Covid-19’s Impact on the Machine Tool Industry
Today’s post is a guest post from Allied Analytics, LLP.
The infectious coronavirus disease 2019 (COVID-19) or also known as severe acute respiratory syndrome coronavirus (SARS-CoV-2) has infected approximately 62.8 million people globally with 1.46 million fatalities since December 2019 based on the data by the Center for Systems Science and Engineering (CSSE), which is a part of the Johns Hopkins University based in the U.S. The highly contagious nature of the virus assisted in spread of the disease over all the continents except Antarctica. This further led to nation-wide lockdown impositions, strict rules regarding wearing masks and sanitization, social distancing, and temporary closure of public gatherings, religious sites, tourist destinations, and others. The unavailability of related vaccine, lack of healthcare infrastructure, and the emergence of second wave of COVID-19 infections in the U.S. and Europe has made it difficult for the economies to return back to normal functioning. This has further led to extension of lockdowns in these countries causing discomfort and panic within population. However, companies such as AstraZeneca plc headquartered in the UK in collaboration with the Oxford University, Moderna, Inc., Pfizer Inc.,based in the U.S., in collaboration with the German biotechnology company BioNTech SE, and The Gamaleya Research Institute of Epidemiology and Microbiology in Russia, have taken a forefront in the development of COVID-19 vaccine production, which are in the final stages of clinical trials.
The global public health crisis has majorly disrupted the machine tools and other industrial machinery related industries. The machine tools industry was especially impacted owing to the halted international trade, and manufacturing shutdowns during the first and second quarter of 2020. Machine tools industry was already volatile in 2019 mainly due to the factors such as U.S.-China trade war and the UK’s exit from the European Union or the “Brexit”. This majorly affected the global machine tools trade. For instance, according to the CECIMO – the European Association for the Machine Tool Industries and Related Manufacturing Technologies, sharpest declines were witnessed in Czech Republic, Germany, and Spain during the first quarter of 2019. Although the industry did recover until the end of 2019, the spread of COVID-19 pandemic has negatively impacted on the machine tools industry. Furthermore, the refocus of automotive industry toward development of electrical drive vehicles to promote sustainability has created new horizons for the machine tool industry growth. The machine tools industry needs to realign towards the upcoming opportunities in electric drivetrain technologies, and other hybrid products. Moreover, the three major machine tool manufacturing countries, namely, China, Germany, and Japan have retained their global position even in 2020.
Impact of COVID-19 on industries related to the machine tools industry:
The machine tools industry is mainly affected by the growth dynamics of the consumer markets including, automotive, aerospace & defense, medical devices, and others. The automotive industry owns a significant share in machine tool demand globally. Hence, the fluctuation in the automotive industry affects the machines tools industry.
The COVID-19 pandemic has severely impacted the automotive industry because of halted manufacturing processes. The lack of demand for automotive vehicles globally has blown a significant shock for the industry. Sudden imposition of lockdowns during the first quarter of 2020, resulted in immediate shutoff of automotive manufacturing. In addition, the halt in international trade and disrupted supply chain further promoted the downfall of the automotive industry. Even though, the companies such as General Motors Co., Ford Motor Co., and others announced the restart of production in May 2020, the lack of workers and reduced demand for automotive vehicles has made it difficult for the industry too reach the pre COVID-19 growth rates.
Delayed cure for COVID-19 and threat of infections has reduced international travel significantly causing a decline in aerospace industry. Reduction in passenger traffic, halted international trade, reduction in fuel prices have highly impacted the manufacturing process of aerospace and aircraft industry, which in turn has impacted the demand for machine tools. Airline companies had to cancel new orders hence, resulting in lower demand for the manufacturers. In addition, major companies are also laying off their employees to compensate for the loss caused by the pandemic. For instance, the American multinational corporation, Boeing Co. in October 2020 announced that it will cut more jobs in 2021 to adjust with the market conditions. This further impacts the growth of the industry.
The COVID-19 pandemic opened new horizons in the development of medical devices to tackle the challenges imposed by the disease. The hiked demand for testing kits, personal protective equipment (PPE), ventilators, and others increased the production of these products resulting in heightened demand for machine tools. According to the Association of Manufacturing Technologies (AMT) based in the U.S., the medical equipment industry growth was positive throughout the pandemic due to the sudden high demand. Even though it caused a short-term supply-demand gap, the industry recovered significantly after the first quarter of 2020.
Other end user industries of machine tool such as packaging, oil & gas, equipment manufacturing, and metalworking also contributed towards the decline in demand for machine tools during the pandemic. The oil & gas industry was one of the most highly affected industries during the pandemic. Oil prices in the global market steeply dropped due to the lockdown impositions. Industrial slowdowns and travel restrictions decreased the demand for crude oil, thereby, resulting in stoppage of oil & gas refining plants and major employee layoffs. Furthermore, the packaging industry faced mixed impacted due to the pandemic. The demand for rigid packaging witnessed a decline, however, the flexible packaging demand sustained during the period owing to the significant rise in e-commerce and more focus towards personal safety. On the contrary, the halt in construction and mining activities caused a major decline in demand for heavy equipment which in turn affected its manufacturing. This further resulted in reduction in demand for machine tools.
Impact on machine tools industry due to COVID-19
The global machine tools industry is anticipated to recover slowly from the first quarter of 2021 owing to the reduced lockdown restrictions and restarting of industrial enterprises and international trade.
Germany machine tools Industry, orders received, comparison by quarter (% Change)
|QI 2020/2019||Q2 2020/2019||Q3 2020/2019|
|Germany Machine Tools Industry (Orders received)||-25%||-46%||-29%|
Source: VDW (German Machine Tool Builders’ Association)
Post COVID-19 Impact:
The COVID-19 pandemic has caused heavy recessions in various countries resulting in a major drop in world economy. According to the World Bank forecasts published in June 2020, the global economy is anticipated to experience a decline by 5.2% during 2020, which can be the deepest recession experienced after World War 2. The forecasts also suggest that the economy is likely to recover and reach 5% to 6% during 2021. For the machine tools industry, the end-user industries such as medical engineering, electronics, and packaging have faced low to zero impact during the pandemic. Hence, the demand for machine tools from these industries is anticipated to grow in the post COVID-19 scenario. The Verein DeutscherWerkzeugmaschinenfabriken (VDW) in its “Market Report 2019” on the German Machine Tools Industry suggests that the pandemic is anticipated to fuel long-term structural changes in the global machine tools industry. Inclusion of networking and digitization will find major applications for machine tool manufacturing and their end user industries. Less working hours and maintenance of employee safety should be prioritized in the post COVID-19 scenario to ensure smooth working on the supply chains globally. In addition, the post COVID-19 era is likely to nurture and accelerate the “Industry 4.0” infrastructural development programs which include the adoption of Internet of Things (IoT) technologies, automation, and other developmental technologies to increase industrial productivities after the pandemic. With the help of staggered working shifts and use of digital services such as training through videos and work from home scenarios, employees in the machine tools industry can improve the working techniques.
Moreover, by the last quarter of 2020, the manufacturing industry has witnessed a strong growth. Companies have established new safety regulations to protect workers on factory floors including compulsory use of masks, realignment of work schedules, and proper sanitization of the equipment. Further, the automotive industry is recovering rapidly by restarting their production processes. Automotive manufacturers and suppliers resumed their functions in May 2020, to restore the production gaps due to COVID-19 in the first half of 2020. Thus, the reboot of manufacturing companies has promoted the demand of machine tools significantly. For instance, The Association for Manufacturing Technology (AMT) based in the U.S. declared that the orders for machine tools witnessed a surge by 26% in September compared to the orders in August 2020. Although the order revenues did not match with September 2019, the monthly recovery status was more than estimated by various machine tool organizations.
Furthermore, the demand for CNC machine tools is likely to propel in the post COVID-19 world. CNC machines offer the advantage of flexibility, multi-processing, and automation in manufacturing processes, thereby reducing the dependence on human workforce. This also reduces the expenditure on manpower, which in turn reduces downtimes and helps in obtaining better quality products. In addition, the machine tool servicing and aftermarket industry is also expected to witness high growth in the post COVID-19 era. Periodic and preventive maintenance enhances machine’s working capacity and assists in delivering better products.
Thus, the machine tool industry is expected to recover at a high pace with the adoption of advanced technologies and integration of automation technologies. In addition, companies need to focus on employee safety and consider the employee health as an important factor in the development of machine tools industry.
Author: David Correa