Mayville Engineering Co. (MEC), a large contract fabricator in Mayville, Wis., pric-
ing pressure is rising in certain markets simply because demand is lower. “When
the market demand goes up, customers ask, ‘What’s your capacity?’ When the
demand goes down, they ask, ‘Can you help me lower my costs?’”
BTD’s Lotzer said that his company predicted the decline in agricultural equip-
ment spending several years ago. “We started to see the volume reductions dur-
ing the late part of 2014 and going into 2015.” This year agriculture equipment
work at BTD declined by 40 percent, and oil and gas work, which represented
about 8 percent of its product mix, dropped to nothing.
“We have no [oil and gas] orders in sight,” he added. “That business went
gangbusters and then down to nothing.” So the contract fabricator made plans
to gain market share in other areas, including power generation and recreational
vehicles. Gains in these and other sectors have offset losses elsewhere.
Global demand from mines and related industries is expected to be down for
the foreseeable future, which has led to layoffs and some grim forecasts from
construction industry giants. In a third-quarter earnings call, Caterpillar said it’s
expecting 2016 to be its fourth consecutive down year for sales, the first time
that’s happened in the company’s history.
These challenges have spurred some of the country’s largest contract fabricators to adapt. For instance, Raber said that MEC has experienced declines in
some areas, but other sectors—including boating, recreation, and commercial
trucking—have helped keep the fabricator healthy. “2015 has been a year where
diversification has been a key strategic element in our business.”
Domestic Demand Strong
Some construction markets aren’t all gloom and doom, though. After all, if a machine has sufficient volume for a particular market, it’s usually assembled near
that end market. And outside commercial construction in commodity-related
industries, like mining and oil and gas, the U.S. construction market isn’t looking that bad for 2016.
“In our results, the Northeast has been one of the hottest spots [for structur-
al fabrication],” said Mark Allphin, business manager for the steel segment at
Atlanta-based Tekla, a construction software provider. “With a few exceptions,
a lot of people have strong levels of business. They’re not quite to where they
were in 2007 and 2008, but I think people might be OK with that.”
“The fastest-growing sector [in commercial construction] is assisted-living
facilities,” Kuehl said, adding that other growth areas include hospitals and en-
tertainment complexes. In short, strong construction correlates with the aging
population and, again, the American consumer. On the other hand, “no one can
fill office buildings,” he said.
According to the U.S. Commerce Department, construction spending increased every month in 2015. And according to Kuehl, the construction industry
in the U.S. could see increased demand next year, especially if a large transportation spending bill passes (at this writing, before Thanksgiving, it hadn’t). The
immediate problem for U.S. construction equipment has been an excessive inventory buildup, which led to a slump in demand late in the year.
MEC’s Raber added that machines like skid steers are made and sold in the
U.S. “And that market is pretty positive, mainly because housing starts are positive. But some companies had a bit too much inventory in the pipeline.”
The agriculture equipment sector is also struggling, thanks to low food prices.
In a report, Joel Tiss, an analyst with RBC Capital Markets, said that he expects
lackluster demand for tractors throughout 2016, and weakening volumes could
continue to push down capacity utilization.
Still, this all may depend on harvests. “Next year may be a better year for farm
machinery,” Kuehl said. It depends on the harvests elsewhere in the world. If
they’re miserable, we’ll recover.” If the U.S. market does recover, farmers may
pony up the funds to buy new machines, a purchase they’ve been delaying for
a year or two.
Join Mark Mercurio, Applications
Engineering Manager (pictured),
and fellow machine tool suppliers
as they discuss equipment advances
available to improve production
and increase the bottom line during
The FABRICATOR®’s 11th Annual
Leadership Summit on Thursday,
Feb. 25 in San Diego, Calif.
The experts on the panel will
showcase their cutting edge
solutions allowing you to compare
and contrast processes. Mark
your calendar for this popular, open
exchange to get your questions
answered about opportunities
available in today’s fabrication
market—you’re sure to be on the
road to excellence with a clear
sense of emerging trends for
2016 and beyond.
Mazak Optonics Corp. Invites YOU
to the 2016 Technology
Update during THE FABRICATOR®’s
Paradise Point Resort & Spa
San Diego, Calif.
Feb. 24-26, 2016
$945 FMA members / $1,195 General
Mention this Mazak ad and
your registration could be free!
or call toll-free 888-394-4362.