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Europe’s Mixed Fortunes

Austerity cuts in infrastructure spending are finally taking their toll on Europe’s construction equipment makers, as Adrian Greeman reports.

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Three years of slow recovery from the credit crunch of 2008 may be petering out, Europe’s construction equipment manufacturers are warning in their most recent surveys. In a bleaker picture than seen recently they say indicators have been poor for four months and warn that, by the end of 2012, growth will have tailed off and output will be in decline.

According to the latest reading of business confidence from the Committee of European Construction Equipment (CECE), a cross industry body representing manufacturers and suppliers throughout the continent, expectations for the future have been dropping steadily. It is a bad signal, says CECE president Johann Sailer, as both current business and future sales expectations are seen negatively by the majority of those surveyed, and the business climate looks likely to drop
even further.

The figures are highly significant in an industry that delivers 20% of all world production for construction machinery. The CECE represents 1,200 companies large and small, which employ 130,000 people and had a €24bn (£19bn) turnover last year.

To offset the gloom, Sailer points out that the survey is so far only an indication of trends for the future. Production output is likely to have increased 6% this year after fairly strong growth of 18% and 19% in the two previous years away from the post-crisis low. That means output will be virtually at 2006 levels by year end, falling short only of figures for the overheated 2007 “which are unlikely to return”, according to Sailer.

But the story will almost certainly be less happy next year, as falling orders indicate that 2013 will - at best - be flat, according to the CECE.

“What we see is a very heterogeneous picture, both in terms of markets and in terms of equipment sold,” says Sailer. “There is a clear gap running across Europe. Markets like Spain and Italy had to face further decreases in the first half of the year - although we had thought that it could not get even worse - while others like the Scandinavian and Baltic markets, or even Turkey, have experienced a good rise in demand.”

“The danger of the further escalation of the Euro crisis remains one of the biggest threats”

But, while there are small silver linings, the bigger markets like France and the UK, and even the powerful German economy, despite a relatively strong performance, have recently have shown clear signs of slowdown. “It is a sign, perhaps, that after the crisis they were slightly too fast in going up again,” says Sailer.

The CECE says the outlook for 2013 is rather pessimistic. “We expect that those markets still performing well will no longer grow at the same speed as they did after the crisis. And those that we believe by now have must hit the bottom line will recover only very modestly,” says Sailer.

Further factors could darken the outlook even more, he adds. “The danger of the further escalation of the Euro crisis remains one of the biggest threats, since it is leading to uncertainty and thus less investments on the customer and the public side.”

And an important salvation for the industry in recent years, the massively expanding Chinese economy, which has soaked up getting on for half of the world’s equipment output, has stalled badly. “In China local construction equipment sales have dropped by 40% in the first half of the year and will probably end up with a 25% decline by the end of it,” says Sailer.

Even though the Chinese market is well supplied by a massive growth in Chinese indigenous production and manufacture, it has had a major impact on the European producers. Significant imports go into China, while local firms export heavily.

Sailer says that the disparate picture for the industry also holds true for various types of work, with civil engineering projects suffering while building and renovation holding up. “During the first half of the year, earthmoving equipment sales have not changed much compared to the previous year. In total, a little over 28,000 units were sold, reflecting a comparatively good absolute level within the industry.”

“in China, local construction equipment sales have dropped by 40% in the first half of the year and will probably end up with a 25% decline by the end of it”

Wheeled excavators were the best performing product group, with sales unchanged on the previous year. Big volume machines, such as crawler excavators and wheeled loaders, stayed within single digit declines, whereas skid-steers, backhoe loaders, dozers, dump trucks and motor graders all recorded a decline.

“Compaction equipment is in a slightly better shape than earthmoving, yet it looks like growth will also come to an end by the end of the year. Light compaction equipment already recorded sales declines in the first half of the year, while self-propelled rollers are still on a growth path and sales of asphalt pavers remain almost unchanged,” says Sailer.

Austerity cuts are hitting road building particularly hard, and Sailer thinks new machines will only be bought to replace existing equipment, with the tail-off in sales of new machines being greatest in Eastern Europe, where equipment is fairly new.

Building is still recovering in northern Europe, but in the south the mortgage crisis has had its greatest impact - “devastating” - on housing.

“Concrete equipment and tower cranes are still in a long term process of recovery from crisis,” says Sailer. “On a year-todate basis, tower crane sales in Europe are now up between five and 10%. For the full year of 2012, a single-digit growth remains the most likely scenario.

“For truck mixers CECE statistics recorded a solid growth above 20% in the first half of the year compared to the same period the previous year. Batching plants and mixer systems have shown similar results. Prospects for concrete equipment in general are not too bad,” he added.

“With a positive outlook for the building construction industry in some European countries, demand should exceed sheer replacement. Currently incoming orders above last year’s level confirm this trend for the next months,” Sailer concludes.

Global markets offer more hope

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Plant sector consultant Off- Highway Research managing director David Phillips told the CECE’s general congress in Berlin last month that in 30 years of industry watching he had “never seen so much uncertainty” in the global market.

But there were some brighter patches in the gloom, he thought. China especially, which is the biggest single sector of world sales and a large part of production, is likely to get back on a growth path, despite immediate difficulties.

“Never forget China’s market is controlled by the government and that meant there was a huge expansion after 2008 as the state put in money to counter the credit collapse downturn,” says Phillips.

This led to overheating in a market already jostling with new producers and an aggressively competitive atmosphere. China’s market now accounts for around 50% of all world production. much is sold locally since the market also represents 50% of world sales demand, but there are “significant exports and imports of more sophisticated western equipment”, according to Phillips.

“There has been a dramatic correction by the government, which has withdrawn major projects and thereby taken 30% out of the market, but I would expect a slow recovery over the next five years,” he says.

By 2016 sales to China should get back to $38.4bn (£24.1bn), close to the $38.9bn (£24.4bn) recorded in 2011. Sales this year are estimated at $31.1bn (£19.5bn).

Elsewhere he saw a slow recovery. “Europe will have a long uphill struggle,” he says, with the drop from 2007’s $19.6bn (£12.3bn) sales remaining almost permanent, and by 2016 reaching $12.6bn (£7.7bn).

North America has a better projection, reaching $27.4bn (£17.2bn) in 2016, close to the $28.2bn (£17.7bn) of 2007. Sales are estimated at $21.9bn (£13.7bn) this year. Japan remains almost static, while India is likely to almost double in size from $3bn (£1.9bn) this year.

Overall, the total world market will grow, Phillips suggests, to $120.9bn (£75.9bn) in 2016. this year it was $100bn (£62.8bn), already slightly ahead of the world figure of $98.1bn (£61.6bn) in 2007.

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