-capita certainly isn’t the best way to measure or express how well-off people in a particular country are, and yet we are using this ‘crutch’ for want of a better alternative. So, based on GDP-per-capita, are people around the world becoming better-off?

It doesn’t look like it, if we follow this graph published by The Economist.

New Zealand, classified as a High-Income-Country, doesn’t quite fit the pattern for that group: 1.2% growth for the first period (2004-2014), 1.0% for the second period (2014-2024).