Market situation The machine tool industry is having to fight
The order books of machine tool manufacturers are still full. But incoming orders have fallen off sharply. So this is the time for firms to use the economic turndown for taking strategic decisions.
The mood in the machine tool industry is certainly subdued. In the first quarter of 2019, incoming orders in the German machine-tool industry were down 21 percent against the previous year. Orders on the home market fell by 10 percent. Orders from other countries dropped by 27 percent.
“These negative trends are to some extent due to an extremely strong first six months in 2018,” comments Dr. Wilfried Schäfer, CEO of the VDW (association of German machine tool makers). This base effect will however fall substantially in the second half of 2019. The cooling off of the world economy, Schäfer goes on to say, has finally reached the German machine tool industry as well. The home market, which for a long time was the counterweight to the fall in foreign orders, has lost much of its dynamics. The only shimmer of light at the moment is the Eurozone, which has remained much more stable, losing only 3 percent. This does very little to balance out the losses in the non-Eurozone.
As causes, Schäfer names politically generated disturbances in world trade which have affected threshold countries adversely, weaker growth in China, structural weaknesses in the biggest customer, the automobile industry, and the slump in the semiconductor sector. “In 2018, the international automobile industry had already halved its investment in plant compared to the previous year, cutting it to 4 percent, and in 2019 will no doubt be planning for an even lower level,” he explains.
The VDW nevertheless expects a 1 percent increase in production for 2019. This is based on an anticipated boost in demand in the second half of the year. Existing orders will no doubt exercise a positive effect for some time yet.
At the annual press conference at the beginning of the year, Dr. Heinz-Jürgen Prokop, chairman of the VDW, summarised the downward development as follows: “The order books are still full, in 2018 capacities were utilised at an average of almost 94 percent. In some cases, firms have orders on their books keeping them busy into 2020.” Currently, however, lack of skilled workers and bottlenecks in component supplies are holding business back. This situation, according to Prokop, will continue far into the current year, for which reason the VDW and the British economic research institute Oxford Economics were, at the beginning of the year, still predicting a renewed growth in production of around 2 percent in 2019.
Forming technology provided records turnovers in 2018
In retrospect, 2018 was nevertheless a very good year. The machine tool industry, for example, recorded, with 17.1 billion euros, a plus of 7 percent. This was principally driven, according to the VDW, by sales on the home market and forming technology. “In Germany, the accumulated investment backlog of previous years eased at the end of 2017. Last year, manufacturers succeeded in selling machines worth 5 billion euros in this country. That corresponded to a growth of 17 percent. On top of that, services worth 1.5 billion euros were provided. And, with almost 9 billion euros and a plus of 14 percent, demand for German machine tools reached a record level,” we are told.
Forming technology constituted no less than 26 percent of machine tool production and in 2018 grew by 9 percent. Forming technology and special presses are usually used in large projects. They therefore have longer order-to-delivery times and are consequently less subject to economic fluctuations than machining tools.
Celebrating the Indian Machine Tool Industry at IMTOS
Very diverse developments in foreign markets
Around 70 percent of German machine tool production is sold in other countries. In 2018, exports rose by 3 percent. The biggest contribution to growth from January to November was provided by southeast Asia, with 39 percent.
The biggest fall-off was registered in central America, basically Mexico, with a minus of 15 percent. Despite a follow-on accord for the NAFTA agreement, the experts at Oxford Economics expressed little optimism regarding a sustainable upturn. The country is reported to be far from its once high ranking in the eyes of German manufacturers.
According to the VDW, the biggest market, Europe, which accounted for roughly half of German exports, showed a solid development of plus 3 percent. This was driven by Eastern Europe, with plus 8 percent, while western Europe stagnated.
Examination of individual markets shows that China, despite an economic slowdown, continues to be by far the most important market for German manufacturers. With a growth of 5 percent in the first 11 months of 2018, that country purchased 22 percent of German exports, followed by the USA with a share of around 13 percent and a growth of 7 percent. In third place came Italy with a share of 6 percent, followed by Poland. Among the Top 15, Switzerland and Spain should otherwise be mentioned with their two-digit growth rates.
Things went less well, in contrast, in France, Austria and India. As expected, exports to Great Britain also fell, decreasing by no less than 15 percent. And two further problem cases, Russia and Turkey, went against the trend with their negative development.
Demand on the home market in 2018 was also met by imports
Between January and November, almost all suppliers among the Top 15 raised their performance. According to the VDW, around 30 percent of imports came from Switzerland, traditionally the biggest source. Numerous German manufacturers have subsidiaries there, supplying the parent company in Germany with components and machines. Double-figure growth was furthermore registered from the Republic of Korea, China, Poland, the Netherlands, Great Britain and France. Unable to benefit, on the other hand, were the USA, Spain and Turkey.
The good order situation in the German machine tool industry is also reflected in employment figures. At the end of 2018, 75,000 persons were employed in the sector, fully 4 percent more than a year before.
It's business for the Indian machine tool industry
Top 3 in the international machine-tool business
When investment goes into production technology anywhere in the world, German manufacturers are involved, for, according to Heinz-Jürgen Prokop, they are among the top suppliers. “World champions in export, vice-world champions in production, bronze in both consumption and imports,” quips Prokop. The biggest market, biggest importer and biggest producer is in all three cases China. The long-term rival Japan is apparently following close on Germany’s heels in both production and export.
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