Construction machinery manufacturers are increasing their output in 2017

Machine manufacturers foresee that better market conditions will stimulate machinery sales. But what does this mean for Singapore?

Various Japanese construction machinery manufacturers are working to raise output efficiency ahead of a predicted rise in demand in Asia.

According to the Japan Construction Equipment Manufacturers Association, Japanese manufacturers enjoyed a 3.4% shipment growth in December 2016. This growth was supported by positive signs in China, as well as across Asia.

The renewed confidence in the global market is partly motivated by a recovery in Chinese demand, robust infrastructure spending in Asia, and a dip in resource prices.

Is this newfound confidence justified? To understand this, we need to take a step back, and look at the previous years.

China’s slowing growth

Up until 2010, China was growing at break-neck speeds, with more construction projects than one could keep track of. A growing economy would have a thriving construction sector. In 2010 alone, China spent more than $1,000bn on construction.

A thriving construction sector also meant that construction machinery were needed for the many projects available. Chinese demand for machine skyrocketed, and this created a ripple effect throughout the world, as everyone benefited from China’s growth.

However, since recording its last double-digit growth (10.4%) in 2010, the Chinese economy has effectively decelerated 30% in five years. Most of the slowdown occurred in 2011 and 2012 when reported growth was 9.3% and 7.7%, respectively.

With this deceleration, similar ripples reached out into the construction sector, starting first with a drop in Chinese demand for construction machinery. This slowdown from China also affected the rest of the world.

Global demand for construction machinery was at a record high in 2011, and the industry has struggled to maintain the numbers ever since.
“We have shifted our view of China from a growing market to a mature market.” said Kobe Steel’s Executive Vice President Naoto Umehara.

While China was once a gold-mine for machinery suppliers, the drop in Chinese demand has forced suppliers such as Kobelco Construction Machinery to undergo restructuring, and to re-establish themselves in other markets such as Southeast Asia.

Southeast Asia, the growing market

Southeast Asia has enjoyed strong economic growth of late, which has attracted a variety of machinery suppliers to compete in the regional market. The region was identified for its potential for significant economic growth (BCA, 2014).

Both Kobelco Construction Machinery and Hitachi Construction Machinery are also increasing output in their India-based factories, which will serve local and neighbouring demand for machinery.

In order to deal with the global downturn, Sumitomo Construction Machinery Group (SCM) adjusted its business strategy and shifted its focus to the growing markets of Thailand, Indonesia, Myanmar, Malaysia, and India.

“In Thailand, sales of Sumitomo excavators increased significantly to about 820 units last year, and are expected to reach 1,000 units this year. Over the next three years, a further 600 excavators are expected to be sold in the country, which is SCM’s fastest growing market in the region.
… The Thai market [has] strong potential for the expansion of construction machinery into neighbouring Indochina market. Individual contractors in Thailand have gained much construction work in Laos and Myanmar. From a logistics point of view, Thailand also serves as a hub for used machinery in the Indochina region.”
From Sumitomo banks on rising demand for building machinery in SE Asia by Kwanchai Rungfapaisarn for The Nation [link]

With a very promising forecast for the Southeast Asian region in 2017, machinery suppliers are already increasing machinery output to generate profits in the next fiscal year, which starts in April.

Machine manufacturers, especially between Chinese and Japanese manufacturers, will compete fiercely along cost and quality considerations.

How this will impact Singapore’s construction equipment market

Even without directly purchasing first-hand construction equipment, contractors can still benefit from the increased machinery sales in the region, as it will influence the market for the resale of second-hand equipment.

The entire construction machinery market (for new/second-hand machinery/rental) will become more competitive, to the benefit of all buyers.

Countries with a surplus of construction equipment will be seeking to sell it off to other countries. Buyers of these secondhand equipment could either be contractors (for their own project purposes), or re-sellers who could then choose to sell or rent these machines out to contractors.

For contractors seeking to update their construction machinery fleet, this would be a perfect opportunity, as secondhand equipment will likely to be priced competitively to get fast sales.

A sharp increase in purchase of new machinery will also affect the market for equipment spare parts, especially that of older models. Hence, the spare parts required for such secondhand equipment may be more affordable. At the same time, there is also a risk of spare parts being no longer in production. It would be best to conduct research on the model and manufacturer before making the purchase.

Finding the ideal machine, at the ideal price

Everyone wants the ideal machines that will fit the precise needs of their company. The challenge lies in getting the right information, at the right time. Value-for-money offers will be snapped up very fast, and relying on your immediate network of contacts may not be the most efficient means of finding out the best machinery deals in a timely fashion.

Conventional procurement methods are just too slow for securing the best offers. At the end of the day, you are limited by the size of your network.

Imagine an online marketplace for construction machinery where you can access all of the latest equipment for sale or rental in the region. You will be able to prioritise the most ideal offers, and contact the other party directly online. With a single click, you could potentially access listings from across Southeast Asia.

Would such a platform enhance your procurement process?