The post-pandemic rebound is over
Fragmentation
Internationalization
Capital Intensity
Profitability
Strengths & Weaknesses
- The industry presents significant entry challenges, as substantial investments in technology and capital expenditures are essential to stay competitive and embrace ongoing innovation and growth.
- There is immense potential for growth in the fields of robotics and process automation. With continuous advancements in industrial technology, every sector is striving for greater efficiency. Delivering products that align with these demands offers a remarkable opportunity to capture market share.
- The diversity of clients and markets is vast, catering to businesses and individuals across various regions and industries.
- The sector is characterized by significant cyclical fluctuations, which means that companies often face severe challenges during economic downturns due to decreased demand.
- The supply chain in this industry is intricate and fragmented, rendering it particularly vulnerable to supply disruptions, as evidenced by the global lockdowns during the pandemic in 2020.
- This industry requires substantial capital investment, as considerable funds and research and development efforts are essential for business growth and for introducing innovative products that meet the evolving needs of various sectors reliant on machinery.
- The sector is also sensitive to the availability and pricing of commodities, as essential metals like aluminum, copper, steel, and nickel are crucial for machinery production, and their prices have experienced significant volatility recently.
Sector Overview
What to watch ?
- The trajectory of the global economy indicates that demand could falter if a recession lasts longer than anticipated.
- Fluctuations in industrial production and the business confidence index could lead to shifts in order books and adjustments in capital expenditure plans.
- Ongoing Covid-19 lockdowns in China may continue to disrupt supply chains significantly.
- Changes in metal prices are also a critical factor to monitor.
The machinery and equipment sector is known for its cyclical nature, often experiencing significant downturns during economic slowdowns and recessions. This was evident during the global pandemic in 2020, when revenues plummeted by approximately 6% due to a sharp decline in demand. However, the sector rebounded impressively in the post-pandemic era, as various end-market customers resumed operations and ramped up their order volumes. In 2021, revenues surged by about 22%.
Currently, the global machinery and equipment market is valued at around USD 280 billion, with a substantial reliance on the APAC and North America regions, which contribute 34% and 30% of total revenues, respectively. The remaining market share is distributed as follows: EMEA accounts for 18%, South America for 11%, and the rest of the world also for 11%.
The positive outcomes observed post-pandemic are beginning to wane as concerns about a global recession mount. This is particularly evident as both the Chinese and US economies, which play pivotal roles as major suppliers and consumers of machinery worldwide, are projected to experience stagnation in 2023. Consequently, the short-term outlook for the sector appears bleak, with expectations of declining new orders and shrinking profit margins for companies due to persistently high production costs.
However, looking ahead, we believe there is significant growth potential in the long run, particularly within the technology-driven subsectors like robotics machinery. The push for process automation is becoming increasingly critical for industries such as automotive and electronics, which rely on technological advancements to sustain their growth. Additionally, the agri-food machinery sector is poised for increased demand, driven by the necessity to produce more food to ensure the food security of a rapidly expanding global population. It is essential to recognize that realizing this growth potential hinges on making strategic capital investments.
Subsectors
