This time each year IBISWorld delivers Manufacturers’ Monthly a list of the top 100 manufacturers in Australia. Alan Johnson investigates how the various sectors ranked on this year’s list.
While Australian manufacturers still face considerable competition from our South East Asian neighbours and beyond, the lower Australian dollar has eased the stress levels for most senior management as we move into 2016.
But not by much, according to Spencer Little, senior industry analyst with IBISWorld, one of Australia’s richest sources of business information, it will be another tough year ahead for most manufacturers.
“Import competition is set to remain strong in numerous local manufacturing sectors,” he told Manufacturers’ Monthly.
“Overseas manufacturers particularly in China and other SE Asia countries operate with far lower labour and overhead costs that can be passed onto their customers both locally and globally in the form of lower product prices.”
Little said Australian players are finding it harder to compete on price, and this is contributing to the decline of the sector, though figures suggest this downward trend will ease, with the sector expected to decline by just 0.1 per cent in 2016/17.
He admits the lower Australian dollar has improved the global competitiveness of local manufacturers, but says because most overseas players operate with far lower overheads and wage costs it makes it very difficult for local manufacturers to compete.
On the positive side, IBISWorld analysts are predicting the Australian dollar to continue depreciating quite steadily over the next five years.
But overall, manufacturing remains a struggling sector.
Winners and losers
Taken as a whole, there are far more manufacturers on the negative side of IBISWorld’s Top 100 list than positive.
One exception is the food manufacturing and processing industry which in general is doing very well and bolstering up the rest of the manufacturing sector; mainly driven by exports.
Looking at the current financial year, 2015/16, Little says the biggest winner in the manufacturing sector is the meat processing industry with revenue expected to grow around 11.8 per cent.
“Many meat processors have been able to pass on the high cost of red meat to domestic buyers, plus they have been able to exploit very high world prices by selling into the international export market, particularly in South East Asia.”
He said demand for Australian meat, and Australian produce in general, is very strong in these markets.
“The trend of strong demand and rising prices has really assisted the meat processing industry over the past 12 months or so,” Little said.
Other winners in this year’s Top 100 manufacturing report, with strong growth, are milk powder manufacturers.
Little said they are also experiencing rising demand from overseas markets, plus milk powder prices have rebounded from a very low base.
That’s almost where the good news ends, for even the $3.4bn beer industry is struggling and has found itself on the other side of the revenue ledger with revenue set to decline in the current year by 1.1 per cent.
However this decline is not from cheap imports but more a shift in consumption trends and a shift in preferences by consumers.
Little said overall consumption of alcohol in general has declined, but the decline in beer consumption is even higher.
Apparently beer consumption has fallen from 108L per person per year in 2008/9 to 92.4L in 2013/14; the lowest level in 70 years.
“Consumers are moving to drinking more wine and cider, and at the same time beer drinkers are moving away from the traditional brands such as VB and Carlton Draft to the more premium, craft beers with a focus on American and European styles which haven’t really been produced in Australia before.
“These premium beers have a higher price point and are bolstering up revenue,” Little said.
Another industry not traditionally in negative territory is Australia’s petroleum industry with domestic capacity set to reduce in the current financial year.
Little said revenues are predicted to decline by around 16.7 per cent; “a substantial drop”.
Not so dramatic is the industry revenue fall of both organic (chemicals such as ethanol, methanol and ether) and in-organic (chemicals used in industrial processes such as acids, dyes and pigments) chemical manufacturing.
Little said both sectors are expected to decline by about 1.8 per cent.
“Over the past year or so industry players have been affected by volatile chemical prices, the rationalisation of the global chemical market and increasing competition from cheaper chemicals from Asian countries.”
He said revenue of the organic chemical manufacturing sector is expected to drop by around 1.2 per cent annualised to reach $2bn over the next five years.
However, over the next five years, revenue of the in-organic chemical manufacturing sector is expected to rise at around 1.1 per cent annualised to reach $2.6bn.
“The sector’s growth is expected to be driven by the product segments that service the resource sectors, with production ramping up at many of these mines that have been developed over the past five years or so,” Little said.
Not surprisingly, with Holden, Ford and Toyota ceasing production in a couple of years, the motor vehicle manufacturing industry will see a massive drop in revenue given they make up the majority of the industry.
Little predicts revenue to decline at a compound annual rate of around 28 per cent, to reach $1.9bn over the next five years.
“This is underpinned by exits of the three major players; with Toyota holding the market share of over 35 per cent, Holden has around 16 per cent while Ford has around 9 per cent.”
However Little points out the motor vehicle manufacturing industry includes, buses and heavy trucks as well as passenger vehicles.
“We will still have PACCAR Australia, who manufactures commercial vehicles sold under the Kenworth, Peterbilt and DAF nameplates, and Iveco trucks.”
The auto industry also includes recreational vehicles (RVs) which are experiencing very strong demand, from 30-54 year old Australians in particular.
Production statistics for June 2015, for example, show an increase in production of 13 per cent compared with June 2014, with YTD production 8 per cent higher compared to 2014’s figures.
These production figures for 2015 are on the back of the second highest yearly production in two decades last year.
YTD production is the highest it has been in over five years.
In contrast, the mining machinery manufacturing sector is in steady decline, falling from its peak in 2012/13 during the mining investment boom.
Little predicts revenue in this sector to decline by around 6.4 pe cent in the current year.
“This obviously stems from weaker investment in the mining industry as miners move away from expansion projects and are now focusing on extracting the minerals and resources.
“On the other hand, the agriculture machinery manufacturing sector is performing well, though we are still forecasting a slight decline in the current year. But the industry has grown 2.3 per cent annualised over the past five years.”
Little said this sector has struggled due to the fluctuating commodity prices and negative weather conditions.
On a more positive note, the clay brick sector of the building and construction supply manufacturing industry, is expecting revenue to rise by 6.4 per cent in the current year.
“The performance of local brick manufacturers has improved with a recovery in residential housing construction, which is really caused by a number of factors including low interest rates, pent up underlying demand, and population growth.
“Plus the bulky, low value of clay bricks tends to preclude long distance transport, meaning the sector has no competition from Asia.
“But while that does protect the sector, at the same time it restricts export opportunities. Though we do export a number of clay bricks to New Zealand,” he said.
Little also pointed to the ready mix concrete sector as another star in the building and construction supply manufacturing industry.
While its revenue is predicted to remain pretty flat in the current year, with demand conditions softening as investment in new mine developments fall, the industry has grown at around 1.7 per cent annualised over the past five years and has been a steady supplier to residential and non-residential buildings that has underpinned this growth.
“Looking ahead, over the next five year period, the Ready mix concrete industry is set to remain a little bit more subdued growing at around 0.2 per cent annualised,” Little said.
With BlueScope’s Port Kembla operation in the news, it’s no surprise to learn revenue of the $9.8bn steel making industry has declined 7.5 per cent over the past five years as it struggles against cheap imports.
Little explained that steel manufacturing in Australia is dominated by two players, BlueScope and Arrium, who both hold 20 per cent of the market.
Going forward, the news does not get much better for the industry with the decline set to continue, but at a slower rate.
Little predicts steel making revenue to decline at around 2.3 per cent over the next five years.
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