Metalworking Machinery & Equipment
Date March 2019
- Demand is currently steady for new and used equipment
- Manufacturers are limiting new equipment discounts
- Buyers of name-brand, late-model used equipment have been aggressive at auction
By the Numbers
Versatile equipment typically widely marketable: The metalworking manufacturing industry is diverse and covers a wide spectrum of smaller industry segments and asset types. At 30 percent, special tool, die, jig, and fixture manufacturing is the largest segment in the industry, followed by industrial mold manufacturing at 21.1 percent, and metal cutting and machine forming machinery at 21 percent, all of which are primarily composed of Computer Numerical Control (CNC) machine and fabrication shops. Machine shops are this industry’s largest market, which is driven by the performance of downstream markets such as automotive, aerospace, oil and gas, construction, agriculture, and mining. Asset groups commonly found in CNC machine and fabrication shops include machining centers, turning centers, laser cutters, punch presses, roll formers, turret punches, press brakes, and shears. Lending institutions often have clients in these market segments, and asset-based lending is commonly predicated on these types of assets because of the versatility and historically wide marketability of the equipment.
As of December 2018, there were over 6,200 businesses in the U.S. metalworking machinery manufacturing industry representing an annualized decrease of 0.6 percent over the past five years. The decrease is a result of continued competition from affordable imports and domestic manufacturers’ efforts to relocate abroad. Many businesses in this industry have a machine shop department, fabrication department, or maintenance department, all of which utilize different types of metalworking equipment. The metalworking industry is very broad; however, the equipment used in the industry is relatively standard and typically universal across smaller market segments. As a result, on an overall basis, these asset groups have historically tended to be easily salable, and the market for used equipment is relatively stable.
Cyclical CNC equipment market improving: The used CNC equipment market is highly cyclical. Looking back, the used market for metalworking equipment was excellent from 2011 through 2013. This period represented a three-year wave of very strong value and sales for both the new and used equipment markets following the recession. Significant demand for all asset categories mentioned above was experienced across the industry. From 2011 to 2013, original equipment manufacturers (OEMs) had extensive lead times of more than six months and up to two years for new equipment, which drove prices up. Consequently, end users could not wait for production of new equipment and were willing to pay a premium for used assets.
From 2013 through 2016, there was significant pull-back by end users and dealers in purchasing both new and used metalworking equipment, specifically in the CNC market. Demand from end users decreased as industry capacity was met from 2011 through 2013. Starting in 2014, as OEMs caught up with demand for new equipment, lead times were reduced, inventory increased, and prices declined.
Total machine tool order sales for 2018 were $5.5 billion, representing a 19 percent increase from 2017 totals. The key leading indicators for the manufacturing technology market are currently positive and suggest a healthy marketplace domestically. Analysts are predicting continued to modest growth in tool orders and revenue in 2019 but at the same time are keeping watch of other market indicators such as trade policy and slower markets abroad, which have the potential to negatively impact the domestic industry down the road.
In the meantime, as a result of a turnaround in the industry, market participants in both new and used machinery sales have reported improved conditions since early to mid 2017. To an extent, current conditions in 2019 show patterns similar to the marketplace from 2011 through 2013. Once again, OEMs have been hesitant to ramp up production; thus excess inventories have been depleted, reducing the level of incentives and discounts on new equipment. Because of manufacturers’ reluctance to build up inventory, in many instances, lead times for new equipment is several months out, which has ultimately increased values for new equipment.
Additionally, the current limited amount of quality CNC equipment available in the used marketplace has contributed to the increase in value for name-brand late-model machine tools. More specifically, late 2000s vintage and newer machinery should sell for values more commensurate with their age and condition, while mid 2000s vintage and older machinery will continue to be more difficult to sell. Buyers have once again become more aggressive at auction in recent years and market contacts have indicated steady inquiries for new and late-model used machinery in good condition.
Since 2017, the market for new and used equipment has improved and stabilized. Market indicators such as the increase of machine tool orders in recent years suggest a correlation with new and used equipment values, which typically tend to follow suit. Lenders who have not updated the values of metalworking equipment over the past 24 months may consider a new appraisal that reflects current market conditions.
Machine specifications and origin critical to value: Dealers and end users typically prefer Japanese-, German- and U.S.-manufactured metalworking equipment. These countries tend to be on the leading edge of technology with the most advanced control interfaces. In addition, manufacturers in these countries are known for the ease of operability, superior performance, quality of manufacturing, and service availability associated with the metalworking equipment they manufacture. As a result, metalworking equipment manufactured in each of these countries tends to hold its value better than equipment manufactured elsewhere.