Metalworking Machinery

Jerry Galaszewski analyzes the metalworking machinery industry’s market trends and pricing and provides advice for lenders based on the short- and long-term outlook.

CURRENT TRENDS

  • Demand for new and used equipment significantly improved in 2021 and early 2022, a trend experts anticipate will continue in the near term.
  • Manufacturers have increased new equipment pricing and are experiencing extensive lead times.
  • End-user demand for late-model used machinery outmatches supply.
  • Supply chain issues and limited inventory drove higher costs, longer lead times and extended delivery times for new equipment, increasing used equipment values.

MARKET OUTLOOK

Supply chain, material, chip and labor issues resulted in long lead times for new equipment and helped boost used equipment values beginning in early 2021. Experts anticipate these trends will continue in the near-term while current events, including rising inflation and economic uncertainty, will also shape the marketplace.

CNC Equipment Market Showing Signs of Significant Improvement

Computerized Numerical Control (CNC) machines follow a coded, programmed instruction to process materials according to specifications without a manual operator. The used CNC equipment market tends to be cyclical relative to the performance of downstream markets.

Slowdowns or improvements in major industries like automotive, aerospace, and oil and gas have widespread effects across the metalworking manufacturing industry. Slowdowns depressed metalworking equipment values in 2019 and 2020 with decreases ranging from 10% to 30% year over year depending on the type and vintage of asset.

U.S. manufacturing technology orders rebounded in early 2021 despite some continued uncertainties, increasing 55% over 2020 and exceeding $5.9 billion for the year, a new record. The momentum continued into 2022 with January orders totalling over $436 million, the highest on record for the month of January and a sign of strength for the manufacturing technology market. Orders in February 2022 increased 27% year over year.[1]

U.S. Metalworking Machinery Manufacturers’ Shipments, Inventories & Orders

Source: U.S. Census Bureau

Increased activity and production in the oil and gas, automotive and aviation industries is boosting optimism in the market. As of April 29, 2022, the North American rig count was 793, representing a 61.5% increase over the same week in 2021 and a significant improvement from a trough of 278 rigs in June 2020, according to Baker Hughes.[2] West Texas Intermediate crude oil was approaching $114 per barrel in mid May 2022, a 74.5% increase from the same period in 2021.[3]

U.S. sales of new light vehicles totalled 14.93 million in 2021, representing an increase of 3.1% over 2020 sales of 14.47 million, according to the National Automobile Dealers Association (NADA). NADA projects a 3.4% year-over-year increase of new vehicle sales to 15.4 million in 2022 given the current momentum.[4]

Commercial airlines received 824[5] or about half of their projected new aircraft deliveries in 2020, marking the aviation industry’s worst year on record. For example, Boeing delivered 340 aircraft in 2021 compared with 157 in 2020 and 380 in 2019. Airbus delivered 611 aircraft in 2021, up from 566 shipments in 2020, but well below the company’s record high of 863 shipments in 2019.[6] The International Air Transport Association’s 2021 year-end report[7] suggests airlines may exceed 2019 totals with an estimated 1622 aircraft deliveries expected in 2022.

Experts anticipate global air travel demand will improve as travel restrictions and mandates lift and travel rates return to pre-pandemic levels. Airlines and the aviation industry will likely not return pre-pandemic levels in 2022, but Bain & Company increased its 2022 aviation demand recovery projection from 65% to 73% of 2019 levels following a strong first quarter with projected annual revenues of $432 billion to $488 billion[8].

VALUATION CONSIDERATIONS

Increased activity in oil and gas, automotive and aviation markets is driving rising technology orders and demand for quality production machinery and equipment for manufacturing and late-model CNC machine tools in particular.

Used equipment dealers and auctioneers have reported favorable market conditions for used equipment values since early 2021. Limited supply of late-model used equipment drove buyers to pay premiums for available machinery. Supply chain, materials, chip and labor issues resulted in long lead times for new equipment and helped boost used equipment values, and experts anticipate these factors will continue to positively affect values in the near term.

However, macro and microeconomic factors can significantly affect values within the cyclical CNC machinery and metalworking equipment market. Additionally, geopolitical events and inflation may pose challenges for the industry in 2022.

Gordon Brothers advises lenders to consider reappraising their asset portfolio in 2022 to adjust for changes in market conditions since 2020.

[1] https://www.amtonline.org/article/manufacturing-technology-orders-highest-in-two-decades-for-first-two-months

[2] https://rigcount.bakerhughes.com/na-rig-count

[3] https://oilprice.com/

[4] https://blog.nada.org/2022/01/11/nada-issues-analysis-of-2021-auto-sales-2022-sales-forecast/

[5] https://www.planespotters.net/special/deliveries-2020

[6] https://dsm.forecastinternational.com/wordpress/2022/01/18/airbus-and-boeing-report-q4-and-full-year-2021-commercial-aircraft-orders-and-deliveries/#:~:text=In%202021%2C%20Airbus
%20delivered%20611,of%20863%20shipments%20in%20201

[7] https://www.iata.org/en/iata-repository/publications/economic-reports/airline-industry-economic-
performance—october-2021—report/

[8] https://www.bain.com/insights/air-travel-forecast-when-will-airlines-recover-from-covid-19-interactive/

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