Machine builders do not bear fond memories of 2009. This writer in fact recalls “negative” monthly shipments of some types of metal forming machinery in Japan where machinery manufacturers were forced to take back recently shipped machines from struggling and insolvent customers. In fact the 2008 crisis triggered a 25% contraction in global machinery production.
According to MachinePoint, a purchaser, seller and relocator of used industrial machinery in the plastics and beverages markets the European machine building sector might be facing a similarly tough time over the next few years, albeit probably not to the same extent as the 2009 collapse..
MachinePoint’s Gabilondo: A collapse in processing machinery demand could be on the horizon.
MachinePoint CEO & Founder César Rodríguez Gabilondo notes that over the past eight years, machinery production has grown 26% in Europe compared with only 6% for non-durable manufactured goods. While admittedly part of this machinery production was destined for export markets outside of Europe, he notes that favorable European government policies towards capital investment have resulted in a mismatch in installed production capacity versus industrial output of sectors using this processing machinery.
Furthermore, many of the machines ordered at the end of 2017 and during the first half of 2018 will be soon installed, completing a tremendous worldwide production capacity increase. In 2017, however, plastic product production of the 19 major EU countries has been stagnant with increases averaging only around 0.6%.
Well intentioned European Governments keep stepping on the fiscal pedal to increase productivity and price competitiveness in their industries. This is the case for the three-year long fiscal stimulus that the Italian Government keeps offering Italian manufacturers with their “super-amortization” of capital equipment investments; or the subsidies of the Hungarian Government for “Capital Equipment Investments.” Norway is another example where the machine production over the last year grew 100% more than manufacturing production.
Such stimuli, however can generate large market imbalances. One only needs to look to China, where the steel industry developed an enormous surfeit of capacity that had to be corrected, and the plastics and beverage industries suffered similar overcapacities.
“New machine manufacturers have been living in the best environment possible since 2010,” says MachinePoint’s Gabilondo. “And like after the exuberant period from 1998 to 2008, an important correction is expected. After analyzing machinery production and manufacturing statistics and international bond prices in the last 30 years, I expect that 2019–2020 will bring a 10% correction in the machinery industry. Demand will recede, new and used machinery prices will fall and excessive capacity production will be corrected,” he concludes. In comparison, the 1992 and 2001 crises hit the machinery industry with 11% contractions
“I may be wrong, but I expect that the 2019–20 crisis for the machinery industry will be triggered by a 2-3% demand contraction for industrial products after a combination of global risks materializes such as trade wars, no-deal Brexit, an Italian euro crisis, a migrant crisis, and emerging market slumps, as it is happening with the Turkish Lira right now, or higher oil prices due to renewed Iran sanctions,” summarizes Gabilondo. “The consequences of the overcapacity were painfully felt by the industry in 2008 and took some years to leave behind. The current situation is not as exuberant as the economy was in 2006, but learning from the past, industrial companies should reduce excess capacity before the used machinery market gets saturated.”