Global Machinery Industry Outlook: IMF world economic outlook report 2012
Demand for the Machinery industry is correlated with increasing economic activity, which stimulates demand for industrial products and hence increases the need for new/advanced machinery. The major end-markets for the machinery industry include agriculture, construction, mining and energy industries, among others.
Machinery Prospects Bright in the United States
- The IMF projects the United States to grow 2.1% and 2.4% in 2012 and 2013, respectively. Increasing consumption, higher exports and improved employment conditions despite recent evidence of softness all promise well for the economy. Gross fixed capital formation is projected to grow 4.8% and 5.9% in 2012 and 2013, respectively. The Machinery industry is one of the most attractive industries in the United States. Growth prospects for this industry, as can be deduced from the indicators to the performances in the recent past, look promising.
- In the first quarter 2012, industrial production in the United States rose by 5.4% while manufacturing output increased by 10.4%. The US Census Bureau report indicates a 13.1% year-over-year rise in machinery shipments and a 10.4% increase in new orders. Machinery order backlogs at the end of the quarter have escalated 22.7%. End-market demand remains strong. In the first quarter, new orders for construction and industrial machinery rose by 17.8% and 14.5%, respectively. Orders for mining equipment were, however, down 17.5%. Farm machinery shipments rose 24%. Spending on construction equipment increased in the quarter, including a rise in residential and non-residential spending.
- International demand for technologically advanced construction and agriculture equipment is improving. The United States’ construction equipment exports rose 43% while agricultural equipment exports registered a 23% increase in 2011, according to the Association of Equipment Manufacturers (AEM). Overall, capital equipment exports reached $160 billion, accounting for nearly 14% of the global machinery market share in 2011.
Emerging Nations – Set for Growth
- China and India, the two major emerging/developing nations, are expected to show signs of tangible growth in the years to come. According to the IMF, the Chinese economy is projected to grow 8.2% and 8.8% in 2012 and 2013, respectively.
- China : Looser fiscal and monetary measures by the Chinese authorities, along the lines of Thursday’s interest rate cut by the Chinese central bank, are expected to offset some of the recent weakness in economic data. Fixed Asset Investment has been on the rise over the years, with a major share being invested in the machinery industry. The country’s domestic demand and investments will help in offsetting lower export demand from its biggest export region, the European Union.
- India : Industrial production in India has been weak in recent months, and the first quarter GDP report was the weakest in years. However, the country is projected by the IMF to grow 6.9% in 2012 and 7.3% in 2013. Demand for agricultural equipment is expected to rise in an effort to modernize the existing farming techniques.
- South Korea : South Korea’s industrial output in the first quarter 2012 gained 3.7% year over year; machinery investments increased 11.4%. However, construction activities were weak in the quarter. The IMF predicts the economy will grow 3.5% in 2012 and 4.0% in 2013.
- Thailand : Thailand seems to be recovering fast from the ravages of its floods; reconstruction activities are perceptible in the region to spur demand in the machinery industry.
Other Major Players
- Brazil : As per data released by the Brazilian government, economic growth in Brazil remains healthy; projected to grow from 2.7% in 2011 to about 3.5% in 2012. Upcoming sporting events to be held in Brazil, rising government spending to improve the country’s infrastructure, growing trade relations with other economies, as well as huge foreign direct investments all bode well for the economy.
- South Africa : South Africa is also making progress; expected to grow 2.7% in 2012 and 3.4% in 2013, as projected by the IMF. The government is focused on improving its mining, manufacturing and agricultural sectors. Moreover, huge public investments in the infrastructure development programs remain in the forefront.
- Eurozone – A Hurdle : The Eurozone debt crisis has slowed down the overall growth pace in the region. According to a report published by Eurostat in May 2012, Industrial production (excluding construction) in the Eurozone fell 2.2% year over year in March 2012 and declined 0.3% compared with February 2012. The capital goods formation growth rate fell from 1.4% in February 2012 to 1.1% in March.
- On a monthly basis comparison, industrial production in Spain fell by 1.8% in March 2012, France -0.9%, Estonia -3.4%, Luxembourg -1.9%, Denmark -2.8%, the Netherlands -9.0% and Ireland -2.7%. However, industrial production in Germany and Italy grew by 1.3% and 0.5%, respectively.
- However, Construction output increased 12.4% in March 2012 compared with the previous month, with the largest increase recorded in Germany (30.7%). Output in France rose by 17.8%, Italy by 9.5%, and in the United Kingdom by 14.8%.
Important Players of the Machinery Industry
- Deere & Company (DE – Analyst Report) impressed with its record second quarter 2012 results and fiscal 2012 outlook. Equipment sales rose 13%; price realization contributed 5%. The agricultural and forestry equipment provider is expanding globally (capital spending expected $1.3 billion in 2012) to leverage benefits from the growing global farm industry. Third quarter equipment sales are expected to rise 25% y/y; net earnings expectations for fiscal 2012 have been raised by 2.3%, primarily accounting for growing needs of advanced equipment.
- Caterpillar Inc.’s (CAT – Analyst Report) equipment sales in the first quarter 2012 improved 25% y/y, benefiting largely from higher mining activities and growing replacement needs. The company raised its 2012 profit per share expectation by 2.7% on better demand forecasts.
- Italy-based CNH Global NV (CNH – Snapshot Report) posted a 22% increase in its equipment sales (agricultural and construction) in the first quarter 2012. Worldwide agricultural equipment retail demand in 2012 is expected to be flat to up 5% and construction unit demand up 5% to 10%.
- Other top players in the agricultural, construction and mining industry includes: AGCO Corporation (AGCO – Analyst Report),The Toro Company (TTC – Snapshot Report), Terex Corp. (TEX –Analyst Report) and Kubota Corporation (KUB – Snapshot Report), among others.
- Prime companies operating in machinery industries other than agricultural, construction and mining, include Rockwell Automation Inc. (ROK – Analyst Report), Illinois Tool Works, Inc.(ITW – Analyst Report), Manitowoc Company, Inc. (MTW – Analyst Report), among others.
- Fiscal government expenditures play a counter-cyclical role curbing the ill effects of slower economic developments and a tight credit market. Recently, China has come forward with its structural stimulus package for 2012. Government spending on social welfare, construction of low-cost housing, completion of infrastructure projects on agriculture, forestry and water resources received special attention.
- Another major event for the global economy is Russia, joining as a World Trade Organization (WTO) member in 2012. The membership will open the gates for companies worldwide to benefit from the growing needs of modernizing the agricultural, transport and infrastructure sectors of the economy.
- We remain wary of the rising raw material costs of some of the major players of the machinery industry. Steel prices along with energy, especially coal and fuel prices remain the prime causes of concern. Research and development costs are on the rise for machine makers in their pursuit of manufacturing more sophisticated and technologically advanced machinery. Availability of funds remain difficult as some major nations are still struggling to bring stability to their own economies.
- Favorable commodity prices are a boon, although government policies affecting prices along with export and import policies and trade relations with other countries impact the machinery industry.
Conclusion: Prospects Bright
- Rising needs of better infrastructure, modernized methods of agriculture and growing complexity of mining/manufacturing methods will boost demand for technologically advanced equipment in those industries. Moreover, looking ahead on the growth path, emerging and developing nations will inevitably be an attractive destination for machine makers worldwide.
Source: World Economic Outlook 2012 – IMF Report https://bhuwanchand.wordpress.com/2012/06/08/world-economic-outlook-2012-imf-report/