A world economic recovery, as witnessed from equity market
improvements of the lows experienced since the 2008 global crisis,
has been quite impressive. The journey was difficult with
ever-present headwinds hindering growth, the most recent of which
was the Eurozone debt crisis that significantly slowed down the
overall growth pace in 2011 and 2012.
According to the World Economic Outlook Update published by the
International Monetary Fund (IMF) in January 2013, the world
economy is projected to grow 3.5% in 2013 (versus 3.6% projected in
October 2012) and 4.1% in 2014. Growth in advanced economies and
emerging and developing countries are projected at 1.4% (versus
1.5% expected earlier) and 5.5% (versus 5.6% expected earlier) in
2013, respectively. In 2014, advanced economies are projected to
grow 2.2% and emerging markets 5.9%.
No doubt obstacles still persist as can be deduced from an unstable
European economy and slowly reviving advanced countries that in
turn are affecting emerging markets and developing economies; the
overall growth picture may not materially deteriorate from the
IMF's January 2013 forecast.
Demand for the Machinery industry is correlated to increasing
economic activity, which stimulates demand for industrial products,
thereby increasing the need for new/advanced machinery. The major
end-markets for the machinery industry include agriculture,
construction, mining and energy industries, among others.
Machinery Industry Prospects in the United States
The IMF expects the United States to grow 2.0% in 2013 as against
2.1% expected earlier as growth has slowed in the country with
evidences of weak consumptions and employment levels. Growth in
2014 is projected at 3.0%.
The Machinery industry is one of the most attractive industries in
the U.S. Growth prospects for this industry can be deduced from the
indicators to the performances in the recent past. In the fourth
quarter of 2012, industrial production in the United States rose by
an annual rate of 1.0% while manufacturing output increased by
According to the US Census Bureau report published in January 2013,
machinery shipments in 2012 through November increased 9.6% year
over year while new machinery orders witnessed a 3.1% decline in
the same period. Machinery order backlogs at the end of the quarter
also plummeted 7.8%.
Shipments for construction and industrial machinery rose by 37.6%
and 13.0%, respectively. Shipments for mining equipment were up
6.0% while farm machinery shipments decreased by 13.8%.
International demand for technologically advanced construction and
agriculture equipment is improving. The U.S.-Russia trade bill will
boost the U.S.'s export of construction equipment to Russia -- the
11th largest export market for U.S. construction equipment.
According to an earlier report published by the Association of
Equipment Manufacturers (AEM), the United States' construction
equipment exports rose 24% while agricultural equipment exports
registered a 29% increase in the first half of 2012.
According to the latest report published by Japan's Cabinet Office,
on a monthly basis, core machinery order in November 2012 grew
3.9%, up from a 2.6% increase recorded in October and 4.3% fall in
September. Recovery in capital spending and higher orders from the
chemical industry was the main drivers of the growth.
Also, overseas demand for machinery grew a whopping 17.0% in
November, indicating prospects of solid demand growth in the months
According to the IMF, the Japanese economy is projected to grow
1.2% in 2013 and 0.7% in 2014.
China and India, the two major emerging/developing nations, are
expected to show signs of tangible growth in the years ahead.
However, near-term conditions in these economies are weak.
According to the IMF, the Chinese economy is projected to grow 8.2%
in 2013 as against 8.5% expected earlier in 2013 and 8.5% in 2014.
Looser fiscal and monetary measures by the Chinese authorities --
efforts of increasing fixed asset investment along the lines of
interest rate cut by the Chinese central bank -- are expected to
offset some of the recent weaknesses in economic data. Foreign
Direct Investments (FDI) flow into the country has slowed and
exports have weakened, especially due to a slowing global economy
while a lack of domestic demand for construction, mining and
textile machinery contracted imports.
Industrial production in India has been weak in recent months with
the released data showing a 0.1% annual decline in November 2012.
Poor performances by manufacturing, mining and capital goods
sectors clearly reflect that weak domestic demand and exports were
hurt largely by the European debt crisis. According to IMF, the
country is projected to grow 5.9% in 2013 as against 6.0% expected
earlier and 6.4% in 2014.
Korea's industrial production recorded a monthly gain of 2.3% in
November, according to the latest data released by Statistics
Korea. The country seems to be recovering from the impacts of weak
exports due to global uncertainties, especially the Eurozone
Thailand seems to be recovering fast from the ravages of its
floods; reconstruction activities are perceptible in the region to
spur demand in the machinery industry. According to the data
released by the Office of Industrial Economics of Thailand,
industrial production in November 2012 spurred 83.3% year over
year. This upsurge, despite weak economic conditions around the
world, is likely to impact the overall growth in the country.
Other Major Players
Upcoming sporting events to be held in Brazil, rising government
spending to improve the country's infrastructure, growing trade
relations with other economies, as well as huge foreign direct
investments -- all these bode well for the economy. According to
the IMF, Brazil is expected to grow 3.5% in 2013 (versus 4.0%
expected earlier) and 4.0% in 2014.
South Africa is also making progress and is expected to grow 2.8%
(versus 3.0% expected earlier) in 2013 and 4.1% in 2014, as
projected by the IMF. The government is focused on improving its
mining, manufacturing and agricultural sectors. Moreover, huge
public investments in the infrastructure development programs
remain in the forefront.
Eurozone - A Hurdle
The Eurozone debt crisis has slowed down the overall growth pace in
the region as well as of the global economy. According to a report
published by Eurostat in January 2013, industrial production
(excluding construction), on a monthly basis, in the Eurozone fell
by 0.3% in November.
On a year-over-year basis, industrial production in November
dropped 3.7%, including a 7.6% fall in Italy, 7.2% in Spain and
6.6% in Ireland.
Construction output, on a monthly basis, fell 0.4% in November
2012. On an annual basis, production dropped 4.7% in November,
including a 20.4% decline in Slovenia, 17.9% in Portugal and Italy,
and 13.1% in Slovakia.
According to the VDMA machine makers' association, German machine
tool orders in November 2012 plummeted 3.0% year over year, with
domestic orders down by 2% and international orders sliding by
Important Players of the Machinery Industry
Deere & Company's
) fiscal fourth quarter and year 2012 (ended October 31, 2012)
results were impressive. For the year and the quarter, equipment
sales rose roughly 14%, with price realization contributing 4%. The
agricultural and forestry equipment provider is expanding globally
to leverage benefits from the growing global farm industry.
For fiscal year 2013 equipment sales are expected to grow 5% year
over year and for the first quarter by 10%. Net earnings for 2013
are projected to be approximately $3.2 billion.
) posted a 5% increase in equipment sales in the third quarter of
2012. For the year 2013, the company expects modest improvements in
U.S. and China along with other major developing countries while
conditions in Europe are expected to be difficult. Revenue growth
in 2013 is expected to be within the (5%) to 5% range.
CNH Global NV
) posted a 5% to 11% year-over-year increase on a constant currency
basis in its equipment sales (agricultural and construction) in the
third quarter of 2012.
Other top players in the agricultural, construction and mining
The Toro Company
), among others.
Prime companies operating in machinery industries other than
agricultural, construction and mining, include
Rockwell Automation Inc.
Illinois Tool Works, Inc.
Manitowoc Company, Inc.
), among others.
Fiscal government expenditures play a counter-cyclical role curbing
the ill effects of slower economic developments and a tight credit
market. China's structural stimulus package, government spending on
social welfare, construction of low-cost housing, completion of
infrastructure projects on agriculture, forestry and water
resources received special attention.
Also, the U.S. Congress had a stimulus package designed in 2009
that had money flowing into infrastructure spending. Also, The
American Energy & Infrastructure Jobs Act (H.R. 7) will boost
spending in the infrastructure projects. Approximately $260 billion
will be allocated to fund roads, bridges and highway projects over
Russia, which became a World Trade Organization (WTO) member in
2012, will open the gates for companies worldwide to benefit from
the growing needs for modernizing the agricultural, transport and
infrastructure sectors of the economy.
We remain wary of the rising raw material costs of some of the
major players of the machinery industry. Steel prices along with
energy, especially coal and fuel prices, remain the prime causes of
Research and development costs are on the rise for machine makers
in their pursuit of manufacturing more sophisticated and
technologically advanced machinery. Availability of funds remains
difficult as some major nations are still struggling to bring
stability to their own economies.
Favorable commodity prices are a boon, although government policies
affecting prices along with export and import policies and trade
relations with other countries impact the machinery industry.
Conclusion: Prospects Bright
Despite the prevailing global uncertainties, rising needs of better
infrastructure, modernized methods of agriculture and growing
complexity of mining/manufacturing methods will boost demand for
technologically advanced equipment in these industries. Moreover,
looking ahead on the growth path, the emerging and developing
nations will inevitably be an attractive destination for machine
AGCO CORP (AGCO): Free Stock Analysis Report
CATERPILLAR INC (CAT): Free Stock Analysis
CNH GLOBAL NV (CNH): Free Stock Analysis Report
DEERE & CO (DE): Free Stock Analysis Report
ILL TOOL WORKS (ITW): Free Stock Analysis
KUBOTA CORP ADR (KUB): Free Stock Analysis
MANITOWOC INC (MTW): Free Stock Analysis Report
ROCKWELL AUTOMT (ROK): Free Stock Analysis
TEREX CORP (TEX): Free Stock Analysis Report
TORO CO (TTC): Free Stock Analysis Report
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