Following a year of mixed fortunes and reduced sales, PU machinery makers are approaching 2013 with caution as they look to new markets for growth
By Simon Robinson, Editor
The polyurethane machinery industry had a mixed year in 2012 with sales down on 2011, and this is feeding into company’s plans for 2013, according to respondents to a Urethanes Technology International survey.
Business confidence has been ebbing away from a high point in 2011 UTI analysis shows, and is now approaching 2009 numbers. As 2013 gets underway polyurethane processing machinery companies are fighting hard to retain margin for investment, and to win orders for cash flow against a backdrop of slowing markets.
Data submitted by respondents show how the average number of orders by end-use sector in 2012 was down on 2011, with the exception of cutting and shaping machinery (see Chart 1) and also QS Group SpA of Cerreto d’Esi, Italy, reported a good year for RIM (reaction injection moulding) machinery. Download all of the data here.
The geographic areas that companies are selling into have changed dramatically between the 2011 and 2012 surveys, according to respondents, as tough economic policies and uncertainty bite in developed trading blocs.
In 2011, Western Europe accounted for an average of 39.15% of machinery sales; in 2012 this had fallen to 16.75%. Looking at sales as a percentage of companies’ business, sales to Central/Eastern Europe also fell slightly, as did North America, down from just over 51% to about 47%.
By contrast, a higher proportion of total sales were moving into the Middle East and China, according to respondents (see Chart 2).
However the shape of the world polyurethane equipment trade is changing in 2013. In last year’s survey, respondents told UTI that fast growth regions were Western, Central and Eastern Europe; Middle East, and North America with slightly slower growth in South East Asia and China. In 2013, Central and Eastern Europe, Middle East/Africa, and South America are hotspots with a distinct chill in Europe, North America, Southeast Asia and China (see Chart 5, p36).
Fall in activity
Across the industry there has been a fall in activity across the board as automotive, furniture and bedding, appliances, construction and general industry have lower levels of activity, according to responses. In 2012 these were all more or less stable with a bias towards the automotive. Now the only area that is close to the same level of demand as in 2012 is furniture and bedding. Demand for equipment used in the automotive and appliance sectors has more than halved, according to respondents (see Chart 4, p30).
At least one respondent told UTI in a March interview that his firm had walked away from business in 2012, because there was not enough margin in the proposed deals to let his company invest. And Max Taverna, communications consultant at Cannon, noted, “We like to sell to people who understand that the machinery may be 10% more expensive than the competition, but it can save them 1% of their materials cost.”
This business uncertainty is feeding into the industry’s plans for 2013, according to respondents (see Chart 6, p37.). Our business plans chart shows that while in 2012 45% of the respondents were considering expansion, the proportion that expect to expand the business in 2013 is now about 35%. At the high point of 2011, half the respondents in our survey said they had specific plans for expansion.
Instead of expansion, the story in 2013 looks to be defensive with around 40% of respondents considering upgrading existing facilities and about 25% consolidating work in existing facilities.
In 2012, just under 30% of respondents were considering upgrading and 10% were considering consolidation. Looking at Chart 6, which explores company’s strategic direction for 2012 and 2013, we can give the industry a confidence number. In 2012 that number was 4.48; in 2013 that number is 4.125. (See calculating confidence box on page 26)
At least one respondent suggested that this was the worst trading period they had seen in over 30 years’ in the industry.
Although confidence may be lower in 2013 than in previous years, the polyurethane industry is resilient. Respondents to telephone and Skype interviews were generally up-beat in the week of 18 March, when the calls were made. Individual companies’ experience depends on which company you consider and the product areas that they support.
For example, in the survey, respondents suggest that there has been a big fall in demand for machinery in the construction sector. However, anecdotally, Impianti OMS and Polyurethane Process Industries LLC, which are in the rigid foam market, say they have had strong performance in the construction segment.
In 2012, OMS saw its second consecutive year of growth in sales totalling $51 million up from $35 million in 2011 and $26 million in 2010. Much of its growth in 2012 came from working hard in the rigid panel business. Here, business is being driven by changed building regulations that call for greater thermal insulation.
Nicholas Beyl, president of KraussMaffei’s reaction process machinery (RPM) division, was universally upbeat about business in the year. “2012 was a good year for us,” he told UTI in a telephone interview in mid-March. “Germany and Europe had a very strong rebound after the 09-10 recession crisis. The US came back later than Europe, but is still growing.” He added that people in the US “now understand the need for local production” and are reinstalling machinery.
Long-term Chinese growth
China is a “long-term growth area” and the polyurethane equipment market that KraussMaffei supplies grew much faster than headline GDP figures, Beyl commented. In Europe, overall growth figures were in the “decent double digit percentage” range, he added.
KraussMaffei pointed to the automotive industry as being a strong growth area for its reaction process machinery in 2012 as interiors and seating were strong areas. This grew strongly in China in 2012.
KraussMaffei said that the only disappointing areas had been the trouble spots of the Middle East. Syria’s civil war has hit sales there and the UN sanctions on Iran have stopped the company trading with that country.
Mark Clark, CEO of Greenberg, Pennsylvania-based Polyurethane Process Industries LLC, said 2012 had been a strong year for his firm in the US and Canada. This was driven by “changing energy regulations which altered the way buildings are designed,” he said. This means that there is a need for commercial buildings such as “out-of -town stores to be built with better insulated roofs and walls… making people think more about the cost of energy,” he added. PPI acts as an agent for OMS in North America and supplies continuous and discontinuous rigid foam machinery. The company also has a service department which saw moderate growth in 2012.
Eraldo Greco, commercial director at Impianti OMS, said 2012 had been “fantastic year”. He explained that “four years ago we invested in continuous panel lines” and his firm provides all the equipment from the tank to the mixheads along the production line to the warehouse.
Greco, whose firm is based in Verano Brianza, Italy, says that this started to pay off in 2012 with a number of large turnkey orders, In addition to supplying two lines in the US to GAF Corp. and two to Atlas, with help from its US distributor Polyurethane Process Industries, OMS has installed a test line at Bayer Material Science.
Growth in 2012 was driven by changes to building regulations in northern Europe and North America. “Energy saving is a milestone that construction has to pass,” Greco said. Polyurethane is taking market share from rock wool and polystyrene because of its superior thermal insulation properties, he noted. This combination saw OMS take its sales to over $50 million for the first time in 2012.
Elena Sixto, marketing and sales manager at Spain’s Ingeneria del Poliuretano Flexible Sl (IPF), which makes machinery for the flexible foam segment, says that 2012 and 2011 were very similar years for her firm.
Follow the market
Sixto noted that the markets her firm supplies have moved to Indonesia, Columbia and Mexico. This is because of the movement in flexible polyurethane foam production to cheaper areas of the world. And with the shift in production comes a shift in demand for polyurethane slab stock handing machinery. “In Europe, we have good factories but crisis after crisis in the Eurozone means that investment stopped many years ago. Installations are not being changed; maybe companies are buying spare parts but they are not investing in new capacity.”
Her comments go some way towards bearing out the survey’s findings. Several companies interviewed, such as OMS, noted that there was a clear appetite for polyurethane producers’ to take turnkey projects over other kinds of deals. This gets machinery makers the business, but saddles them with the commercial risk of price rises and exchange rate movements. The risk is firmly with the machinery makers not the customer.
Cannon’s Taverna described 2012 as producing “good results without great excitement, and we maintained a good level of profitability.” The goal is “to maintain margins to allow for investment.” He added that Cannon has taken on “more than sixty graduates in 2012” to ensure that the firm has the staff progression that it needs.
Middle East potential
Habib Moujaes, general manager and owner of Beirut-based Fincorp Engineering, said that 2012 had been a good year for his firm. Fincorp installed four continuous slabstock foam lines in the year. This is not the firm’s historical business focus, that has been more squarely aimed at discontinuous lines and cutting equipment with “a continuous line every other year”. The increased production comes after several years of work marketing into northern Africa and the Middle East, Moujaes said.
Fincorp upgraded a number of lines in Africa at plants which were using old “Indian and Chinese machines [and] our customers were not completely satisfied with them,” said Moujaes. He adds that “word of mouth” drove sales.
Africa and the Middle East
Africa is the firm’s biggest market, with the Middle East number two. His firm is getting a number of enquiries from North Africa including Egypt and Libya. “There is dissociation between politics and business in North Africa,” he said. “As long as there is no direct damage to industrial infrastructure, business keeps on going. There are more opportunities in troubled areas, it’s crazy but that’s how it is.” He added that people still invest when there is trouble in the hope of prosperity when the trouble ends.
It is not all opportunity. Moujaes explained that his firm lost business when sanctions against Syria were applied and that he gets a number of enquiries from Iran that he cannot fulfil. “We buy a lot of components from Europe and the US, so we follow sanctions rules,” he explained. Once more, in these areas the industry is demanding turn-key, lump sum contracts for larger installations, such as a continuous plant which was being installed in Iran in mid-March.
Rick Hungerford, CEO of Edge Sweets (ESCO), was very upbeat. “2012 was a great year; we hit our numbers to a tee.” The Grand Rapids, Michigan-based firm splits its business into two divisions, fabrication and metering equipment.
The fabrication division includes foam cutting machines, foam saws, roll splitters and peelers while the mixing side of the business is built around low-pressure dispensing and low-pressure systems for filled materials. Hungerford would normally see sales spit 60:40 in favour of fabrication. In 2012, the business was more evenly balanced with a 50:50 split.
Gains in fabrication
Growth came from the polishing media business “which has been pretty hot for the past two-and-a-half years” and also from the automotive headliner businesses. In automotive headliners, ESCO’s low-pressure dispensing systems are good for graphite-filled polyurethane used in headliners to reduce their flammability. Hungerford said here his company’s machinery has the advantage over high-pressure dispensing systems which can damage the structure of the graphite. If the graphite is damaged, and stops being plate-like then its flame retardant properties fall off dramatically, he explained.
The fabrication business has seen success in areas such as pipe insulation where the firm’s wire saw cutters did well in 2012.
“We focus on what we do and it’s easier to sell,” he commented, echoing Moujaes that word of mouth is the best promotion. One difficulty that he faces is in expansion. The company turned the corner from a difficult couple of years in 2011, and Hungerford is starting to think about how he could start developing newer products. Being situated in Michigan, the plant is unionised, which protects workers, but makes it very difficult to hire and retain new staff if a downturn happens, he noted.
Philip Hindson, managing director at UK-based AutoRim, says in the current recession “everyone wants to think carefully about where they spend money.”
He added, “The spend on new machinery has been pretty constant, but there has been a big increase in the amount of money spent on modifying existing equipment.”
Hindson, whose firm is based in Whaley Bridge, UK, says that companies will spend money to replace large parts of machinery to enable them to complete another job. Investment is typically around retrofitting mix heads and pump groups to increase machinery life.
Part of this seems to be due to the polyurethane industry reaching maturity in the developed world. “Urethane machinery has probably reached a point of equilibrium with not much growth in developed countries,” Hinson said. Places such as Africa could be growing because of the need to transport perishable cash crops to distant markets in Europe, for example. This is an area where AutoRim has sold equipment. This is through technology transfer arrangements where companies buy machinery and formulations that are ready to go, allowing rapid introduction into the market without having to learn how to optimise processes.
Hindson’s comments that companies were more interested in refurbishing and upgrading existing machinery rather than in replacing equipment in 2012 is reflected in the numbers.
Looking at the absolute numbers of items refurbished in 2011 we have 18 units of varying types reported by survey respondents. In 2012 the number of refurbished items of machinery reported by survey respondents had grown to 90. If the 55 knives and pieces of cutting equipment that companies announced are ignored, this is a large increase, and points to converters trying to keep capital expenditure to a minimum.
In 2012 the area with the greatest number of refurbishments and replacing worn equipment was in cutting/shaping, which, given the wear and-tear that knives and cutting systems face and the relatively heavy duty roles that such equipment plays in the work place is not surprising. Albrecht Bäumer Gmbh & Co. KG, Freudenberg, Germany reported 50 pieces of cutting equipment refurbished in 2012. The firm did not report any refurbished machinery in 2011.
Fecken Kirfel GmbH & Co. KG, Aachen, Germany gave the number of knives refurbished in 2011 as six for foam cutting and one other. In the 2012 survey the numbers had fallen slightly to five knives and one other the same.
About the survey.
The machinery survey was carried out between 19 February and 18 March 2013 online. A total of 99 companies were invited to take part and 24 responded by the deadline.
Comparing apples with apples
It is difficult to make direct comparisons between different years of the UTI Machinery Survey because the number of companies taking part varies, the companies vary and the types of information they provide each year varies slightly.
To avoid most of these issues in the graphs accompanying this article we manipulate the data slightly to try and normalise the data as though a single firm were answering.
In questions where there is a numerical answer, such as % of business in a region, we add the numbers together and average them across the number of respondents. Where the answer is a tick box, we count the number of ticks and divide by the number of firms that responded to the survey. For example we generated the answer to ‘In which region are your machinery sales growing fastest at present?’ by this method.
The Urethanes Technology International polyurethane business confidence index (UTImc Index) is calculated by counting the number of firms in our survey that say they have specific plans for a course of action, such as expansion.
We take the sum of firms which say they have specific plans and then divide that by the total number of respondents in the survey.
This number is then multiplied by a factor to account for how positive an action is. Acquisition and building new factories are the most positive and are multiplied by 10, Expansion is multiplied by 7, upgrading 3, consolidation is 1 and divestment is -10. All of the factors are added together to produce the index.