State of the Market
Machine Tool Manufacturing Industry Needs to Hold its Ground
The order books are still full. But incoming orders have declined significantly. High time for companies to use the economic slowdown to adjust their strategic course.
The mood in the machine tool industry is quite subdued. In the first quarter of 2019, order intake in the German machine tool industry fell by 21 % year-on-year. Domestic orders declined by 10 %. Foreign orders declined by 27 %.
"These minus rates are not least attributable to an extremely strong first half of 2018," comments Dr. Wilfried Schäfer, Managing Director of the VDW (Association of German Machine Tool Builders). The base effect will decrease significantly in the second half of 2019, Schäfer said.
The slowdown of the global economy has reached the German machine tool industry as well," Schäfer continues. Domestic business, which had long been a counterweight to the decline in foreign orders, had clearly lost momentum. The only ray of hope is the euro zone, which is much more stable and only dropped by 3 %. However, it can only marginally stabilize the loss from the non-Euro-euro areas.
Schäfer cited politically caused disruptions in world trade, which have an impact on the emerging markets, weak growth in China, structural weaknesses in the largest customer industry, the automotive industry, and the slump in the semiconductor industry. “The international automotive industry already halved its capital expenditure in 2018 to less than 4 % compared to the previous year and is likely to remain below this level in 2019," he explains.
The VDW nevertheless expects production to grow by 1 % in 2019. On the other hand, he expects demand to pick up during the second half of the year. The order backlog is also expected to make itself felt for some time to come.
At the beginning of the year, Dr. Heinz-Jürgen Prokop, Chairman of the VDW, summarized the declining trend at the annual press conference: "The order books are still full, with capacity utilization averaging almost 94 % in 2018. In some cases, the companies have orders booked until 2020." At present, however, the shortage of skilled workers and bottlenecks in supplies are still blocking business. According to Prokop, this situation will continue well into the current year. Based on this, the VDW and the British economic research institute Oxford Economics forecast a further increase in production of around 2 % in 2019 at the beginning of the year.
Forming Technology Generated Record Sales in 2018
Looking back, 2018 was a very good year after all. The machine tool industry recorded an increase of 7 % to 17.1 billion euros. According to the VDW, the main drivers were domestic sales and forming technology. "In Germany, the investment backlog of the past few years was dissolved by the end of 2017. Last year, manufacturers were able to sell machines worth 5 billion euros in Germany. This corresponds to an increase of 17 %. Added to this were services worth 1.5 billion euros. With almost 9 billion euros and an increase of 14 %, German machine tool sales almost reached a "record level".
Forming technology accounts for 26 % of machine tool production and increased by 9 % in 2018. Forming technology, especially presses, is mostly used in large-scale projects. This leads to longer throughput times from order entry to delivery and therefore is less sensitive to cyclical fluctuations than machining.
Foreign Markets Developed Very Differently
Around 70 % of German machine tool production is sold abroad. Exports rose by 3 % in 2018. Southeast Asia made the largest contribution to growth from January to November with a plus of 39 %.
Central America, i.e. Mexico, recorded the highest decline with a minus of 15 %. Despite a follow-up agreement to the Nafta Treaty, the economic experts at Oxford Economics have little hope of a sustained upswing. The country is far away from the significance it used to have for German manufacturers.
The largest market, Europe, which accounted for about half of German exports, developed solidly with a plus of 3 % according to the VDW. The most important growth driver was Eastern Europe with a plus of 8 %, while Western Europe stagnated.
A look at individual markets shows that China remains by far the most important market for German manufacturers, despite the economic slowdown. With a growth of 5 % during the first eleven months of 2018, the country is losing 22 % of German exports, followed by the USA with a share of around 13 % and an increase of 7 %. Italy ranks third with a share of 6 %, followed by Poland. Switzerland and Spain are also among the top 15 with a double-digit growth.
France, Austria and India, on the other hand, performed less satisfying. As expected, exports to the UK also fell by as much as 15 %. Two other “children of sorrow”, Russia and Turkey, have lost in importance.
Domestic Demand Was Also Covered by Imports in 2018
Between January and November, almost all of our suppliers were among the top 15. According to the VDW, about 30 % of imports came from Switzerland, traditionally the largest country of origin. Numerous subsidiaries of German manufacturers who supply their parent companies in Germany with components and machines operate production sites there. The Republic of Korea, China, Poland, the Netherlands, Great Britain and France also recorded double-digit growth. However, the USA, Spain and Turkey did not profit from increased imports.
The promising order situation in the German machine tool industry was also reflected in new jobs. At the end of 2018, 75,000 employees were working in the industry. This represents a substantial plus of 4 % compared to the previous year.
The Top 3 in the International Machine Tool Business
Wherever in the world investments are made in production technology, the German manufacturers are there because they are among the top suppliers, says Heinz-Jürgen Prokop, "World champion in export, number two in production, third in consumption and in imports," says Prokop. The largest market, largest importer and largest producer is China. Permanent competitor Japan follows closely behind Germany in production and export.
* Dipl.-Ing. Annedore Bose-Munde is a specialist editor in 99094 Erfurt, Tel. (03 61) 78 94 46 95, email@example.com, www.bose-munde.de
This article was first published by MM MaschinenMarkt.
Original by Annedore Bose-Munde / Translation by Alexander Stark
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