Market Insight

Precision-geared products market to recover in 2016 after a slowdown caused by exchange rate changes

October 20, 2016  | Subscribers Only

Sudhakar Chaudhary Sudhakar Chaudhary Analyst, Electric Motor Systems

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Despite the slowdown in 2015, the total market for precision-geared products is estimated to have been worth more than $1.9 billion in revenues in 2015, with 2.2 billion units shipped, according to the latest IHS Markit (Nasdaq: INFO) study on precision gearboxes and geared motors.

The growth rate of revenues measured in US dollars fell by 0.8 percentage points in 2015 from 2014. This was primarily due to the considerable depreciation of the euro and Japanese yen against the US dollar, as well as a sluggish Asian market. rate changes affect international suppliers exporting precision- geared products to other regions. Many countries implement temporary polices in an attempt to boost economic growth; they have caused changes in the exchange rates of some currencies, including the Japanese yen, Chinese yuan, euro, Indian rupee and Brazilian real. There has been continuing euro depreciation since the major weakening of the euro by 8.3 percent against the US dollar in 2012.

In March, 2015, the European Central Bank (ECB) embarked on a €1 trillion program aimed at boosting inflation and reviving the economy by purchasing bonds at a monthly rate of €60 billion. This is part of an unprecedented quantitative easing (QE) program originally set to run until September 2016. In December 2015, the ECB extended the planned length of the program to at least March 2017 as inflation remained far below target. This change reduced the growth rates for revenues and average selling prices in the EMEA region in US dollars in 2015. However, the exchange rate fluctuation is believed to benefit European suppliers’ exports by increasing the cost competiveness of their products.

Because the euro and the Japanese yen devalued considerably against the US dollar (by 19.6 percent and 14.4 percent, respectively) in 2015, the EMEA and Japanese markets are estimated to have contracted dramatically, by 13.7 percent and 10.8 percent, when measured in US dollars. This is despite unit shipments in both markets increasing, by 4.1 percent and 3.0 percent, respectively. Other important exchange rate changes included the weakening of the Russian ruble and Brazilian real. The Russian ruble weakened considerably against the US dollar from 2014 for geopolitical reasons and low oil and gas prices. The Brazilian real dropped 43.6 percent against the US dollar because of economic and political crises. The effect of these changes on the total market size of precision geared products in global was insignificant because these two countries play only a small part in the world market.

The growth of the precision-geared product market depends largely on global production of industrial machinery. The market for precision-geared products (as core components of robots) is predicted to benefit greatly from the global robotics boom. According to the IHS Markit Precision Gearboxes & Geared Motors Report, robotics is projected to be the fastest-growing sector of the precision-geared products market, with a 12.6 percent CAGR in supplier revenues from 2015 to 2020.

Robotics was the largest sector of the market for precision geared products in 2015, with an estimated $596 million in revenues, representing for 31.4 percent of the total. The machine tool industry was the second-largest sector of the precision-geared product market in 2015, followed by the packaging and labelling, material handling equipment, and food, beverage and tobacco sectors, with estimated $264.3 million, $219.8 million, $214.9 million and $185.8 million revenues, respectively.

The automotive industry continues to be the largest end user of robotics; but the adoption of robotics in general industries (every industry other than automotive) is forecast to grow considerably more quickly, with double-digit annual revenue growth, especially in the consumer electronics, food and beverage, and semiconductor machinery production sectors.

Growth in the demand for robotics is driven by a number of factors, including increasing labour costs, growing concerns for worker safety, and decreasing robot prices. The need to automate labour-intensive industries with cost-effective, application-appropriate industrial robots drives installations globally. Also, recent advances in the speed, accuracy and repeatability of industrial robots are prompting adoption in applications and areas of the factory floor, where they were previously not economically or technically suitable. As a result, international and local suppliers are battling for market share, offering shorter return on investment (ROI), improved services and developments in technology. According to IHS Markit Industrial Robots – 2016 report, the global industrial robot market is forecast to exceed $23 billion in 2020, up from $9.8 billion in 2015, and is forecast to grow with an 18.9 percent CAGR from 2015 to 2020.

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