Members of the German Large Industrial Plant Manufacturers' Group (AGAB) booked orders worth €20.1 billion in the period July 2009 - June 2010. That figure was down 9% compared to the previous year (2009: €22.1 billion). Weak demand was particularly noticeable in the power station sector, which experienced an above-average decline of 19%. In contrast, firms with a customer base in primary industry were able to make up some of the ground that they had lost in the previous year. Bookings in the metallurgical plant construction business were up 9%. Companies that target the paper and cement industry achieved double-digit growth.
“The recovery is now underway in the plant manufacturing industry,” observed AGAB spokesperson Dieter Rosenthal from SMS SIEMAG with reference to the current results. "We are seeing definite indications that bookings will increase again in the second half of the year."
Stronger domestic demand – China the most important overseas market
In the period July 2009 – June 2010, domestic orders were up 14% to €4.4 billion. Overseas orders worth €15.7 billion were received (compared to €18.3 billion in 2009). The industrialised nations were the largest foreign customer group, placing orders worth €3.9 billion. However, that represented a 17% decline for AGAB members.
In contrast, the plant manufacturing business was up significantly in Asia. Orders worth €1.7 billion were booked from China (compared to €1.2 billion in 2009), making the country the largest single market. Companies also reported stronger demand from Indonesia (26%), Taiwan (22%), India (11%) and South Korea (5%). “East and South Asia are currently major sales markets for the plant manufacturing industry.
Infrastructure development and ambitious industrial projects are driving demand,” explained Rosenthal. Increased competition from Asia
East Asia is not only a significant sales market in the international plant manufacturing industry. Companies from the region have now gained a solid foothold in the global market. China is one example. Plant manufacturing firms from the country have been active in the international arena for around ten years. The massive presence of South Korean companies in the current market is quite remarkable. South Korea has increased its market share to roughly 10% during the past two years. Low prices and in-depth construction and installation expertise are the key success factors for the new competitors.
German plant manufacturing firms rely on their inherent strengths
The German plant manufacturing industry is well aware of this challenge. It has already reacted by ramping up international value-add, strengthening its construction and installation expertise, and expanding its global procurement operations to exploit opportunities to reduce costs. “Our members have highly-qualified employees who act on their own initiative. The companies have excellent overall design expertise and offer outstanding technology. These are crucial advantages which put us in an excellent position compared to our competitors,” claimed Rosenthal.
Further reforms needed to production risk coverage
German plant manufacturing firms are confident that they will be able to meet the challenge presented by the Asian newcomers. However, they need to operate in a fair business environment. Government export credit insurance at competitive prices is a crucial factor. Rosenthal made the following appeal to the political community: “Plant manufacturing involves exceptionally large projects, and that is why we are asking for structural reform in manufacturing risk cover.” The goal has to be to provide insurance coverage that is more closely aligned with the actual risk and to offer premiums which reflect that risk. On the timeline, the actual risk increases gradually as the manufacturing and procurement process progresses, and it begins to decrease again as partial payments are received prior to project completion.
Outlook: the worst is over for the plant manufacturing industry
Despite the difficult market conditions, the German plant manufacturing industry is by no means pessimistic. “AGAB member companies expect order intake in 2010 to stabilise at the previous year’s level. The downward spiral in order intake has bottomed out," said the AGAB spokesman.
The German Large Industrial Plant Manufacturers' Group (AGAB) represents the interests of its members, and it is the largest network of German companies in the industry. Member companies have an annual order intake in excess of €25 billion, and they employ more than 60 000 people. With a worldwide market share of 20% and an 80% export quota, the companies provide major stimulus for the domestic supply market. More information is available at www.vdma.org
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