Economic Environment

  • Global economy remains on road to recovery
  • Mechanical engineering sector benefits from demand for industrial goods
  • Market for standard pumps and valves picks up again

The global economy saw a much faster recovery in 2010 than many experts had predicted. The Asian emerging markets in particular, which had already begun their economic turnaround in the middle of the previous year, showed very dynamic developments. But production in many industrialised nations also increased again. The path to economic recovery was supported by a variety of economic stimulus programmes, generally favourable interest rates and a tangible need to catch up in sectors that had suspended capital expenditure as a result of the crisis.

Asia was once again the fastest growing economic area by far, with the emerging markets in the region achieving average gross domestic product growth of over 9 %. This momentum weakened somewhat during the second half of the year, not least as a result of regulatory measures, especially in China.

The eurozone also saw economic growth of 1.7 % again in 2010. Nevertheless, there was a considerable economic divide between the members of the Monetary Union. For example, the countries hit by the real estate and debt crisis were hardly able to achieve any growth of note. Germany, however, posted a growth rate of 3.6 %, surprisingly strong given the current circumstances in Europe, and a number of smaller eurozone countries also performed well.

In Eastern Europe, the effects of the financial and economic crisis were putting a damper on economic momentum. By contrast, economic stimulus measures and stable domestic demand helped Poland to stand out as an exception among the other countries in this economic area.

The growth leader in the Americas was Brazil, where positive economic prospects stimulated companies’ investment activities. Outside of the Brazilian market as well, there were favourable developments in South America. In the US, although there was a slight upward trend in 2010, there were still no signs of a sustainable improvement.

The Region Middle East / Africa benefited from rapidly rising demand for energy sources and raw materials. The oil-producing nations of the Middle East used part of their additional income to reduce their dependency on oil exports through investment in other sectors of industry.

CONSIDERABLE GROWTH IN DEMAND FOR MACHINERY

Mechanical and plant engineering did well weathering the most difficult crisis experienced by the sector in the post-war era and was able to benefit from a rebound in the demand for industrial goods in 2010. Growth-oriented customers ordered new machinery in order to expand their production facilities or catch up on modernisation plans that they had postponed.

The pace of the recovery in order intake in the various
branches of the mechanical engineering sector varied depending on the customer industries and their economic cycles. In line with the level of the decline in orders, which was particularly large in the case of foundry, textile and plastics processing machinery, improved demand immediately led to strong growth rates.

Overall, the German Engineering Federation (VDMA – Verband Deutscher Maschinen- und Anlagenbau) recorded 8.8 % growth in production for its member companies. However, this improvement could only partially make up for the previous collapse in order intake. As a result, the volume of incoming orders in mechanical engineering was only at about 2005 levels.

UNEVEN DEVELOPMENTS IN THE MARKET FOR PUMPS, VALVES AND SERVICES

Demand for pumps varied considerably in 2010 with respect to areas of application. The economic revival in industry and the construction sector led directly to an increased number of orders for standard pumps starting in the spring. By contrast, the late-cyclical project business, involving a large share of engineered pumps manufactured to order, proved to be affected by negative investment decisions made during the preceding crisis period.

The considerably lower number of new major orders increased price pressure. Competitors with a one-sided focus on plant engineering business were often prepared to accept lower margins in order to utilise their capacity. This made it difficult to generate adequate returns – particularly in the case of power plant pumps. Infrastructure projects such as the construction of waterworks and waste water treatment facilities were less affected by this trend. In fact, the demand for pumps for water engineering plants even grew.

Developments in the valves market were similar to those in the market for pumps. Demand for standard globe, gate and butterfly valves rose at a brisker pace than that for engineered valves. These products are ordered, for example, by plant engineering contractors for use in power plant processes. In 2010 growth momentum for valves came mostly from markets outside Europe. Nevertheless, orders from the Asian shipbuilding industry remained well behind their previous volumes.

In the service market for fluid transport plants, demand was stable for maintenance, inspections and repair services in the power plant sector. Moreover, Germany and France saw a boost in demand from industry.

DEVELOPMENTS IN THE COMPETITIVE SITUATION

Many pump and valve manufacturers responded to the economic crisis by putting in place restructuring measures or cost-cutting programmes, and thus were able to weather a difficult period for business. Manufacturers of standard products were able to benefit from the recovering economy, while suppliers whose sales are focused on project business were hurt by a decrease in the number of new orders awarded.

In the time immediately following the crisis, pump and valve manufacturers focused strongly on overcoming the difficulties in the market and once again making better use of their capacities. No significant corporate takeovers occurred during this time. However, some providers, including KSB, strengthened their position through smaller, strategic acquisitions in selected business areas.