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27.03.2018

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The members of the Large Industrial Plant Manufacturers' Group (AGAB) booked orders valued at EUR 17.8 billion in 2017, down 6 percent on the figure for the previous year (2016: euros 18.9 billion). This decline can be attributed almost entirely to the sharp reduction in market demand for thermal power stations. In other subsectors such as chemical plant manufacturing and metallurgical plant engineering, on the other hand, significantly higher orders were posted in 2017 compared with the previous year. "Clearly the intensive efforts by large industrial plant manufacturers to tap into new business fields in digitization, servicing and operating plant are bearing initial fruit", commented Jürgen Nowicki, spokesperson for the AGAB and Management Director of Linde Engineering, on this development.

Domestic orders in the year under report rose by 3 percent to euros 3.8 billion (2016: euros 3.7 billion). This stabilization stemmed primarily from growing orders books in metallurgical plant manufacturing and electrical engineering as well as the ever more significant business in modernizations, services and spare parts. Power station construction saw yet another decline in orders, though. Export demand fell by 8 percent to euros 14.0 billion (2016: euros 15.2 billion). The falls in Africa and the Middle East were particularly sharp. By contrast, large industrial plant manufacturing in the Asia-Pacific region posted growth of 60 percent. The industry owes this upswing to strong demand from China in particular and major orders from southeast Asia. Members of the AGAB also reported a high level of orders from the USA, Russia, Great Britain and India.

EPC capability plays crucial role - export credit insurance requires further reform
Large industrial plant manufacturers operate in a volatile and complex market environment characterized by high pressure on prices and competition. Companies must therefore demonstrate an ability to adapt and respond innovatively to changing customer requirements. The assumption of overall responsibility for projects - known as EPC capability - plays a crucial role here. A recent study by the Federal Ministry for Economic Affairs has shown that 79 percent of German companies with project business are also interested in EPC orders. General contractors from Asia which are not tied to any specific technology are penetrating this market. This trend has resulted in a significant increase in competitive pressure since 2015.

AGAB group members therefore expressly welcome the recent steps by the federal government to bring greater flexibility to the instruments of export financing and export credit insurance. "The progressive digitization of the financial sector should now pave the way for innovative and practical improvements to the Hermes instruments", said Nowicki, explaining the need to adapt to rapid changes in general conditions.

Digital business models becoming marketable
Large industrial plant manufacturing is now better prepared for the challenges of digitization than it was a few years ago and has placed the first digital products on the market. According to a VDMA survey, the industry anticipates a positive influence from these activities on the sales and earnings situation and expects to see margins in large industrial plant manufacturing improve by up to 10 percent in the next three years. "There is no panacea for the introduction of Industry 4.0 in large industrial plant manufacturing. Companies must therefore find their own ways of keeping an eye both on their operating environment and on customer requirements", AGAB spokesperson Nowicki emphasized.

Double taxation hinders projects abroad
In the international tax policy environment, the risks of double taxation not only continue to exist, but are actually increasing due to the uncoordinated implementation of the proposals put forward by the OECD and G20 to avoid profit shifting for tax purposes. Profits should in future be taxed more at the place where the value is created. Jürgen Nowicki commented: "The VDMA is therefore calling on the federal government to reduce the risk of double taxation for companies that build plant and machinery through practical solutions."

2018 outlook: Growing confidence in large industrial plant manufacturing
Confidence has grown that 2018 could see an upturn in large industrial plant manufacturing. According to a recent survey of members of the AGAB, more than 70 percent of companies anticipate steady or rising new orders and increasing project and inquiry activity. This optimism stems primarily from the favorable economic prospects and the upswing on raw materials markets. Regions such as South America, Northern Africa, and the Middle East could therefore come more strongly into focus.

If the hoped-for upturn in large industrial plant manufacturer is actually to come about, the regulatory framework must also be right. The industry therefore welcomes the fact that German politicians have recognized the enormous macroeconomic significance of large industrial plant manufacturing as a basis for international economic relations. "Given the highly volatile environment, they must review their instruments at shorter intervals than they do at present and adapt them where necessary", Nowicki concluded.

Further Information
VDMA Large Industrial Plant Manufacturers
The production volume of German intralogistics manufacturers grew to 21.3 billion euros in 2017, up 2 percent on the previous year. For the current year 2018, the VDMA Material Handling and Intralogistics Association expects average growth of 3 percent and an increase to 21.9 billion euros. "The economic situation for suppliers is good overall and the order books are full. We are back to pre-crisis levels for the first time since 2007," says Dr. Klaus-Dieter Rosenbach, Chairman of the Board of the VDMA Materials Handling and Intralogistics Association.

Developments in the individual product segments varied again in 2017. Manufacturers of industrial trucks and series hoists recorded double-digit growth rates. By contrast, there were declining trends among manufacturers of continuous conveyors in the bulk material sector and in individual product areas in the crane segment.

The positive economic development is also reflected in the number of employees. Once again, the number grew to an estimated 123,500 employees in the German intralogistics companies.

Strong again in exports
Following a decline in exports in 2016, manufacturers recorded significant growth again in 2017. Overall plus 8 percent and an export volume of 14.8 billion euros were in the books for manufacturers at the end of 2017. With 1.3 billion euros, the USA was once again the most important customer for German intralogistics solutions, followed by France (1 billion euros) and the Netherlands (702 million euros). "Many markets worldwide stabilized in 2017, which had a positive effect on investment behavior. It remains to be seen whether this development will take place in 2018. For example, the recent decisions of the government in our most important export market, the USA, pose an enormous risk," explains Dr. Rosenbach.

Further Information
VDMA Materials Handling and Intralogistics
The lead topic of Hannover Messe 2018 - "Integrated Industry - Connect & Collaborate" - shows that connection in industry is creating totally new forms of working, collaborating and doing business. The result being greater competitiveness, better jobs and new business models. VDMA and its sector network is represented in various halls at Hannover 2018, with a wide range of events on offer.

Further Information
VDMA at Hannover Messe
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