GRUNDFOS MACHINING INDUSTRY

ISSUE 6, 2014 - OCTOBER

UPDATE ON THE ECONOMIC SITUATION AND DEVELOPMENT IN SELECTED SECTORS

JAPANESE MARKET HIGH: NO SHORTCUT TO SUCCESS

bethinkinnovate

1

4

7

2

5

8

3

6

2

3

4-10

Fig. 1, Economic Expectations for Key Countries and Industry Sectors(Source: ZEW indicator, ZEW, 16 September 2014)

Fig. 2, New Passenger Car Registrations in Europe (Source: ACEA, 17 September 2014)

Fig. 3, Machine Tool Order Intake in Germany(Source: VDMA, October 2014)

Fig. 4, Machine Tool Order Intake in Japan(Source: JMTBA, October 2014)

Fig. 5, Machine Tool Order Intake in U.S.A.(Source: AMT, 8 September 2014)

Fig. 6, German Business Climate – Industry and Trade(Source: Business Climate Indicator, Ifo Institute, 24 September 2014)

Fig. 7, The Grundfos Global Automotive Indicators(Source: Automotive Information Platform, MarkLines.com, October 2014)

Fig. 8, The Grundfos Raw Material Price Index(Source: London Metal Exchange, Steel Business Briefing, CME Group, October 2014)

About Grundfos Industry Indicators

Commentary: Japan enjoys high machine tool order levels

Industry Indicators

Fig. 1 - 8

Page 4 - 10 / Industry Indicators

2 | GRUNDFOS MACHINING INDUSTRY

ABOUT GRUNDFOS

INDUSTRY INDICATORS

This quarterly newsletter can give you a gen-eral idea of which way the wind is blowing in the machine tools industry. It is a special supplement to our subscribers of Knowledge Link, our new website for the machining industry.

Almost all the charts and graphs here are publicly available. They come from the three major machine tool associations – in Ger-many, Japan and the United States – as well as global surveys from market analysts.

We make the final graphs ourselves, the Grundfos Raw Materials Index and the auto-motive Monthly Production Output by coun-try and manufacturer. We build the latter up from available automotive production figures. Grundfos Machining Industry seg-ment uses automotive production statistics, because that market is such a big part of the machine tools industry. Based on that,

we try to estimate how the coming one- to three months will look.

Why do we want to share these statistics? Because we have a common interest in see-ing how the market is doing. So please: read these statistics and comments as indicators alone.

We publish a full version of the Grundfos In-dustry Indicators quarterly in five languag-es, as well a monthly version in English only.

The Grundfos Industry Indicators Copyright 2013 Grundfos A/S. Permission to reprint graphs, tables and data has been granted to Grundfos from the various organisations re-presented in the publication. If you have com-ments or questions on the data from those organisations, please contact them directly with the links provided. We welcome your other comments.

ISSUE 6, 2014 - OCTOBER

When we see the result of the Japanese Machine Tool Builders’ Association (JMTBA), order intake for the first half of 2014 (January-June) was JPY 701 billion. That is +35% over last year’s level. Over the five months between March and July, each month surpassed JPY 120 billion. The association expects the order level to reach JPY 1.4 trillion (EUR 10.1 billion) by the end of this year (+25% vs. LY). This will be the level of good old days.

WHY IS THIS HAPPENING?

The biggest factor is actually the exchange rate of the US dollar and euro against the yen. The

Japanese Yen came back to its previous level of about 1 USD=110 JPY, and 1 EUR=135 JPY. This helped to make the export busi-ness profitable and machine tool builders regain their competi-tive edge against European and other Asian manufacturers.

ARE OTHER INDUSTRIES PER-FORMING JUST AS WELL?

While the performance of other industries is also fine, it is not at this level. The domestic market situation for machining turned better due to a government in-centive package that offered a subsidy and investment tax re-duction for new machines. Exter-nally, they have enjoyed strong purchase demands from USA and Europe plus extra project orders for IT industries in China.

HOW LONG WILL THE UPTREND CONTINUE?

A couple of issues threaten a downturn, such as the Russian/Ukrainian conflict as well as non-performing loan risks in China. But unless some critical incident happens, analysts predict that the strong demands from over-seas and domestic recovery are expected to continue at least to the end of this year.

WHAT IS GRUNDFOS DOING?

In order for us to maintain the leading position in the Japanese machining industry’s pump mar-ket, there is no magic and no shortcut. We will not stay the leaders by just selling pumps. To get here, we have put a lot of attention on where we can add value for our customers in terms of the “hard” (high quality, high efficiency products in line with local regulations) and “soft” (shorter lead times and competi-tive global coverage).

In April 2015, new high ef-ficiency motor regulation (IE3) called “Top Runner” comes into effect in Japan. Grundfos pro-duces both pumps and motors. We strive to deliver the right products at the right place at the right time. Our machine tool pumps with the new MG and MGE motors already meet or surpass the IE3 levels.

Furthermore, our customers produce and do business all over the world. With our global net-work, we work to show better professional assistance. When our customer sets up a new pro-duction in USA, UK or anywhere in the world, we can easily deliv-er the required quality products and services in a same manner as they get in Japan. In this way, we are far more advanced than other pump manufacturers.

IN WHAT DIRECTION IS THE JAPAN MT INDUSTRY MOVING?

Japanese machine builders are world leaders in developing new technologies and innovative fea-tures. But they are not just ma-chine builders anymore.

Today, they act as total system solution providers, integrated with industry robot- and auto-matic conveyance, in order to maximize the overall production process efficiency – working fast-er with less energy. In this light, we believe that our Grundfos iSOLUTIONS program – the in-tegration of our efficient pumps, drives, controls and protection, measurement and communi-cation – will continue to help Japanese and global machine tool producers not only continue to enjoy the high orders like the “good old days,” but keep them on a sustained level for years to come.

JAPAN BOOMS: JAPAN ENJOYS HIGH MACHINE TOOL ORDER LEVELS OF THE GOOD OLD DAYSBy Takarada Michio, Business Development Director, Grundfos Machining Industry – Asia Machining Industry Business Center

COMMENTARY

GRUNDFOS MACHINING INDUSTRY | 3ISSUE 6, 2014 - OCTOBER

WHILE WE ARE RIDING HIGH, THERE ARE NO SHORTCUTS TO SUCCESS

THESE ARE GOOD TIMES FOR THE JAPANESE MACHINING INDUSTRY.

Takarada Michio, Business Development Director

Grundfos analyst: Economic uncertainty remains high

Economic Expectations for Key Countries and Industry Sectors

The economic climate is still characterized by great uncer-tainty. While the United States currently drives economic growth, activity in Asia and especially the Eurozone remains disappointing. New car registrations in Europe have increased slightly compared to last year, but absolute numbers are low – and global car production has eased over the last months.

The machining industry’s growth greatly depends on whether or not global investments in relevant end-user industries will increase over the coming months.

Frank Baake, Senior Strategy & Intelligence Analyst

The Centre for European Economic Research (ZEW) writes,

“After slight losses (minus 1.7 points) in Septem-ber, the ZEW Indicator of Economic Sentiment for Germany stands at 6.9 points. The indicator has thereby decreased for the ninth consecutive time, although to a much lesser extent than in August.

The ZEW Indicator of Economic Sentiment for the Eurozone declined in September. The indica-tor has lost 9.5 points compared to the previous month, now standing at 14.2 points.”

The ZEW Indicator of Economic Sentiment is as-certained monthly. Up to 350 financial experts take part in the survey. The indicator reflects the difference between the share of analysts that are optimistic and the share of analysts that are pes-simistic for the expected economic development in Germany in six months. The survey also asks for the expectations for the Euro-zone, Japan, Great Britain and the U.S.A.

For more information, visit ZEW’s website at zew.de.

1

ISSUE 6, 2014 - OCTOBER4 | GRUNDFOS MACHINING INDUSTRY

ZEW Indicator of Economic Sentiment (Germany)

ISSUE 6, 2014 - OCTOBER GRUNDFOS MACHINING INDUSTRY | 5

For the German Machine Tool Industry, the order intake in August was -13.9% compared to the same month in 2013. For Jan.-Aug. the order intake was +4.0% vs. last year period.

The VDMA (Verband Deutscher Maschinen- und Anlagenbau - German Engineering Fed-eration) is a network of around 3,000 engi-neering industry companies in Europe.

For more information, please visit the VDMA’s website at vdma.org.

New Passenger Car Registrations in Europe

Machine Tool Order Intake in Germany

The European Automobile Manufac-turers Association writes:

“New passenger car registrations were up by 5.6% in July and by 2.1% in August, pursuing the upward trend commenced twelve months ago. Eight months into the year, demand for new cars amounted to 8,336,159 units, or 6.0% more than in the same period last year.

In August, France, Germany and Italy registered a slight decrease (-2.6%, -0.4% and -0.2% respectively), while the other major markets expanded, registering 13.7% more in Spain and 9.4% in the UK. The EU totalled 669,395 new car registrations in the month of August.

From January to August, growth pre-vailed across major markets, reaching 1.6% in France, 2.6% in Germany, 3.5% in Italy, 10.1% in the UK and 16.4% in Spain.”

For more information, see ACEA’s web-site at acea.be.

2

3

ISSUE 6, 2014 - OCTOBER6 | GRUNDFOS MACHINING INDUSTRY

4

5

The order intake for the Japanese Machine Tool Industry in August 2014 was +35.6% compared to August 2013 (0.3% up from July 2014). In the first 8 months the growth was +35.8%.

For more information, please visit the JMTBA’s website at jmtba.or.jp

Machine Tool Order Intake in Japan

Machine Tool Order Intake in U.S.A.

The Association for Manufacturing Technology (AMT) writes, “July U.S. manufacturing technology orders totalled $354.63. This total, as reported by companies participating in the USMTO program, was down 11.5% from June and down 1.4% when compared with the total of $359.70 million reported for July 2013. With a year-to-date total of $2,711.36 million, 2014 is down 2.3% compared with 2013.” The United States Manufacturing Technology Consumption (USMTC) report, jointly compiled by the two trade associa-

tions representing the production and distribution of manu-facturing technology, provides regional and national U.S. con-sumption data of domestic and imported machine tools and related equipment. Analysis of manufacturing technology consumption provides a reliable leading economic indicator as manufacturing industries invest in capital metalworking equipment to increase capacity and improve productivity.

For more information, visit the website at amtonline.org.

ISSUE 6, 2014 - OCTOBER GRUNDFOS MACHINING INDUSTRY | 7

“The Ifo Business Climate Index for industry and trade in Germany fell in September to 104.7 points from 106.3 points in the previous month. The index dropped to its lowest level since April 2013. Assessments of the current busi-ness situation were once again less fa-vourable than last month. Expectations with regard to the six-month business outlook fell to their lowest level since December 2012. The German economy is no longer running smoothly.

In manufacturing the business climate index continued to fall. Manufacturers were once again somewhat less satis-fied with their current business situa-tion, which nevertheless remains

The Ifo Business Climate Index is based on ca. 7,000 monthly survey responses of firms in manufacturing, construc-tion, wholesaling and retailing. The firms are asked to give their assess-ments of the current business situa-tion and their expectations for the next

six months. They can characterise their situation as “good,” “satisfactorily” or poor” and their business expectations for the next six months as “more fa-vourable”, “unchanged” or “more unfa-vourable.”

The balance value of the current busi-ness situation is the difference of the percentages of the responses “good” and “poor”; the balance value of the expectations is the difference of the percentages of the responses “more favourable” and “more unfavourable.”

The business climate is a transformed mean of the balances of the business situation and the expectations. For calculating the index values, the trans-formed balances are all normalised to the average of the year 2000.

The CESifo Group, consisting of the Centre for Economic Studies (CES), the Ifo Institute for Economic Research and the CESifo GmbH (Munich Society for

the Promotion of Economic Research) is a research group unique in Europe in the area of economic research. It combines the theoretically oriented economic research of the university with the empirical work of a leading Economic research institute and places this combination in an international environment.

For more information, visit the website at cesifo-group.de.

Ifo Business Climate Germany:

German Business Climate – Industry and Trade6

ISSUE 6, 2014 - OCTOBER8 | GRUNDFOS MACHINING INDUSTRY

Data source: MarkLines Co. Ltd

Data source: MarkLines Co. Ltd

The Grundfos Global Automotive Indicators 7

ISSUE 6, 2014 - OCTOBER GRUNDFOS MACHINING INDUSTRY | 9

The six main manufacturers produced 4.8% less in July (vs. last year), but still +5.3% for January to July. Although production in the 4 main vehicle producing countries decreased by 2.7% in August compared to same month last year, it shows growth of 7% for the first 8 months in the year.

The Grundfos Raw Materials Price Index

Raw Materials Update

Raw materials price index, General status October 2014

Source: London Metal Exchange,

Steel Business Briefing, CME Group.

Source: London Metal Exchange, Steel Business Briefing, CME Group.

Grundfos Cost Analyst Menno Buikema comments on the price fluctuations of raw materials and their impact on the manufacturing industry. He writes:

Commodity markets decline

• In September there was a relatively high volatility of the commodities important to Grundfos. Almost all monitored commodities dropped in price.

• Linked to the commodities price drop is the drop of the Euro. The EUR/USD exchange rate decreased by 3.1%. The

dollar grew stronger compared to most currencies. This includes the Euro, which had a five-year low infla-tion of 0.3%.

• The monthly average Brent crude oil price dropped below USD100/bbl barrel for the first time since the summer of 2012. The current price is a 4.6% decrease compared to last month. A reason for this decrease is

that production in Libya continues to surge and demand has weakened on the back of the recent growth slow-down in China and a sharp dollar rise. However, analysts predict that Brent has reached its all-time low.

• Copper has decreased by 2% in Sep-tember due to a combination of weaker growth in Europe and China, a strong dollar, and prospects for a surge of supply.

8

ISSUE 6, 2014 - OCTOBER10 | GRUNDFOS MACHINING INDUSTRY

ISSUE 6, 2014 - OCTOBER GRUNDFOS MACHINING INDUSTRY | 11

be think innovate

GRUNDFOS Holding A/SPoul Due Jensens Vej 7DK-8850 BjerringbroTel: +45 87 50 14 00www.grundfos.com

The

nam

e G

rund

fos,

the

Gru

ndfo

s log

o, a

nd th

e pa

yoff

Be–

Thin

k–In

nova

te a

re re

gist

ered

trad

emar

ks o

wne

d by

Gru

ndfo

s Hol

ding

A/S

or G

rund

fos A

/S, D

enm

ark.

All

right

s res

erve

d w

orld

wid

e.

MACHINING INDUSTRYBUSINESS CENTRES

ASIAcompetence.asia@grundfos.comTel: (+81) 52 939 1505

EUROPEcompetence.eu@grundfos.comTel: (+49) 211 929 690

AMERICAScompetence.us@grundfos.comTel: (+1) 913 227 3400