Europe underpins the order situation in Germany’s machine tool industry

During the first quarter of 2015, order bookings for the German machine tools industry were down by 8 per cent compared to the first quarter of 2014. Domestic orders fell by 19 per cent, while orders from abroad shrank by 2 per cent.

“Compared to a strong first quarter in 2014, demand for machine tools is currently taking a breather,” commented Dr. Wilfried Schäfer, Executive Director of the sectoral organisation VDW (German Machine Tool Builders’ Association) in Frankfurt am Main. The fall in demand, he said, results primarily from the significant downturn in domestic orders, crucially reflecting the high base effect of last year’s strong equivalent period.

Compared to the first two months of 2015, however, March reveals a perceptibly better picture. “The German economy is trending upwards, as the latest IFO Business Climate Index makes clear. Due to the weak euro and the low raw material prices, we anticipate that domestic demand from our high-export-ratio customer sectors, too, will gather momentum in the months ahead,” said Wilfried Schäfer.
In March, orders from abroad achieved turnaround, rising by 6 per cent, whereas in January and February the figures were still in the minus range. It is primarily the orders from the Eurozone that underpinned demand for machine tools in the first quarter of 2015, with a plus of 26 per cent. The continuous growth in orders since the autumn of last year confirms that European customers are more optimistic, and that the investment backlog in the Eurozone has been overcome. This is also reflected in the Purchasing Manager Index, which has most recently picked up again in the industrial sector.

The explanation for the overall drop in orders from abroad during the year’s first quarter is that demand from Asia, in particular, was tentative. But the recently held CIMT in Beijing, China’s premier trade fair for machine tools, provides grounds for optimism. The Chinese government’s declared goal is a quality thrust in the industrial sector, for concomitantly enhanced competitiveness on the global market. One of the key factors for the requisite modernisation and diversification of China’s industrial sector is state-of-the-art production technology. “For this technological transformation, China is increasingly prioritising quality before quantity. This trend will also benefit the German machine tool manufacturers with their high-tech products. This can be substantiated not least by noting that since the second half of 2014 orders from China are again starting to show a significant increase,” explained the VDW’s Executive Director.

But Wilfried Schäfer also sees abundant potential in the USA as the second-most-important market: “Following a strong preceding year, it’s above all the favourable euro-to-dollar exchange rate that in the months ahead can be expected to boost business with the USA.”

The VDW has revised its production forecast for 2014

In the third quarter of 2014, order bookings in the German machine tool industry fell by 8 per cent compared to the third quarter of 2013. Domestic orders were 9 per cent down on the preceding year, export orders 7 per cent lower. For the first three quarters of 2014, order bookings were 1 per cent up on the equivalent period in 2013 overall. Domestic orders rose by 8 per cent, while demand from abroad dropped by 3 per cent.

“Order bookings have not come up to expectations so far in 2014,” says Dr. Wilfried Schäfer, Executive Director of the trade association VDW (German Machine Tool Builders’ Association) in Frankfurt am Main. Most recently, following a strong first half of the year, domestic orders took a downturn in the year’s third quarter. Growing uncertainty on how the global economy will develop is downgrading the propensity to invest among German customers, a situation exacerbated by the crisis in the Ukraine, the dormant state of business with Russia, and the cautious development in China.

This is also showing up in order levels from abroad. Although the smoothed curve, adjusted for seasonal effects, has for some months now been pointing upwards, the anticipated vigorous upturn has not yet materialised. This is being mirrored in the ups and downs of the monthly figures. There was surprising encouragement from the euro nations. Here, orders have been rising for a good four months and most recently, in the year’s third quarter, increased by 12 per cent. The nations of Eastern Europe, in particular, specifically Poland, Hungary and Czechia, are reporting excellent growth rates.

A look at the technologies involved reveals that project business for forming technology, especially, is decreasing, due to a weak month in September. As a general principle, demand in this segment is characterised by marked cycles, triggered by the procurement behaviours of the biggest customer grouping, the automotive industry. Forming technology accounts for 25 to 30 per cent of total production output.

Turnover in the year’s first three quarters finished at minus 6 per cent. “Against this background, and given the weak trend in order bookings, we do have to downsize our production output forecast for 2014 of 3 per cent growth, a figure that in the year’s first half was still a realistic one,” says the VDW’s Executive Director Wilfried Schäfer. The VDW is now predicting an roughly unchanged total production output for 2014. This means the result would continue to lie at the preceding year’s high level of 14.6 billion euros.