Germany: Market Scenario Industrial Plant Manufacturing: Massive Drop in Orders in 2020, states VDMA
The German Machinery and Plant Manufacturers Association (VDMA) has recently revealed that new orders booked by members of the VDMA Large Industrial Plant Manufacturers´ Group (AGAB) in 2020 were 35 % below the previous year’s level however, industry players are optimistic that there will be an upswing in 2021.
Frankfurt/Germany – At 14 billion dollars (11.9 billion euros), new orders booked by members of the German Association VDMA Large Industrial Plant Manufacturers´ Group (AGAB) for 2020 were 35 per cent below the previous year's level (2019: 22 billion dollars (18.3 billion euros)). While the decline in the domestic market remained within the usual range, there were losses of over 40 per cent in exports. The pandemic-related postponement of investments primarily affected orders for new industrial plants and could not be compensated by demand for modernization and services.
The fact that companies were nevertheless able to hold their own in a shrinking market was due to the adaptability of their employees, the high innovative strength of the companies and business models that are based on a long-term approach. Backlogs of orders from economically successful years helped the companies to achieve sales that were on a par with the previous years´ level 19 billion dollars (16.3 billion euros). "This enabled our members to make necessary investments in the future competitiveness of the industry - for example, in the areas of digitization and sustainability - even during the crisis," says Jürgen Nowicki, AGAB spokesperson and CEO of Linde Engineering.
2020: Sharp Decline in Foreign Business
Domestic orders decreased by 9 per cent to 3.8 billion dollars (3.2 billion euros) in the reporting period (2019: 4.2 billion dollars (3.6 billion euros)). Positive impetus came from rising demand for chemical plants and power stations. In power plant construction, orders reached their highest level since 2014 at 1.3 billion dollars (1.1 billion euros) (2019: 1.1 billion dollars (1.0 billion euros)), triggered by several orders for the construction of new combined cycle power plants placed by customers from various industries.
On international markets there was a historical plunge in demand in 2020. Orders fell by 42 per cent to 10 billion dollars (8.6 billion euros) (2019: 17.3 billion dollars (14.7 billion euros), dropping to the level of 1989. By the exception of Eastern Europe, all regions were affected by this development to a similar extent. Capacity adjustments were therefore often unavoidable. Currently, VDMA's large-scale plant manufacturers employ 48,600 people at their headquarters in Germany and Austria, more than 5,000 persons less than in the previous year (2019: 53,800).
2021: Prospects for Higher Order Intake in Large-Scale Plant Construction
AGAB members are optimistic that there will be an upswing in 2021. More than 90 per cent of the companies expect orders to remain constant or even increase in the current year. This confidence is fed by several sources. The global economic recovery, a de-escalation of trade conflicts and various economic stimulus packages could provide impetus on the demand side. "In addition, with technologies for more sustainability, the large-scale plant engineering sector offers its customers precisely those solutions that are in high demand in the current market environment," Nowicki emphasizes. However, project execution is currently still hampered by movement restrictions and quarantine requirements. Many plant manufacturers therefore expect a gradual catch-up process that could last until 2023.
EU Must Safeguard Competitive Opportunities for European Companies
For years, the OECD has not been providing new practical answers to the continuing distortions of competition in export financing and the far-reaching changes in the global project business as the shaper of the politically desired level playing field - instead, the countries that do not belong to the OECD consensus, especially China, are setting the pace. Against this backdrop, the VDMA large plant engineering appeals to the common will of the EU to improve the competitive opportunities of European companies. Regarding the current discussion on European rules for sustainable financing, Nowicki emphasizes: "From the perspective of large-scale plant engineering, all technologies that meet the Paris environmental targets and contribute to emission reductions must be given access to sustainable financing and must be able to be flanked by export credit guarantees."
Large Plant Manufacturers are Enabling the Energy Transition
The plans of many countries to curb climate change and to use technologies to reduce energy and greenhouse gases to achieve this goal are becoming more and more concrete. "This opens up opportunities for large-scale plant engineering to place new offerings on the market and to enable our customers to produce in a resource-conserving and energy-efficient manner," emphasizes the AGAB spokesman.
For this purpose, large-scale plant engineering also supplies electrolyzers and major plants for producing hydrogen, which could play a central role in the power industry of the future. "As a prerequisite for the establishment of such a sustainable economic system, however, politicians must create reliable framework conditions - for example, for the expansion of renewable energies", Nowicki urges for swift action. Without the use of regenerative energies, no sector can make decisive contributions to climate protection. Nowicki: "Green hydrogen and the expansion of green energies are mutually dependent."
Pandemic Leads to a Digitization Push in Large-Scale Plant Construction
The covid crisis has changed customers' expectations of large-scale plant engineering. For example, the lockdowns associated with the pandemic have led to an increase in the importance of remote services. The need for transparency during the planning and execution of a project has also continued to grow. Plant manufacturers are responding to these new market requirements by digitizing their workflows and increasingly using virtual communication technologies.
In 2020, this trend was particularly evident in construction management, where new ways to become more productive and reduce health risks are being intensively sought. "Technologies such as robots and drones or virtual and augmented reality applications could play a more important role on construction sites in the future and support manual activities or even replace them completely," predicts Nowicki.