Pumps: The New Industry Market Barometer

Commentary: Can pump sales predict which way the market winds are blowing? Absolutely. Here is why.

By Ole Gerlich, Sales Development Director, Grundfos Machining Industry

By Ole Gerlich, Sales Development Director, Grundfos Machining Industry

Our world is turned by liquids. And where there are liquids there are pumps. Grundfos sells hundreds of thousands of pumps each year within the machining industry. You could say that pumps are a fundamental product in this industry. Therefore, why can’t pumps be a reliable indicator as to how this industry is doing?

When I look at how Grundfos Machining Industry’s performance compares to the overall ups and downs in 2012, the numbers actually follow (if not predict by a few months) the global market’s health quite well.

American growth
In 2012, Grundfos saw a flat to small increase in global sales. Granted, we performed a little better than the general market itself – which actually fell 5-10 percent. But thanks to some growth areas, we actually did okay.

America – one of those areas – had a very nice year. Grundfos grew more than 15 percent in the US, and we can see the demand continuing to rise. Despite the turmoil with the presidential election and the poor economy, the American automotive industry – the big consumer of machines – did very well. The previous red figures are now in the black.

In Europe, the machine tool steam train began 2012 with full power, but then really slowed down by the end of the year. Germany and countries like Italy started strong, but faded off. Even an old machine tool country like Switzerland had a slow year. One can argue that this was due to the very high Swiss Franc, making it difficult for that country’s machine tool manufacturers to stay competitive.

Japan, the world’s largest machine tool manufacturer, also had a great start in 2012. That slowed as well – to some extent (again) due to the high local currency – but this had a side effect. Because of the high yen, it can be easier for foreign companies to export to Japan. Machines from the outside are cheaper and more competitive than Japanese ones.

On the other hand, if you talk with Japanese machine tool builders, they indicate their top-line machines, the high-accuracy machines – are still selling very well. The simpler machines are down in sales – probably due to the low demand in China.

In China, just remember that nobody can continue forever with high growth figures. We have seen heavy slow-down in China for equipment investments.

This affects a country like Taiwan, which is among the top five in machine tool building, but which is really suffering. More than 60 percent of what Taiwan produces goes to China, and China’s low demand has brought a decline in Taiwan. The Taiwanese industry keeps saying, ‘Next quarter, next quarter, next quarter…,’ but nothing has picked up. We can say now that they are closer to the bottom than to the top, so it can only go one way from here.

Another big Asian machine tool producer, Korea, showed a trend like that we saw in Europe. There was a very nice performance in the first half of 2012, with much of the growth coming from big investments in the auto industry. Korea stagnated, however, by the last quarter. The main reason? We don’t know.

What’s ahead?
We expect that 2013 will be an upside-down version of 2012, where we will have a flat first quarter or two, but then a nice growth in the last half of the year. With the US continuing its slight growth, China will come back. The quietness in 2012 has created a new demand. The government’s $586 billion stimulus package last summer is intended to go towards infrastructure projects.

Similarly, Japan’s new government has announced it will stimulate the economy with some big, public infrastructure projects. This has even caused the Tokyo Stock Exchange’s Nikkei index to increase, and the yen to go down drastically – by 10-15 percent. This will make Japanese products far more competitive, and we expect Japanese demand for these machines to grow. The backlog of the previous year will likely cause an increase in domestic demand.

Europe is still a big question mark. We still have the crisis in the South. On the other hand, Europe has decided it will manage, and that it has the resources to do so. Some people even say that the crisis is over, and southern Europe will start to grow again – albeit very slowly.

We do not expect Germany to grow in 2013, but perhaps the rest of Europe will cover up for this.

Other areas, however, like Russia, have a big, growing demand. We might even see that Russia not only imports products, but that they begin producing them in Russia.

All in all, we believe that “it’s not as bad as it looks.” The time for growth may be closer than it seems – perhaps bringing us a little positive surprise.
Therefore, keep following the Grundfos monthly Industry Indicators, which can inform you on the market’s ups and downs. We are on the alert for you – bringing you this regular report on “which way the wind is blowing” in the machining industry.

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