German Machine Tool Builders Expect 30% Growth in 2011

VDW outlook sees domestic producers thriving in changing global market

Martin Kapp, the chairman of the German Machine Tool Builders’ Assn. (VDW), told listeners at a press conference in Frankfurt, February 24, that the trade group's members have nearly overcome the worst effects of the global recession and it is forecasting a 30-percent increase in production output for the manufacturing technology sector this year. “With the return to an anticipated volume of almost 13 billion euros ($18 billion), we would have caught up on almost all the deleterious effects of the crisis. That’s something we could be more than satisfied with,” he said.

VDW represents one of the largest segments in Germany’s mechanical engineering segment, and produces equipment and technologies for all aspects of manufacturing. In 2010, the German ma-chine tool industry produced machines and services worth 9.9 billion euros ($13.6 billion), and employed 64,100 people. This corresponded to a 3-per-cent fall in production output compared to the preceding year.

In addition, VDW is the organizer for EMO Hannover 2011, the week-long exposition for machine tools and metalworking technology that will take place September 19-24 in Hanover, Germany.

Germany remains among the largest machine-tool building nations in the world, though the worldwide recession has changed the market sector. More sustained demand for machines in the Pacific Rim, and the slow rate of economic recovery in Europe and the U.S., “has meant a major reshuffling of the machine tool industry,” according to Kapp. China is now the world’s largest producer of machine tools, followed by Japan, Germany, Italy, and South Korea. The U.S. ranks eighth in the world for machine tool output.

However, Kapp pointed out that 90 percent of the machine tools produced in China are simple operations meant only for the domestic market, and VDW research has concluded that there is little to no re-search in progress toward development of machining technologies.

Japan, the second-largest producer of machine tools is noted for manufacturing standard production systems on short lead times, whereas a high proportion of the German industry’s output are customized systems and long project schedules. As such, VDW’s Kapp expects his group’s members will begin to catch up to its global competitors this year.

The current economic climate presents numerous opportunities for German machine tool builders, the VDW chief said. Their technical expertise will be an advantage in the effort to supply rising global demand for high-precision components and systems, such as in medical and surgical technology, aviation, and electric and hybrid vehicle technology. “That’s the Germans’ specialty,” Kapp said, “offering state-of-the-art solutional competence so that their customers in their turn remain internationally competitive.”

In the course of these developments, Kapp acknowledged that the VDW members must stabilize their organizations with sound finances and low operating costs, and a determination to compete on a global cost basis. “We now have to get back on course following what was a very severe crisis,” he said.

The ongoing improvement in the German machine tool industry’s orders for new equipment can be seen in quarterly double-digit increases since the end of 2009, according to Kapp. These contracts have mostly come from China, South Korea, and India, which rebounded more rapidly from the downturn that began in late 2008, and their return to growth has helped to promote growth in Germany. Since then, ac-cording to VDW, demand from other foreign markets has increased too, and now demand is rising in the German domestic market. “Our industry’s worldwide presence, its high proportion of exports, at two-thirds, and its superlative technological position on the international stage are paying off here,” Kapp said.

The German machine tool builders reported positive earnings in August 2010 for the first time in two years, though the group’s full-year results fell 3 percent versus 2009. The value of the group’s exports fell 1 percent in 2010, though the manufacturers increased their sales to China (their largest export market) from 28 percent to 29 percent of all exports. (China’s orders from the German machine tool industry are nearly four times more than the second-largest foreign market, the U.S.)

Overall, the VDW members reported a demand increase of 85 percent over 2009, with domestic orders increasing 75 percent and exports increasing 90 percent over the previous 12-month period.

“Recently, it’s been forming-technology projects, in particular, that have been fueling the upturn,” said VDW executive director Dr. Wilfried Schäfer, indicating that machines for sheet-metal processing now account for about 30 percent of the total machine tool business.

Kapp said his group’s members are ready to respond to the expected rise in global demand for ma-chine tools because they have managed to retain their expert designers and production workers. Total employment among the German machine tool industry is 63,800, 9,600 fewer or 13 percent less than the peak employment total in October 2008. The decline in employment has stabilized since July 2010, ac-cording to VDW figures. “The flexibility achieved over recent years in terms of human resources deployment has proved immensely beneficial,” according to Martin Kapp.

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