If capital outlays on heavy equipment are one sign of a healthy metals industry, 2018 could be shaping up as a very good year.
The Fabricators and Manufacturers Association surveyed its members about their capital spending plans for 2018. More than 400 companies responded. FMA released the results of the survey during an Economic Outlook breakfast during the November FABTECH event at McCormick Place in Chicago.
Respondents to the survey projected significant gains in spending compared with their forecasts for recent years. The respondents projected spending of $2.76 billion in 2017, a 20.6 percent increase compared with the previous year. Fabricators had predicted relatively flat spending levels from 2015-17.
The increases were seen across the board, with the largest gains expected in laser cutting equipment, up 40 percent to $262.4 million; plasma cutting machines, up 26 percent to $149.7 million; and welding consumables and power supplies, up 16.2 percent to $527.2 million.
Coil processing equipment spending was also expected to grow significantly in 2018, FMA reports. Accumulator purchases were expected to grow 145.4 percent, cut-to-length purchases were projected to increase 18.1 percent and leveling equipment spending was predicted to grow 14.3 percent. Slitting equipment was the only major coil processing equipment projected to see declines by the respondents.
The largest companies reported the biggest increases, with firms of 500 employees or more projecting four times more spending than 2016. Companies with fewer than 500 employees projected relatively flat spending next year.
The reasons companies are seeking out new equipment vary, with capacity increases and replacing old equipment serving as the most prominent explanations for purchases. Cost reduction was also a significant reason behind a new purchase. The desire for tighter quality, the ability to make vs. buy, improved machine/process flexibility, and the appeal of new products and models were also cited as reasons.
The desire to increase capacity is consistent with current utilization rates. In 2017, the average plant capacity among the respondents was 78.1 percent, 3.6 percentage points higher than 2016 and the highest figure in the last seven years. The average capacity utilization rate was just 75.1 percent in that time frame. For 2018, all but the smallest of firms, those with fewer than 20 employees, reported utilization rates at 78 percent or above.
Moreover, capacity utilization levels are expected to increase in 2018. More than 67 percent of respondents believe operating levels will increase next year, while fewer than 5 percent anticipate a decline in business. The number of firms anticipating increased operating levels next year represents the highest total in the last half-dozen forecasts.
New equipment will represent 87.4 percent of new purchases, a dramatic increase from previous years. New equipment purchases represented just 70.5 percent of anticipated new purchases last year, and were in the 60 percent range from 2013-16. Used equipment spending has fallen from roughly a quarter of expected spending to less than 2 percent next year. Rebuilt equipment spending forecasts has remained fairly consistent from year to year, in the 10 percent range.
The survey shows the move toward automation continues, particularly at the largest companies. Firms with more than 1,000 employees say 38 percent of spending in 2018 will go toward automated systems/robots, a figure that drops consistently as companies get smaller. Among companies with fewer than 20 employees, only 11.9 percent of spending is expected to go toward automation.
While fabricators and manufacturers represented the overwhelming majority of respondents to the survey, there was some service center participation as well. The average service center company expects to spend an estimated $1.18 million in 2017. Service centers reported capacity utilization rates of 74.7 percent in 2017.