VDMA large industrial plant engineering grows in a volatile environment

Incoming orders for large-scale plant construction rose in 2018 for the first time in five years. Orders are expected to rise in the current year. The volatility of the sales markets and the high competitive pressure will continue.

At 18.3 billion euros, incoming orders booked in Germany by members of the VDMA Large Industrial Plant Manufacturers´ Group (AGAB) in 2018 were 3 percent up on the previous year (2017: 17.8 billion euros). In a volatile environment characterized by strong price and competitive pressure as well as diverse political and economic uncertainties, VDMA large industrial plant engineering was thus able to record the first increase in its orders since 2013. This growth is attributable to solid export business and a number of mega orders for chemical plants. "In addition, we are seeing that the efforts being made by the plant engineering industry to open up new areas of business - such as services, digitization or plant operation - are increasingly paying off," says Jürgen Nowicki, AGAB spokesman and Managing Director at Linde Engineering, commenting on current developments.

In 2018, the export ratio in large industrial plant manufacturing was 81 percent, and the order level rose from 14.0 billion euros (2017) to 14.8 billion euros. Russia was the most important foreign market for VDMA large-scale plant construction due to several mega orders. In addition, high orders were reported from China, Hungary, the USA and Great Britain. There was also a significant recovery in demand in the Middle East, where bookings rose by 50 percent to 2.1 billion euros (2017: 1.4 billion euros).

Domestic bookings fell by 7 percent to 3.5 billion euros in 2018 (2017: 3.8 billion euros). The main reason for this was the persistently weak demand in the market for thermal power plants, which dropped to its lowest level in 15 years at around 500 million euros. In view of the foreseeable end of coal-fired power generation in Germany, this trend is likely to continue. On the other hand, business with modernization and services developed encouragingly with an increase of 42 percent.

According to a recent VDMA-survey, market pressure in large-scale plant construction will continue to increase in the coming years. In this survey, China was identified for the first time as the most important competitor in large-scale plant engineering - ahead of Western Europe and the USA. This is primarily the result of political support for plant engineering by the Chinese government. As part of its industrial policy strategy, the government is relying, among other things, on favorable financing conditions and the establishment of national champions that are expected to catch up with the industrialized countries within a few years.

The members of AGAB are optimistic about the future. According to a current VDMA-survey, 60 percent of plant manufacturers expect orders to rise in the current year, while 20 percent expect bookings to remain constant. Customer demand is increasingly directed towards medium-sized construction projects as well as modernization and services. In the current market environment, there is less demand for mega plants. Nevertheless, there is also demand in this segment, for example in the Middle East, North Africa and South America. There, industrialization and electrification of entire regions could generate high orders in 2019.

Nevertheless, the volatility of the markets and the tremendous competitive pressure will continue. The large-scale plant construction sector is therefore working intensively on its own competitiveness. In addition to digitization, all efforts will focus on expanding the service business, modularization, global sourcing, strengthening technological leadership and the use of agile methods. Cooperation with partners within networks will also become more important in the coming years. "Especially when it comes to handling mega plants, expansion projects and service orders in parallel, such structures help to manage capacities in line with demand and create room to maneuver," explains Nowicki.