Trends Affecting Forges in 2016 and Beyond

April 25, 2016 / , , , , , ,

As we reported in our 2016 Industrial Metal-Cutting Outlook, forging shops and other industrial metal-cutting companies entered the year fairly optimistic. Unfortunately, expansion in the industrial manufacturing sector has been slow moving. While current conditions have left many companies cautious, long-term forecasts point to better times ahead.

Positive Thinking
While not everyone anticipated huge growth in 2016, very few expected it to be worse. According to an annual industry survey from Forging Magazine, almost half (49.2%) of forgers entered the year with a positive outlook, while 41.5 percent expected 2016 to be “about the same.” Based on the survey results, aluminum forgers (61.1%) and impression-die forgers (62.5%) were the most optimistic about rising shipments in 2016.

Confidence was also seen in forgers’ spending plans for 2016. According to Forging, 53% of all survey respondents have plans in place to add new manufacturing equipment at their operations; for nearly 14% of these respondents, the investment will encompass new building construction, either an addition to a plant or a separate, new plant. However, for those forgers affirming capital spending plans, 47.6% indicate the value of their investments will be about equal to their 2015 totals—an indication that many companies may still be a little hesitant to make huge investments.

Confident but Cautious
Based on current data, that hesitation is founded. Monthly data on manufacturing activity has been up and down this year, leveling out to little or  no growth. According to the Manufacturers Alliance for Productivity and Innovation (MAPI), manufacturing industrial production will likely register zero growth in the first half of 2016, with 1% to 2% growth in the third and fourth quarters. For the entire year, the research firm forecasts only 1.1 % growth.

Still, forges have reason to keep their positive attitude. Short-term forecasts for the manufacturing industry may be grim, but the forging industry has historically shown an ability to outperform the broader trends. In addition, a recent uptick in manufacturing activity in March provides some hope. The monthly Purchasing Manufacturers’ Index (PMI) from the Institute for Supply Management (ISM) increased by 2.3 percentage points in March, putting the index above the 50-percent growth threshold for the first time in 2016.

Long-term prospects for forgers are also hopeful. According to a report from Zion Research, North America’s demand for the forging industry is expected to reach $15.4 billion in 2020, growing at a compound annual growth rate (CAGR) of 4.76% between 2015 and 2020. Global forecasts are even brighter. A report from TechNavio predicts that the global forging market will exhibit a healthy CAGR of around 8% between 2016 and 2020.

Tracking Trends
That’s not to say, however, that the industry doesn’t have some concerns. Based on Forging Magazine’s survey, forging producers expect to face the following challenges in 2016:

Like other industrial manufacturers, forges will have to approach the current market strategically by balancing internal improvements with external influences. According to the TechNavio report, there are four key trends forges should keep an eye on in 2016:

  1. Movements in Automotive. As the biggest end-user of forged parts, the automotive industry will continue to play a crucial role in boosting demand for forged products. However, the automotive segment is reaching a mature stage in the forging market, and the global economic slowdown has adversely affected its growth. As a result, sales of forged parts in this industry fell in 2015, compelling many vendors of the forging market to reduce their shares and investments in the automotive industry. Even so, the automotive sector is expected to grow at a CAGR of around 7% during the forecast period of 2016-2020.
  2. Expanding Business Opportunities. Recent trends suggest that major vendors are investing in R&D to explore avenues in the non-automotive sector to increase the market revenue. In fact, according to the report, “other non-automotive sectors will mostly contribute to the growth of the global forging market until 2020.” This includes sectors such as aerospace and defense, agriculture, construction, mining, general industrial equipment, and material handling. Some companies are also looking at fresh ways to approach the automotive market, including addressing the trend toward lightweight design.
  3. Technology Improvements. Following larger manufacturing trends, forges are looking to new technology to improve operations. “Vendors are developing new and improved die material interfaces and increasingly using new die designs and modeling software,” an analyst from the report’s research team said. “The market is also implementing controls and sensors to monitor the forging process in a bid to automatically sense and compensate for any variation in the process.”
  4. Growth in Asia-Pacific. The Asian and Pacific Coasts (APAC) region accounts for the largest share of the forging industry, contributing about 61% of the total revenue generated. The report expects the region to grow at a CAGR of around 9% between 2016 and 2020. “Increasing outsourcing of forging activities to low-cost countries in the region is expected to drive this regional market,” the report states. “Demand for infrastructural development in developing countries and the emergence of India as the manufacturing hub for the automotive industry will propel the growth of the market in this region.”