Machine Tool Demand Isn’t Just Raising The Roof, It’s Boring Through It

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The machine tool industry has posted terrific growth since the beginning of 2011, outstripping most other categories of equipment by comfortable margins. The question that springs readily to mind is why.

For those not in the know, machine tools are those machines that typically cut or deform metal and are used in the production of manufactured parts. Examples include milling machines, lathes, and et cetera. These kinds of machines and the components they make are widely used across the United States and the world, so demand has not gone away despite the recession and slow economy.

The growth over the last year has been pretty staggering. For July, new machine tool orders were up 7.3 percent from June to July. Incredibly, it was up 92% from last July. Holy gear shaper!

Jason Adler, a finance manager at Direct Capital who speaks with machine tool dealers and machine shops on a daily basis, was kind enough to  speak with us about the industry’s growth. He traced a brief history of the industry over the last three years, which we’ll dive into now.

Machine Tools 2009-2010

According to Adler, 2009 was a very rough year for the industry.

“Excess capacity and machine shops going out of business in 2009 bled those machines into available inventory, and unfortunately there were few end user buyers in (that year),” Adler said.

The sun came out in 2010, thanks to strong production gains and long factory lead times on new equipment. Adler said that drove a very strong 2010 for used equipment, and the used market thrived while the new market slowly ramped up.

“The used equipment dealers that were strong or large enough to buy the depressed value machines in 2009 had plenty of dry powder in 2010 to supply machines to ready buyers,” Adler said.

The stage was then set for 2011, when new equipment volume skyrocketed.

Why Is 2011 So Great?

As Adler put it, “the pendulum is now swinging the other way.”

Factory lead times are down, production demand isn’t as consistent as 2010 but has had enormous spikes and some of the used inventory has been snapped up thanks to 2010.

“Supply and demand are appearing more than ever,” he said.

Adler said he expects a strong fourth quarter for both new and used machine tool consumption, with factory lead times continuing to shorten. With the lessons of 2009 still fresh in many minds, few shops are going to bring in machines for anticipated growth, but they will aggressively pursue their current needs. The explosive growth may slow somewhat in the months ahead, but it will still continue to outstrip 2010 by a very wide margin.

Looking For Machine Tool Financing?

I’d be remiss if I didn’t mention that Direct Capital has a dedicated Machine Tool Finance Division that offers financing for customers purchasing new and used equipment and also helps sellers and distributors create financing programs to make their products more affordable for their customer.  If you have a need for machine tools, or your customers do, check out our programs and give us a call if we’re a good fit for your business.

What are your thoughts on the state of the machine tools industry?

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