Fabricators to Spend Big in 2013
In its annual cap ex survey, the Fabricators & Manufacturers Association reports that the nation’s fabricators spent about 4 percent more on metal processing equipment in 2012 and will spend even more next year.
Editor's note: The following article by FMA Senior Editor Tim Heston is excerpted from the November 2012 issue of The Fabricator. To purchase the complete 2013 Capital Spending Forecast, visit www.fmanet.org/store or call 888-394-4362.
Despite the lingering economic uncertainties following last month’s election, fabricators are opening their wallets for capital equipment. According to the 2013 Capital Spending Forecast, published by the Fabricators & Manufacturers Association, International, Rockford, Ill., U.S. metal fabricators—one of the service center industry’s largest markets—spent an estimated $2.2 billion on new metal processing equipment in 2012, about 4 percent more than last year. The total, extrapolated from a statistical sample of U.S. fabricators, is just shy of pre-recession levels.
Capital spending levels among this large customer group should give service centers a sense of how much fabricators are likely to spend next year on raw materials to employ this new equipment. Logic would suggest that the larger their equipment investment, the more metal they anticipate processing. It also gives service centers an opportunity to compare their own capital spending plans to other processors in the supply chain.
Which plants are growing?
Small companies have always made up a significant part of this business. Although individual company spending is small relative to larger players, taken together, fabricators with fewer than 50 employees account for a quarter of all equipment spending nationwide. And spending at the smallest companies continues to trend upward. Companies with 1 to 19 employees predict 2013 spending will top their 2010 forecast by more than 200 percent. (Those projections were understandably low, considering they were made in 2009, which for many was the trough of the recession.)
Not every fabricator is spending so aggressively. The largest fabricators in the survey, with 1,000 employees or more, decreased spending predictions by 7 percent, on average. For the first time since the survey has tracked these numbers, predicted spending by companies with 500 to 999 employees shot past their larger cousins. In this category, predicted spending has more than doubled from last year and more than tripled since the recession. Fabricators with 250 to 499 employees also increased their projected spending significantly, 34 percent over last year (see Figure 1).
All this may reflect a trend of consolidation, at least in some local markets. During the recession and the ensuing recovery, stronger fabricators took market share away from weaker players. Customers began to concentrate their business with fewer suppliers. This trend of more work being sent to fewer companies may help explain current spending trends in capital equipment. Companies with 500 to 999 employees not only have the highest spending projections, but they’re also operating at the highest capacity utilization levels.
The geography of spending
Not only has spending increased substantially at these larger (but not the largest) plants, but the money spent has also become more concentrated. The Midwest always has been a metal fabrication center, and it’s becoming even more so.
Rounding out the top five states are Michigan, Ohio, Wisconsin, Illinois, and Texas—no surprises there. What is somewhat surprising is just how much equipment spending is expected to occur in these states. Metal fabrication plants in these top five states make up 48.4 percent of total projected spending for the entire country. That’s a higher geographic concentration of spending than projected in any FMA capital spending survey in the past seven years. Still, while equipment spending in pure dollar terms has become more geographically concentrated, actual metal fabrication plants have become less concentrated. In 2007, a little less than 40 percent of all metal fabrication plants in the survey were in just five states. Today that number has decreased to 34.8 percent (see Figure 2).
All this may imply several significant shifts in the industry landscape. First, when it comes to capital spending—both in terms of dollars spent and number of metal fabrication plants—Michigan is ruling the roost, perhaps a testament to the automotive industry’s resurgence.
Second, operations that are spending the most are concentrated in fewer states. After the recession, stronger players have grown in these markets, while the weaker players have fallen away. Today a local market may have fewer metal fabrication plants, but collectively they’re spending more. Consider Michigan again. The state has only 7.8 percent of all metal fabrication plants in the study, but they account for almost 15 percent of all dollars spent on capital equipment nationwide.
Third, capital spending growth is concentrated at small companies and at larger operations—but not at the largest operations. This may hint at an outsourcing trend, with large OEMs outsourcing more metal fabrication work to reliable, top-performing contract fabricators (including some service centers). Larger top performers may have the scale and capacity to satisfy demand, while the smallest top performers can quickly turn around low volumes of specialized work.
What are fabricators buying?
As always, welding power sources top the list, but what comes after that gets intriguing. Fabricators expect to spend more than $224 million on laser cutting systems, the largest amount in six years. So is the amount for turret punch press spending, up almost 25 percent over last year’s forecast. Plasma cutting machine spending is projected to be more than 40 percent higher than last year, and projected waterjet machine spending is up nearly 20 percent. Of all spending on primary cutting equipment, only oxyfuel cutting is down from last year (see Figure 3).
Overall spending projections increased only 4 percent over last year, so massive gains in some product categories were offset by declines in others. Most significant is that after falling by almost 50 percent during the recession, total projected spending by the nation’s fabricators has bounced back almost to its pre-recession high.
For this survey, a random sample of 24,122 FMA Communications subscribers were sent questionnaires this fall, and a total of 1,451 completed surveys were received. Questionnaires were sent with a unique URL that was used to match demographic information with each respondent. FMA Communications used an algorithm to turn the raw data into projections.