At €18.3 billion, incoming orders booked in Germany by members of the VDMA Large Industrial Plant Manufacturers ́ Group (AGAB; Frankfurt am Main, Germany; www.vdma.org) in 2018 were 3% up on the previous year (2017: €17.8 billion). In a volatile environment characterized by strong price and competitive pressure as well as diverse political and economic uncertainties, VDMA large industrial plant engineering was thus able to record the first increase in its orders since 2013. This growth is attributable to solid export business and a number of mega orders for chemical plants. “In addition, we are seeing that the efforts being made by the plant engineering industry to open up new areas of business – such as services, digitization or plant operation – are increasingly paying off,” says Jürgen Nowicki, AGAB spokesman and managing director at Linde Engineering, commenting on current developments.
In 2018, the export ratio in large industrial plant manufacturing was 81%, and the order level rose from €14.0 billion (2017) to €14.8 billion (2018). Russia was the most important foreign market for VDMA large-scale plant construction due to several mega orders. In addition, high orders were reported from China, Hungary, the U.S. and Great Britain. There was also a significant recovery in demand in the Middle East, where bookings rose by 50% to €2.1 billion (2017: €1.4 billion).
Domestic bookings fell by 7% to €3.5 billion in 2018 (2017: €3.8 billion). The main reason for this was the persistently weak demand in the market for thermal power plants, which dropped to its lowest level in 15 years at around €500 million. In view of the foreseeable end of coal-fired power generation in Germany, this trend is likely to continue. On the other hand, business with modernization and services developed encouragingly with an increase of 42%.
The customer requirements in large-scale plant construction are becoming more extensive. In addition to the classic demands for high product quality, short project durations and low investment costs, the operating costs of a plant are now also being given greater weight in purchasing decisions. Many customers also want support in the financing of projects, in servicing their plants and in operating them. In addition, they increasingly expect digital services to be offered. The construction of large-scale plants proves the benefit of digital technologies with resilient key figures, because customers are only willing to pay a surcharge for these services if it can be proven that there is an economic added value.
The plans of many countries to mitigate climate change and use technologies to save energy and greenhouse gases are becoming more concrete. For AGAB- members as one of the leading suppliers of plants for minimizing environmentally relevant risks, these efforts will be the driver for new offers and services. Nowicki: “The industry will thus become a major trailblazer for the energy transition and a partner for industry in achieving global climate targets. Examples of the efficiency of VDMA’s large-scale plant manufacturing are plants for CO2-free energy generation, processes for recovering metals from electrical scrap and systems for removing pollutants from flue gas in order to reduce the environmental impact of emissions.
According to a recent VDMA-survey, market pressure in large-scale plant construction will continue to increase in the coming years. In this survey, China was identified for the first time as the most important competitor in large-scale plant engineering – ahead of Western Europe and the U.S. This is primarily the result of political support for plant engineering by the Chinese government. As part of its industrial policy strategy, the government is relying, among other things, on favorable financing conditions and the establishment of national champions that are expected to catch up with the industrialized countries within a few years.
“Against this background, the members of the VDMA Large Industrial Plant Manufacturers ́ Group need more than ever an international level playing field to keep pace with the far-reaching changes in the global project business,” AGAB- spokesman Nowicki stressed. The VDMA therefore welcomes the fact that intensive discussions are now being held on implementing a European industrial policy strategy and calls on the OECD-members to reform the consensus established 40 years ago, which sets the framework for foreign trade policy, in line with practical requirements.
The members of AGAB are optimistic about the future. According to a current VDMA survey, 60% of plant manufacturers expect orders to rise in the current year, while 20% expect bookings to remain constant. Customer demand is increasingly directed towards medium-sized construction projects as well as modernization and services. In the current market environment, there is less demand for mega plants. Nevertheless, there is also demand in this segment, for example in the Middle East, North Africa and South America. There, industrialization and electrification of entire regions could generate high orders in 2019.
Nevertheless, the volatility of the markets and the tremendous competitive pressure will continue. The large-scale plant construction sector is therefore working intensively on its own competitiveness. In addition to digitization, all efforts will focus on expanding the service business, modularization, global sourcing, strengthening technological leadership and the use of agile methods. Cooperation with partners within networks will also become more important in the coming years. “Especially when it comes to handling mega plants, expansion projects and service orders in parallel, such structures help to manage capacities in line with demand and create room to maneuver,” explains Nowicki.