ANALYSIS What the others said
Many of the background contributions we received had great validity and were, in some cases, rather more candid about the downside risks perceived in the coming year. Here is a summary of these thoughts.
V
irtually every respondent reported that the first half of 2011, and in many cases the whole year, commercially successful, although several noted the importance of factoring out price inflation in assessing the real
commercial achievement. Construction represented the most challenging sector, notably
in Spain but across most of Europe to a lesser or greater degree. That said, several respondents felt sales held up better than anticipated given the conditions in the sector. Fastener suppliers to the majority of other industrial sectors benefitted substantially from more rapid than anticipated demand recovery. The stainless steel market has clearly been more challenging,
impacted by the effect of depressed nickel prices on existing inventory and aggressive competition across Europe at prices described as “unrealistic at the least and probably unsustainable”. The rapid downturn in the German solar market also impacted stainless steel fasteners, although “incredibly low demand” was said to have picked up towards the end of 2011. Perceptions about anti-dumping measures were, not
surprisingly, mixed. Importers saw the extension of duties to Malaysia creating further shifts in supply. There was criticism of the EU circumvention mechanism, in applying duties retrospectively on what were, pre-investigation, legitimate imports. On the other hand there was some evidence of repatriation of
standard fastener production to Europe and that anti-dumping measures had protected vital European manufacturing resources from the ravages of the Chinese fastener industry. Several European manufacturers referred to shorter term benefits during 2010 as user demand and cautious inventory investment outstripped stretched Asian supply chains creating shortages. In to 2011, however, the focus of most of European manufacturers appears to have turned to the higher added value production opportunities available in a buoyant market as opposed to significant investment in additional capacity to meet standards demand. There was general consensus that the cost differentials between Asian and European production had closed. The dramatic events in Thailand and Japan had little direct
impact on European fastener supplier chains, with the exception of one stainless steel fastener factory, which was inundated. Far more significant, though, was the impact on fastener demand from OEMs unable to source other critical components in order to sustain assembly and production operations. These events do appear to have increased awareness of the
total cost of acquisition of products and the risks associated with extended supply chains. There is, though, an underlying scepticism that users will maintain this awareness faced with aggressively competitive consumer and industrial markets in 2012. On the upside several respondents commented on limited evidence of reshoring of production amongst OEMs and an increased value attached to the security of local supply. For European manufacturers raw material inflation and
volatility were a recurrent theme inflicting, as one respondent put it, a heavy burden on margins. In addition to commenting on some recognition of the security advantages of more localised
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supply, several manufacturers as well as some distributors, emphasised the critical importance to OEMs of accurate, reliable parts to assure against stoppages of automatic production systems. Several respondents took the point further, saying that OEMs were actively seeking production efficiencies and economies through more effective fastener design and specification. “Reduction of assembly costs,” said one, “will move up the agenda during 2012 with more emphasis on speed and efficiency of automation”. Assured accuracy, and also material quality, was seen as a crucial differentiator for European manufacturers across a diverse range of fastening technologies. The Eurozone crises dominate almost all considerations of
the 2012 outlook, with a widespread consensus that its impact suggests, at best, nil growth and probable downturn in fastener demand. Some respondents already detect the effect of near- term uncertainty with “prices and demand going down, and margins getting smaller and smaller” – a development expected to continue, if not exacerbate, in the first months of 2012. On the other hand several fastener companies expressed
confidence about the lessons learnt individually from 2008/2009 in exercising “sensible business controls” and being alert and capable of reacting rapidly to significant market changes. Many also, it would seem, feel that competitors may not be so prepared and that a sustained downturn would, this time, result in significant market consolidation. Not surprisingly the recognition of cash control is paramount
but there is also a firm belief, if not accompanied by high levels of actual confidence, that margins must be maintained for fastener businesses to survive and prosper. Relatively small devaluations in product value and erosion of margins could translate into major and survival critical bottom line performance drops. “Not a pretty picture” one respondent noted, counseling that protecting margins both now and in the longer term is in the best interest of all companies in the fastener industry. “History, however,” he also acknowledges, “suggests this is not how our industry behaves”. A perhaps significant counterpoint identified by another
respondent is the level of investment now required to substantially improve logistics systems in the fastener industry - on one hand to deal with increased levels of supply chain volatility and on the other meeting constantly ratcheting service requirements from industrial users. Advances in these systems now, he says, require major investment programmes with associated high levels of financial risk.
So what do you think? Are there other considerations our survey has not highlighted? Are there viewpoints you believe need challenging – or reinforcing. If you would like to make your views known in our next issue, email
editor@fastenerandfixing.com
Fastener + Fixing Magazine • Issue 73 January 2012
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