ARC has recently published the latest version of its PLC study and it shows a positive picture for 2017 and 2018. 2017 was a year many have not seen coming to this extent. Though, we had predicted the industry dynamics right, we were partly surprised by the prolonged and excessive spending in many industries, in China as well as in parts of Europe. 2017 was the best year in terms of growth since 2011, which was characterized by the recovery from the financial crisis. The market grew by more than 10 percent year over year. This was pushed by the discrete industries, predominantly semiconductors and electronics, but most discrete markets have experienced double digit growth. 2018, this growth will continue but at a slower pace, before we expect a considerable slowdown in 2019.
Influence of the Process Industries
On the other side, there are the process industries. Most have not yet recovered from the slowdown, which started in 2015 and was caused by a slump in oil prices and the oversupply and consolidation in many other markets. Over the last quarters we have seen recovery in these sectors and we expect a positive 2018 and 2019 in many of these markets, counterbalancing the downturn in the discrete industries.
China and Europe drive the market
From a regional perspective, it was not only China, driving the world market, but also demand in Europe has proven to be strong. Thereby, demand for PLCs came not only from the roaring export business to China and emerging Asia, but also from internal demand in Europe. This was not only pushed by low interest rates and low commodity prices, but also indicates the starting re-shoring close to consumers to react quickly to market changes.
China itself is not only recovering from a few years of mediocre growth, but also moving into a new age of more automated, higher quality, more export-oriented manufacturing.
But the current outlook does not look that promising. We expect process industries to recover, but in some discrete markets (especially in machinery) there are clouds on the horizon. ARC has recently published its new data on machinery index and there are some worrisome indicators.
We still see year over year growth, but on a quarter to quarter basis, this is the third consecutive quarter with negative growth. In Q2, the growth rates in many individual machinery markets have fallen below the long run trend, indicating a slowdown. This pattern of slowdown is currently observed in mining machinery, compressors, food & beverage, converting, HVAC, Material handling, semiconductor, electronics, robotics, metal forming, and partly in metal cutting.
This will impact the PLC market negatively but is most likely counter balanced by growth in the process industries. We strongly believe that the bounce-back of the process industries will happen and most indicators point in this direction (for example Honeywell, Siemens, and other have reported strong incoming order figures for their process industry divisions).