No Rust On This Market

At Alvey Inc., the St. Louis maker of conveyors, Vice-President Roger L. Alderink wonders if production can keep up with demand. U.S. conveyor orders probably exceeded a record $4 billion last year. Things are hot, too, at machine-tool maker Fadal Engineering Co. in Chatsworth, Calif. It just moved into a new headquarters, and it's turning out 125 machining centers a month, up 25% from a year ago. In fact, U.S. machine-tool orders are the best they've been since 1988.

Machinery makers don't expect a full-blown boom in 1994. Disastrous economies in Europe and Japan are hurting producers with sales there and causing substantial worldwide overcapacity for machine tools, materials-handling gear, pumps, and compressors. And big new plants are scarce in most of the industrialized world. All of which puts a lid on prices and profits.

Still, U.S. makers of factory machinery will have good times in 1994. Industrial production is rising, capacity utilization has climbed to 83%, interest rates remain low, and auto and other durable consumer-goods makers are buying more equipment. So are industries in Asia, outside Japan. That's where "the really big jobs are," says Thomas E. Bennett, president of Ingersoll Dresser Pump Co. (IDP). China has become the No.2 export market for U.S. machine tools, after Canada. And Bennett says IDP has picked up pump contracts for a big refinery in Thailand and for power plants in Malaysia and Korea.

STRONG YEN. U.S. machinery makers can compete in these markets because they have become low-cost producers compared with the Japanese and Germans. U.S. labor is cheaper, and "we've done a lot to get our cost base in line," says John W. Paxton, head of Litton Industries Inc.'s Industrial Automation Group, which is being spun off as part of Western Atlas Inc.

Japanese machinery makers, socked by the strong yen, are being priced out of the market. To compensate, they're shifting more production to the U.S. Consider Mitsubishi Caterpillar Forklift America Inc., a joint venture 80%-owned by Mitsubishi Heavy Industries Ltd. Its plant in Houston is now bigger than its Tokyo operation. "We're trying to find [more] North American suppliers" in addition to those who are already providing lights, seats, and tires for its lifts, says R. Larry Wuench, director of marketing.

Japanese producers are suffering, too, because their home market is so depressed. "I don't know of any Japanese machine-tool builder that's not losing money," says John D. Hendrick, president of Okuma America. Okuma will expand its profitable U.S. operation this year, while its parent, Okuma Corp., eliminates jobs back home near Nagoya, Japan. Indeed, the restructuring so common in the U.S. is spreading abroad. In Germany, Deutsche Bank and other banks have persuaded two leading machine-tool makers, Maho and Deckel, to merge, and they will jointly sell products with a third, Gildemeister. As a big market, and one of the healthiest, the U.S. is attracting more machine-tool imports again--up 14% for the first nine months of last year.

"WAR ON COSTS." Worldwide, there's just too much capacity. In the pump business, which is weak even in the U.S. since big customers in process industries such as pulp, paper, and energy remain depressed, prices are no higher than five years ago. Chronic discounting for forklift-trucks has eased a bit. But Reginald R. Eklund, president of Hyster-Yale Materials Handling, sees a continuing "disinflationary climate, not only for our products, but for [all] capital items." That means "a continual war on costs," he adds. At Hyster-Yale, which is typical, that includes "enthusiastic discussions" with suppliers on improving efficiency and chopping prices.

And restructuring and consolidation, though slowing, are continuing. Cooper Industries Inc. has decided that industrial air compressors don't fit its mix and is spinning off its Gardner-Denver Industrial Machinery Div. Clark Material Handling Co., acquired by Terex Corp. in 1992, has struggled to stay afloat. Unable to pay suppliers, Clark wasn't able to keep up with its order backlog last year. Despite the doubts of some rivals, Terex President Ronald M. DeFeo claims Clark will be up to full production by the end of the first quarter, thanks to a just-completed $30 million private placement.

Not surprisingly, business looks strongest this year for producers whose machines promise lower costs and higher quality. Daniel J. Meyer, chairman of Cincinnati Milacron Inc., says that two-thirds of his company's machine tools go to manufacturers seeking higher productivity, as opposed to new capacity. At Alvey, the spurt in orders comes from manufacturers that must deliver products to demanding retailers more efficiently. This year will bring better times for machinery makers, but it will also be another year of the customer.