GRUNDFOS MACHINING INDUSTRY

issue 6, 2013 - AuGusT

Update on the economic SitUation and development in Selected SectorS

Letter from China: how to deaL with market sLowdown

bethinkinnovate

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Fig. 1, Economic Expectations for Key Countries and Industry Sectors(Source: ZEW indicator, ZEW, 16 July 2013)

Fig. 2, New Passenger Car Registrations in Europe (Source: ACEA, 16 July 2013)

Fig. 3, Machine Tool Order Intake in Germany(Source: VDMA, August 2013)

Fig. 4, Machine Tool Order Intake in Japan(Source: JMTBA, August 2013)

Fig. 5, Machine Tool Order Intake in U.S.A.(Source: AMT, 08 July 2013)

Fig. 6, German Business Climate – Industry and Trade(Source: Business Climate Indicator, Ifo Institute, 25 July 2013)

Fig. 7, The Grundfos Global Automotive Indicators(Source: Automotive Information Platform, MarkLines.com, August 2013)

Fig. 8, The Grundfos Raw Material Price Index(Source: London Metal Exchange, Steel Business Briefing, CME Group, August 2013)

About Grundfos Industry Indicators

Letter from China: How to deal with a market slowdown

Industry Indicators

Fig. 1 - 8

Page 4 - 10 / Industry Indicators

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aboUt GrUndfoS

indUStry indicatorS

This quarterly newsletter can give you a gen-eral idea of which way the wind is blowing in the machine tools industry. It is a special supplement to our subscribers of Knowledge Link, our new website for the machining industry.

Almost all the charts and graphs here are publicly available. They come from the three major machine tool associations – in Ger-many, Japan and the United States – as well as global surveys from market analysts.

We make the final graphs ourselves, the Grundfos Raw Materials Index and the auto-motive Monthly Production Output by coun-try and manufacturer. We build the latter up from available automotive production figures. Grundfos Machining Industry seg-ment uses automotive production statistics, because that market is such a big part of the machine tools industry. Based on that,

we try to estimate how the coming one- to three months will look.

Why do we want to share these statistics? Because we have a common interest in see-ing how the market is doing. So please: read these statistics and comments as indicators alone.

We publish a full version of the Grundfos in-dustry indicators quarterly in five languag-es, as well a monthly version in english only.

The Grundfos Industry Indicators Copyright 2013 Grundfos A/S. Permission to reprint graphs, tables and data has been granted to Grundfos from the various organisations re-presented in the publication. If you have com-ments or questions on the data from those organisations, please contact them directly with the links provided. We welcome your other comments.

iSSUe 6, 2013 - AUGUST

China has experienced high growth over the last 3 years in the machining industry market. The country has grown bigger than Germany, taking the No. 2 position behind Japan, the mar-ket leaders.

After the global economic cri-sis in 2008, the manufacturing centre of the world moved to Asia. And in Asia, China is seen as a leader.

Domestic demand drives Chi-nese industry. The international cities in the East – Shanghai, Beijing – show huge growth po-tential. Meanwhile, the govern-ment’s new “Go West” policy is bringing the country’s develop-ment focus to the south-western and north-western markets. In three years, these are expected to grow into rich markets.

Conditions are good for man-ufacturing in China. We have great advantages with our large labour force, labour costs, re-sources and logistics.

CHINA’S CHAlleNGeS

Our industry faces some diffi-cult challenges, however. And the way Chinese companies approach these challenges can make or break them in years to come. The challenges include:

LACK OF COMPETITIVE ADVANTAGE

China might have one of the biggest machining industries, but we are on the low or middle end of the technological side. Generally, we lack innovation

and high-tech enterprises. We lack international competitive advantage.

TIGHT CHINESE MONETARy POLICy

The monetary policy is tight in the general economic environ-ment in China. This influences manufacturing.

The domestic market tends to focus only on cost and not quality or innovative products. Custom-ers who do want the middle or high-end components for their machines or systems are losing sales, because their customers are not buying their machines. And this – along with the first challenge above of lacking com-petitive technological advantage – only creates a downward spiral of that can be difficult to stop if we do not take action.

GLOBAL ECONOMIC SLOWDOWN

Many joint ventures in China have slowed down their foreign investments. The export mar-kets are suffering. The 2008 fi-nancial crisis might have helped to launch China into the major league of machining markets, but it is also one of the continu-ing handicaps.

TIMe foR RefleCTIoN

I suggest that now is the time – while things are slowing down – to adjust your strategies: your sales, marketing, or even your general company strategy. Now is the time to think about your weakest areas and how you can improve them.

When we are busy with sales, there is no time for thinking about these things. Take the op-portunity to think about how you can improve quality, improve the technical make-up of your products, improve your manage-ment. Of course, you must keep going with your traditional way of doing business, but you must also try something new.

We have done this, and it has led us to change our mind set in how we conduct our business.

First, we are meeting with our key, OEM accounts. Previously, we dealt exclusively with origi-nal equipment manufacturers who manufacture machine tools or systems. We never dealt with their customers – the end cus-tomers.

oUR CUSToMeRS’ CUSToMeRS

Now, we visit those end custom-ers – either with our OEM cus-tomers or even by ourselves. We want to learn about their busi-ness, their needs and require-ments. Maybe they have some new requirements that we do not know about, yet our OEM customer knows. We want to know their processes.

Only then can we offer im-proved solutions. Maybe this re-quires some adjustments – our technology, our products, our supply chain – to meet their new requirements.

We have now held several seminars with our automotive industry customers, and we have invited their customers, as well. We want to hear from them, and at the same time, we want to teach them about our techno-logy.

We want them to understand our full-line pump supply. They should learn how we can help them save energy, discover-ing the potential energy-saving areas in their factories with our professional energy audit or pump audit.

We want to help our OEMs to sell more, to do more. Doing this calls for a change of mind-set. We should do lots of things that we did not do before.

If we are successful, then we will be doing our part to help the Chinese market continue its growth.

Letter from China: how to deaL with a market sLowdown

By Sean Xie, General Manager, Grundfos Pumps (Chongqing) Co., Ltd.

commentary

GRUNDFOS macHInInG InDUStry | 3iSSUe 6, 2013 - AUGUST

As the world’s mAchining mArket slows, now is the time to rethink your business

We fAce some difficulT chAllenGes.

The WAy chinese compAnies ApproAch These chAllenGes cAn mAke

or breAk Them in yeArs To come.

Grundfos analyst: Sluggish Global economy Continues

economic expectations for Key Countries and Industry Sectors

Once again, promised economic improvement was hardly recognizable in July. Some improvement in activity and stabil-ity was seen in Europe and North America, but it made little effect on our focus industries.

A weaker Chinese economy and deceleration in most of Asia contributes to this sluggish global economy. The machining industry must continue to be patient for now.

Frank Baake, Senior Strategy & Intelligence Analyst

The centre for european economic research (ZeW) writes,

“The ZeW indicator of economic sentiment for Germany slightly declined in July 2013. The indi-cator fell by 2.2 points compared to the previous month and is now hovering at the 36.3-points mark.

economic expectations for the eurozone slightly improved in July. The respective indicator in-creased by 2.2 points to 32.8 points.”

The ZEW Indicator of Economic Sentiment is as-certained monthly. Up to 350 financial experts take part in the survey. The indicator reflects the difference between the share of analysts that are optimistic and the share of analysts that are pes-simistic for the expected economic development in Germany in six months. The survey also asks for the expectations for the Euro-zone, Japan, Great Britain and the U.S.A.

For more information, visit ZEW’s website at zew.de.

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Zew indicator of economic sentiment (germany)

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For the German Machine Tool Industry, the order intake was -14.2% in June, compared to the same month in 2012, according to figures from the German Engineering Federation (VDMA). The export number fell drastically from the peak in April. For January to June the order intake was -12.8% versus last year.

The VDMA (Verband Deutscher Maschinen- und Anlagenbau - German Engineering Fed-eration) is a network of around 3,000 engi-neering industry companies in Europe.

For more information, please visit the VDMA’s website at vdma.org.

New Passenger Car Registrations in europe

Machine Tool order Intake in Germany

The European Automobile Manufac-turers Association writes:

“In June, new passenger car registra-tions totalled 1,134,042 units, declining by 5.6% compared to the same month last year. In the first half year of 2013, 6,204,990 new cars were registered in the EU, or 6.6% less than in the first six months of 2012.

In June, the UK was the only major market to expand (+13.4%), while the Spanish slipped by 0.7% and the Ger-man (-4.7%), Italian (-5.5%) and French (-8.4%) contracted. Total new registra-tions in the EU were on the lowest level recorded since 1996.

From January to June, except for the UK which expanded by 10.0%, all other ma-

jor markets faced a downturn ranging from -4.9% in Spain to -8.1% in Germa-ny, -10.3% in Italy and -11.2% in France.”

For more information, see ACEA’s web-site at acea.be.

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The order intake for the Japanese Machine Tool Industry in June 2013 was -12.4% compared to June 2012. Decrease was higher for non-domestic orders (-14.5%). January to June 2013 is -18.7% below last year, according to figures from the Japan Machine Tool Builders’ Association (JMTBA).

For more information, please visit the JMTBA’s website at jmtba.or.jp

Machine Tool order Intake in Japan

Machine Tool order Intake in U.S.A.

The Association for Manufacturing Technology (AMT) writes, “May U.S. manufacturing technology orders totalled $430.06 million. This total, as reported by companies participating in the USMTO program, was up 13.6% from April but down 7.6% when compared with the total of $465.38 million reported for May 2012. With a year-to-date total of $2,085.14 million, 2013 is down 6.9% compared with 2012.” The United States Manufacturing Technology Consumption (USMTC) report, jointly compiled by the two trade associa-

tions representing the production and distribution of manu-facturing technology, provides regional and national U.S. con-sumption data of domestic and imported machine tools and related equipment. Analysis of manufacturing technology consumption provides a reliable leading economic indicator as manufacturing industries invest in capital metalworking equipment to increase capacity and improve productivity.

For more information, visit the website at amtonline.org.

iSSUe 6, 2013 - AUGUST GRUNDFOS MACHINING INDUSTRY | 7

“The Ifo Business Climate Index for industry and trade in Germany in July rose for the third time in a row. Assess-ments of the current business situation are more positive than last month.

Although the six-month business out-look weakened slightly, firms remain cautiously optimistic with regard to their future business outlook. Condi-tions in the German economy remain fair.”

The Ifo Business Climate Index is based on ca. 7,000 monthly survey responses of firms in manufacturing, construc-tion, wholesaling and retailing. The firms are asked to give their assess-ments of the current business situa-tion and their expectations for the next six months. They can characterise their situation as “good,” “satisfactorily” or poor” and their business expectations for the next six months as “more fa-vourable”, “unchanged” or “more unfa-vourable.”

The balance value of the current busi-ness situation is the difference of the percentages of the responses “good” and “poor”; the balance value of the expectations is the difference of the percentages of the responses “more favourable” and “more unfavourable.”

The business climate is a transformed mean of the balances of the business situation and the expectations. For calculating the index values, the trans-formed balances are all normalised to the average of the year 2000.

The CESifo Group, consisting of the Centre for Economic Studies (CES), the Ifo Institute for Economic Research and the CESifo GmbH (Munich Society for the Promotion of Economic Research) is a research group unique in Europe in the area of economic research. It combines the theoretically oriented economic research of the university with the empirical work of a leading

Economic research institute and places this combination in an international environment.

For more information, visit the website at cesifo-group.de.

Ifo Business Climate Germany:

German Business Climate – Industry and Trade6

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data source: marklines co. ltd

data source: marklines co. ltd

The Grundfos Global Automotive Indicators 7

iSSUe 6, 2013 - AUGUST GRUNDFOS MACHINING INDUSTRY | 9

June production levels in the four countries were on the same level as in 2012 – and the first half of 2013 was even slightly above that figure. There is also a relatively high oscillation in Chinese production (with exception of the New Chinese year impact) com-pared to the 3 other countries.

the Grundfos raw materials Price Index

raw materials Update

raw materials price index, General status July 2012

Source: London Metal Exchange,

Steel Business Briefing, CME Group.

Source: London Metal Exchange, Steel Business Briefing, CME Group.

grundfos cost Analyst Jesper bjerregård Juul comments on the price fluctuations of raw materials and their impact on the manufacturing industry. he writes:

Bad News in China Means Sluggish Global Commodities

• There was an overall decline in commodities in July

• China’s manufacturing industry continued to decline, indi-cating a contraction of the economy.

• Positive impact on prices came from a record high import of metals since last year and speculation of a helping hand to the Chinese economy after statements from the Chinese Prime Minister, Li Keqiang.

• US commodity markets were helped by promises that the Federal Reserve System will continue stimulating the US economy until unemployment rates decrease.

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MACHINING INDUSTRYBUSINeSS CeNTReS

ASIAcompetence.asia@grundfos.comTel: (+81) 52 939 1505

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GRUNDFOS MACHINING INDUSTRY

issue 3, 2013

Update on the economic SitUation and development in Selected SectorS

PumPs: a new market Barometer

bethinkinnovate