GERMAN MACHINE TOOL ORDERS HIT THE GROUND RUNNING

In the second quarter of 2010, order bookings in the German machine tool industry showed another unexpectedly steep rise of 71 percent. Domestic demand soared by 81 percent; export orders were up by 66 percent. During the first half of 2010, overall demand was 58 percent up on the preceding year's figure. Domestic customers ordered 51 percent more than in 2009, while export orders rose by 61 percent.

"The order engine is running at full throttle again," comments Dr. Wilfried Schäfer, managing director of the VDW (German Machine Tool Builders' Association) in Frankfurt am Main. "The steepest slump in the history of the machine tool industry has now been followed by the highest growth rates we've seen since the early 1970s." What he finds particularly gratifying is the high rate of growth in domestic demand during the year's second quarter. This, he added, shows that production output has found its feet again in wide sections of German industry.

Other important statistics for machine tool trends are also pointing upwards. Capacity utilization has climbed from its nadir in the middle of last year, at 65.9 percent, to 76.3 percent in June of this year, while the order backlog, following its low point of 5.6 months in October 2009 has recovered to 6.9 months in June of this year. In view of the downsized total capacity, however, this may be regarded as encouraging. At the end of the year's first half, the sector was employing approximately 63,800 people: this corresponds to a fall of almost 10 percent compared to the preceding year. In the last few months, however, there has been discernible stabilization.

VDW's Schäfer calls for level-headedness in assessing the situation. There continue to be imponderables, he points out, such as setbacks on the US market, the anticipated slowdown in China's growth or risks in the financial market. "The VDW's forecast of a 12-percent fall in sales remains in force," he affirms. Three aspects, he says, indicate that despite the improved situational environment the sales figures will nonetheless show a minus.

Firstly, the order backlogs at the companies continue to be thin. Secondly, the high growth rates in order bookings are also attributable to a baseline effect. The order volume showed a minus of 66 percent in the first half of 2009. Finally, the key question is when the order bookings will show up in the actual sales figures. The answer has to differentiate between manufacturers of general-purpose and customised machines: companies making general-purpose machines who possessed sufficient liquidity to fill their component stores are able to deliver quickly, and can indubitably book sales during the ongoing year. The majority of customized-machinery manufacturers, however, need longer lead times, due not least to more protracted negotiations with high-demand large-scale users, plus the larger amounts of design work also required. Their coffers are not going to start filling again until next year.

"For the reasons I've mentioned, there are plenty of indications that the gap in production value may not prove quite as wide as was feared early this year. But a 19 percent drop in sales during the year's first half speaks for itself," affirms Schäfer.

The German machine tool industry ranks among the five largest sectoral categories in the mechanical engineering segment. It supplies production technology for metalworking applications in all branches of industry, and makes a vital contribution to boosting productivity. Due to its absolute key position for industrial production, its development is also an important indicator for the dynamism of the nation's industrial sector as a whole. In 2009, Germany's machine tool industry, employing almost 70,000 people (firms with more than 20 employees), produced machines and services worth ?10.2 billion. This corresponded to a decrease of 30 percent in production output following a historic high in 2008.

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