VDMA: building material machinery firms ready for end of boom

After six years of growth in a row, the German construction equipment and building material machinery industry (CEBMMI) expects to see an end to the construction boom in 2009. “We see a slump with reg…

After six years of growth in a row, the German construction equipment and building material machinery industry (CEBMMI) expects to see an end to the construction boom in 2009. “We see a slump with regard to incoming orders already today which indicates that the construction equipment sector is to face serious setbacks in the nearer future”, said Dr Christof Kemmann, chairman of the Federation“s association representing the construction equipment and building material machinery industry, at its members“ meeting on 6 November 2008 in Karlsruhe. “But we are well prepared to handle a decline”. Currently the industry is experiencing growth. During the first nine months of 2008, sales of the entire German CEBMMI increased again compared to the same period 2007. This is particularly due to the development in the building material machinery industry. With regard to machinery for building materials, glass and ceramics, turnover grew by 79% during this period, with 31% of this accrued in Germany and as much as 85% abroad. This strong increase is the result of bulk orders in the cement machinery sector. With a total of 7%, the growth in construction machinery is significantly smaller. Domestic sales grew by 2%, whereas sales abroad grew by 9% in this sector. Thanks to the bulk orders in the cement sector, the industry“s association is even able to slightly exceed its forecast of 8.2% growth for the entire industry for 2008. The association now expects a growth in turnover of 8.6% to EUR 16.6 billion. Mr Kemmann stressed, however, that these figures should not blind anybody to the fact that the current situation with regard to incoming orders is to be taken seriously. Exports are crucial for the industry. During the first nine months of 2008, construction equipment and building material machinery worth nearly EUR 8 billion was sold abroad. This is about 16% more than at the same time in the previous year. With a 68% export quota, Europe is the biggest sales market, followed by Asia (9%) and North America (7%). The global market has been growing steadily for years and represented EUR 76 billion in 2007, according to figures published in the international foreign trade statistics. Germany holds 14% of the world export quota. “We were able to participate proportionally at this growth, while countries such as the USA, Japan and Great Britain lost market shares to other competitors – the Chinese in particular”, Mr Kemmann noted. Chinese companies were able to expand their global export activities significantly during the past five years and, with this, their global market share grew from 2% to 6% during this period of time. Chinese companies export particularly to Africa, Latin America and the Middle East and are currently trying to gain a foothold in Russia. According to Mr Kemmann, though, they have not yet been successful in gaining a considerable market share either in Europe or in North America. The general economic situation shows obvious signs of weakness. The Federation“s association therefore expects a decline in turnover for the entire CEBMMI in 2009 of 4.6% to about EUR 15.8 billion: EUR 10.7 billion (down 7.5%) of this for construction equipment and EUR 5.1 billion (up 2.2 %) for building material machinery. Domestic sales are forecast to decline by 13.8% to EUR 3.3 billion while export sales will also decline by 1.8% to EUR 12.5 billion. This forecast for 2009 is based on the a number of assumptions. Companies are currently experiencing a volume of orders which is way above average, even though cancellations of orders for construction machinery have been occurring. For the entire industry, lead times have already become more normal. The raw material processing as well as the building material machinery sector are less affected by changes than the construction machinery industry, or even currently unaffected. The situation is also good in the cement, lime and plaster sectors as well as in glass machinery. Exchange rates are offsetting certain disadvantages which German companies are facing. The European industry is currently enjoying a competitive advantage when it comes to prices due to the lower euro compared to the revalued US Dollar, the yen and the Won. “It is currently not possible to say seriously whether this trend will last, but at the moment we profit from this situation”, Mr Kemmann said. Construction projects in the infrastructure area will remain stable globally, as these projects are generally already all signed and sealed at this point in time. The association expects that some countries, such as Germany for instance, will even drive these projects further now, especially to stimulate the economy. Global demand for house building, for private and commercial use alike, particularly in emerging nations, will remain as important as before. The industry is hoping that the consequences of the financial crises will not have too dampening an effect on the emerging countries. In total, Mr Kemmann expects a period of restrictive financing which will have negative effects on the industry“s business. How long this phase is likely to last, nobody currently knows, according to him. It will largely depend on if, how and when the instruments chosen and implemented by governments to fight the financial crises will be successful. Recession in important construction markets such as the USA, Spain, Great Britain and France is already causing the industry quite a bit of trouble. According to the association“s experts, a positive change in the economic situation for the construction equipment and building material machinery industry can be expected in the 2H 2010 at the earliest. Recruiting qualified staff is difficult for the construction equipment and building material machinery industry which mainly consists of middle-sized companies. Nearly all companies are looking for engineers and by doing so, are competing with other attractive employers, such as the automotive industry. According to a survey carried out by the association among its 300 members in August/September 2008, most companies see the lack of engineers as having a dampening effect on their relevant company and believe that they have missed out on business opportunities for this reason. They also think that the end of the boom, which is now clearly to be seen, will not solve the problem. According to the survey, innovation and quality awareness are industry strengths and make for a good market position. The industry needs qualified skilled workers and engineers in order to keep and defend this position in the future, particularly against the growing Chinese competition. Mr Kemmann reports that the association he represents, embedded into some other activities by the German Engineering Federation, started a “Young Staff-Initiative”. The aim of this is to show young people the various carreer opportunities the industry has to offer as well as promote the industry as an attractive employer. According to a survey carried out by the German Engineering Federation in April 2008, the entire industry has suffered a loss in sales of EUR 7 billion a year due to counterfeiting and piracy. According to the survey, companies need to implement extensive strategies to fight plagiarism, including legal protection, organisational and technical as well as specific public communication measures. In this context, the German Engineering Federation will take steps through its offices in Berlin and Brussels to make the German government and the European Union act more determinedly against product piracy. The China IPR SME Helpdesk, which the German Engineering Federation had demanded for years, is a big achievement and a success. It was implemented in May 2008 and has been a point of contact for all companies affected by plagiarism in the region. With its campaign “Pro Original”, the companies belonging to the machinery industry inform their potential clients to make them appreciate the added value of using original technology and help them to see the risks in using copied products.