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FMA: CapEx Expected to Climb in 2020

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MCN Editor Dan Markham Service centers, fabricators and other metal users expect to spend more on capital equipment this year than they did in 2019, according to the 2020 Capital Spending Forecast from the Fabricators and Manufacturers Association. The organization released the report during an industry breakfast at November’s FABTECH event in Chicago.

FMA reports 46.6 percent of metal users expect to spend more in 2020 than 2019, while just 13.6 percent anticipate spending less this year. Altogether, metal companies expect to spend $2.77 billion in 2020, a slight uptick from the two previous years. 

Larger companies will help drive any spending sprees. Of the companies with 1,000 or more employees who responded to FMA’s survey, 63.6 percent expect to rack up higher cap ex totals this year. Conversely, just 44.5 percent of the companies with 1-19 employees, which represent 40.5 percent of all respondents, anticipate spending more.    

Most companies also expect to grow in terms of operations this year. Almost three-fifths of the companies anticipate higher operating levels this year, while only 8.8 percent anticipate business to slip, and a third of respondents expect business to be the same as in 2019. The largest companies are the most optimistic, with 72.7 percent expecting to grow in 2020. 

Of course, optimism at the end of the year is a hallmark of the FMA Survey. A year ago, 56.8 percent of respondents expected to spend more in 2019. In fact, the 13.6 percent who anticipate spending less this year is the highest figure reported in the past six years. 

What drives spending? As is usually the case, expenditures are the result of three primary motivating factors: to increase capacity, to reduce costs and to replace old equipment. These three drivers annually account for about 60 percent of the motivating factors, and the 2020 survey is no different. Increasing capacity, suggested by 21.3 percent of the respondents, was the most-cited reason for spending. 

Tighter quality, making vs. buying, machine/process flexibility and the introduction of new products/models account for the remaining motivators. 

New equipment purchases will once again be the rule, with 70 percent anticipating buying new vs. 19.5 percent used and 9.8 percent rebuilt. In the previous six years, new equipment purchases never represented less than 62 percent of expected spending, peaking at 87.4 percent in the 2018 report. 

Financing for cap ex will primarily be done through current cash flow, which represents 57.1 percent of the total. Working credit lines will be used by 27.1 percent of respondents, followed by loans at 11 percent and leases at just 4.7 percent. 

The biggest spenders this year are expected to be primary metal manufacturing companies, with an average spend of more than $1 million. The average service center company expects to spend $416,667 this year. 

Automation continues to grow in facilities. Respondents estimate that 27.8 percent of their spending will go toward automated systems/robots this year, a figure that has remained fairly consistent over the past four years. However, 37.9 percent of all companies expect the number of robots in their shop will increase in 2020, while just 0.7 percent expect that figure to come down. A third of all respondents still do not employ any robots, and will not do so in 2020. 

One strong trend in the annual survey is the increasing capacity levels inside most metalworking plants. The average plant was operating at 78.8 percent last year, just behind the 2018 figure, but well ahead of the mid-70s capacity rates reported at the start of the decade. The largest companies were operating at the highest utilization levels, with those firms with 1,000 or more employees reported capacity utilization rates of more than 83 percent. 

Not all spending will go toward saws, fabricating equipment and coil processing lines. Software spending increases in 2020 were anticipated by 38.9 percent of respondents, while just 9.8 percent expect spending less on the IT front this year. CAD/CAM and nesting spending represented 39 percent of spending, while ERP and MRP spending increases are anticipated by 24.9 percent of respondents. 

More than 500 companies, representing nine different types of metalworking companies, completed the FMA survey, which closed at the end of September.