The new orders booked by the members of the VDMA Large Industrial Plant Manufacturers‘ Group group (AGAB; Frankfurt am Main; Germany; www.vdma.org) in 2019 were stable at the previous year’s level of €18.3 billion. This means that the companies were able to hold their own in a volatile market environment characterized by strong price and competitive pressure as well as various political and economic uncertainties.
It was particularly pleasing that the members of the AGAB 2019 were able to book significantly more major orders than in the previous year. In these mostly turnkey EPC (engineering, procurement, construction) projects, the construction, operation and maintenance of the plants play an increasingly important role in addition to planning. “By providing such comprehensive service packages, VDMA’s Large Plant Engineering Division is underlining its leading position as a provider of complete solutions covering the entire plant life cycle,” said Jürgen Nowicki, spokesman for AGAB and senior Vice president & CFO of Linde Engineering, in assessing the development of the past year.
U.S. the most important market in 2019
The importance of foreign business in large-scale plant construction remains high. In 2019, the export ratio was 81%, as in the previous year, and the order level reached €14.7 billion (2018: €14.8 billion). The U.S. was the most important foreign market for the VDMA’s large-scale plant engineering companies (€1.5 billion) due to several major orders for metallurgical plants. In addition, bookings worth at least €1 billion were reported from Russia, China and Singapore. Orders for major projects, such as a pumped storage power plant, a paper mill and a large gas-fired power plant were also received from Australia, Sweden and Brazil. By contrast, demand for large-scale plants in the Middle East fell to its lowest level in 17 years.
Rising demand for power plant technology in Germany
Domestic orders in 2019 rose by 2% to €3.6 billion (2018: €3.5 billion). The development in the market for thermal power plants was remarkable: new orders rose by 83% to €1.0 billion (2018: €547 million). However, major orders did not play a significant role; instead, the focus was on modernization projects and services. Nowicki: “In view of the foreseeable end of nuclear energy and coal-fired power generation in Germany, it is unlikely that this upswing could continue in the coming years.”
Politics must increase the proportion of local costs that can be covered!
More than ever before, the companies of the VDMA’s Large Industrial Plant Manufacturers` Group need a fair political framework — both nationally and internationally — that keeps pace with the far-reaching changes in the global project business. “We therefore appeal to the OECD members to rapidly increase the currently eligible share of local costs to 50% of the total volume of an export order”, emphasizes the AGAB spokesman. German policymakers should also adapt the tax policy framework to the changed realities and therefore above all further reduce the risk of double taxation.
Large plant construction meets comprehensive customer expectations
Customer requirements in the field of large-scale plant construction are becoming more complex. In addition to the classic expectations of high product quality, short project durations and low investment costs, many investors are articulating their need for high transparency throughout the entire life cycle of a plant more and more clearly. Many customers also want support in financing projects, servicing their plants and operating them.
The responsibility of the plant engineering and construction sector for the health and safety of employees and environmental protection is also becoming increasingly important as a result of rising customer demands. The implementation of management systems describing the development of accidents is often a prerequisite for being able to participate in a tendering process in large-scale plant construction at all. “The VDMA and its member companies see the continuous improvement of occupational health and safety as an important corporate and social task and have already built up comprehensive expertise in this field,” explains Nowicki
Pioneer of sustainable industrial production
The plans of many countries to curb climate change by using technologies to save energy and greenhouse gases are becoming more concrete. These efforts are opening up opportunities for the VDMA’s large-scale plant engineering and construction division to place new products on the market. Nowicki: “With its environmental engineering expertise, the industry is a pioneer of the energy turnaround and a central partner of industry in achieving global climate targets”. Examples of the efficiency of VDMA’s large-scale plant construction are plants for CO2-free energy generation, processes for recycling metals or plastics and systems for avoiding emissions.
In addition, large-scale plant construction supplies plants for the production of hydrogen, which could play a central role in the energy industry of the future as an electricity storage medium and energy carrier. “As a prerequisite for the establishment of such a sustainable system, however, politicians must quickly create reliable framework conditions — for example, for the further expansion of wind power — on the basis of which companies can develop economically viable business models,” the AGAB spokesman urges swift action. Without the use of renewable energies, no sector can make a decisive contribution to climate protection: “Green” hydrogen and the expansion of renewable energies are mutually dependent.
High uncertainties due to corona pandemic and falling oil price
The rampant corona pandemic and the current oil price shock are leading to extreme uncertainty in the markets for large-scale plant construction. The short to medium-term prospects for the industry cannot therefore be reliably predicted. At the present time, a decline in incoming orders in 2020 appears inevitable. Even a slump in orders such as during the 2009 financial crisis cannot be ruled out. “The large-scale plant construction industry is responding to these challenges with agility and flexibility. The members of our association are thus ensuring that important functions such as procurement and construction site organizations and engineering remain operational in the interests of customers,” assures AGAB spokesman Nowicki.
Source: VDMA, AGAB
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