Industrial Machinery Sector Report & Trends

Motoring on with the economy

M

MEDIUM RISK for entreprises

  • Fragmentation

  • Internationalization

  • Capital Intensity

  • Profitability

  • High barriers to entry
  • Long-run business cycle serves as a buffer to short term market variations
  • Core of industrial innovation
  • Volatility in commodity driven end markets and very cyclical sectors
  • Capital intensity
  • Increasing dependency on riskier counterparties

What to Watch?

  • Order book momentum
  • Indications of change in pricing power and input commodities volatility
  • Reversal of USD weakness
  • Impact of monetary policy on economic activity and inflation as key drivers for sector earnings

As one of the most cyclical sectors, synchronised economic growth will buoy activity in the machinery sector across all major regions. 2017 was the best year for the sector since 2011 on various accounts and the outlook remains positive: Business confidence in Europe stands at two year highs as does US industrial production. For a very export driven sector, global trade growth of +6.8% (EH forecast 2018 in nominal terms) USD weakness will support activity as about 50% of machinery exports happen in USD. All of the major end markets are expected to deliver growth: Construction equipment sales growth +3.4% y/y 2018, mining capex +7% 2018, oil & gas capex +4% globally / +11% US Independents (source all: Bloomberg consensus). The commodity sectors (oil/gas, mining) are coming out of recovery and likely to increase capex, driven by strong pricing and cash flow growth while. Construction remains buoyant albeit with the caveat of slowdown in China. New infrastructure investment, namely in the US should drive orders of construction equipment. While rising commodities and materials costs, which can account for up to 75% of the total cost base in certain sectors, pose a risk to profitability, at this point, pricing power is strong enough to protect margins. On average, solid double-digit sector earnings growth is evidence of the recovery, to +34% y/y according to Bloomberg consensus.

Robotics manufacturers: The sector benefits from a secular growth trend in fab automation. Automotive is a strong driver but also electronics and other sectors

Heavy manufacturing machinery: Sustained growth in industrial manufacturing should continue to support sector order books

Specialised technologies: Global economic activity along with recovery in mining and structural demand related to clean energy and sustainable manufacturing underpin activity

Key players

Country Role Sector risk
China

#1 producer

#1 exporter

#2 importer

B

Sensitive risk

United States

#1 importer

#2 producer

#3 exporter

B

Sensitive risk

Germany

#2 exporter

#3 importer

B

Medium risk

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DISCLAIMER

These assessments are, as always, subject to the disclaimer provided below.

 

This material is published by Euler Hermes SA, a Company of Allianz, for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by Euler Hermes and Euler Hermes makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the Euler Hermes Economics Department, as of this date and are subject to change without notice. Euler Hermes SA is authorised and regulated by the Financial Markets Authority of France. 

 

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