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Credit Markets Key To Machine Tools Recovery

Hit hard by the recession, the machine tools industry is starting to recover, but needs credit markets to improve for growth to accelerate.

June/July 10
(page 2 of 2)
A Slow Recovery
The manufacturing industry will see a slow recovery for the remainder of 2010 into 2011. "It can't stay down forever," Borden says. Inventories are being replenished, the auto industry is reviving, aerospace is improving, and manufacturing's capacity utilization stands at upwards of 70 percent. Borden anticipates up to a 10 percent increase in customer orders for 2010, and continuing slow increases in 2011. "People are starting up machines again, and that's going to help us," he says.

Meanwhile, McGibbon expects up to a 7 percent increase in customer orders in 2010, and a 20 percent or higher increase in 2011. Inventory replenishment is growing more guardedly. "Manufacturers remain cautious and costs of raw materials make building inventories more expensive than in the past," McGibbon says.

But the recession's effects still linger for some machine toolers. Alan Lockery, president of machine tool manufacturer Able Machine Tool Sales in Agawam, Massachusetts, says people in his high tech Eastern markets are "just scared."

"The last thing they want to do is sign up for a long-term commitment on machine tools," Lockery says. "What manufacturers are doing is putting on second shifts to double capacity versus buying new machinery." Lockery's April and May orders were down by about 15 percent, but he expects improvement later in the year.

Jim Addy, president of machine tool distributor Addy Machinery Company in Clinton Township and Grand Rapids, Michigan, says his markets are not out of the woods yet. He looks for gradual improvement in 2010, but says the market will be flat compared to 2007 and 2008. "I don't see us selling our way out of this recession anytime soon," Addy says. "Our industry won't thrive until the credit markets clean up their act."

Roger Goff, general manager of machine tool manufacturer Milltronics in Waconia, Minnesota, takes an optimistic view. "Demand is picking up now for the first time in 18 months as our manufacturer customers rebuild their inventories," he says. "The other aspect is that our suppliers need more lead time to fill their orders to us and are doing it with reduced staffs, which puts more pressure on them." Goff expects the market to stabilize and continue to grow in 2011, "but whether that gets us back to previous norms is a question," he says.

Future Growth
Different segments of the machine tool industry are expected to grow in the coming years. Multi-process machines and "smart" machines that operated unattended by sensor controls will gain popularity, according to Borden. "There's some unbelievable technology going on out there now," he says.

High accuracy machines in the nanotech sector, fiber-based lasers, multi-tasking machines, five-axis milling and waterjet cutting units comprise McGibbon's predictions for growth. Flexible solutions for machine tools will be a key trend. "Customers are looking for flexible, innovative and integrated technologies," McGibbon says. "They want turnkey solutions rather than piecing their production floors together themselves."

Despite the rosy outlook, the financial front presents a bleak scenario for many machine toolers. AMT reports that a third of its members have lost lines of credit as lenders pull back. "For the most part, this has been a result of general tightening in lending standards," McGibbon says. "It has been a problem for all borrowers, even those with the best of credit."

While banks have become more conservative with the objective of keeping their reserves, Borden sees some light at the end of the tunnel. "Credit's still tight, but there's been some loosening," he says. "It's starting to ease up."

To fully spur recovery into 2011, the industry needs those credit lines to open.

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