Bernstein: China’s factory automation growth slows, while overseas order growth diverges

Why is Chinese automation demand slowing?

Bernstein observed that China’s factory automation growth continued to retreat from its peak from September to October. Excluding currency effects, Japanese machine tool orders from China rose 26.6% year over year in September, below the previous month’s 41.0% and the year-to-date rate of 36.2%.
Order growth came mainly from electrical and precision machinery and industrial machinery, while weak automotive capital spending offset part of the increase. Different levels of willingness to invest across downstream industries therefore provided varying degrees of support for equipment demand.
China’s manufacturing PMI fell from 50.1 to 49.3 in October, while the new orders PMI fell from 50.5 to 49.4, both returning to contraction territory. However, the PMIs for high-tech manufacturing and equipment manufacturing, which are more closely linked to factory automation, remained in expansion territory at 51.3 and 50.6, respectively.
Investment data also diverged: through September, manufacturing fixed-asset investment fell 2.1% year over year on a year-to-date basis, while investment in equipment purchases rose 9.7%. Year-over-year growth in China’s industrial robot production slowed to 18.9% in September from 34.6% the previous month.

Bernstein believes the industrial automation upcycle outside China continues, supported by demand from Japan, North America and Europe. Total Japanese machine tool orders rose 60.4% year over year in September, above the year-to-date rate of 43.3% but below the previous month’s 64.7%.
Excluding currency effects, year-over-year growth in North American orders rose from 59.4% the previous month to 61.3%, with demand relatively broad-based across industries. EU order growth slowed from 60.8% to 25%, driven mainly by industrial machinery. Growth in Japanese domestic orders also slowed from 61.5% to 46.5%.
In October, manufacturing PMIs for the US, eurozone and Japan were 56, 52.4 and 53.3, respectively, all in expansion territory. US investment in industrial equipment rose 15.0% year over year in the third quarter, above the previous quarter’s 9.9%.

Production of Japanese automation products showed mixed results. Pneumatic component output rose 50.9% year over year in September, above the previous month’s 40.4%; speed reducer and robot output rose 11.6% and 8.6%, respectively, with both growth rates slowing from the previous month.
Robot export volumes paint a weaker picture: total Japanese industrial robot exports rose just 0.9% year over year in September, compared with growth of 7.4% the previous month; export volumes to the US and EU fell 10.2% and 24.2%, respectively, while exports to China fell 4.9%. Strong machine tool order growth therefore cannot be directly equated with a simultaneous acceleration in shipments of all automation products.