This time each year IBISWorld delivers Manufacturers’ Monthly something of a Christmas gift – a list of the top 100 manufacturers in Australia. Alan Johnson investigates how the various sectors ranked on this year’s list.
Caroline Finch, an industry analyst with IBISWorld, said in 2014-15 the industry is forecast to grow just 0.5% in inflation adjusted terms (company data is not adjusted for inflation), and 1.8% without adjusting for inflation (comparable with company data).
However, in the five years through 2014-15, it is predicted to get worse, with the industry forecast to decline 2.4% in inflation adjusted terms, growing 0.3% without adjusting for inflation. And in the five years through 2019-20, the manufacturing industry is forecast to decline 0.1% in inflation adjusted terms.
“Looking at the data, one of the biggest areas on the top 100 list is one I call ‘mining winners’, which includes mining equipment manufacturers and to some extent chemical manufacturers, from our patchwork economy,” Finch told Manufacturers’ Monthly.
According to Finch, the mining and industrial machinery sector has performed quite strongly over the past five years.
Another on Finch’s category list is construction manufacturing.
“I have them under a protected sub-heading because many of the components are really expensive to ship, or are too fragile to put into a shipping container,” she said.
“The other sectors under this sub-heading are fabricated metal manufacturing and other metal manufacturing, which includes structural steel fabricators, aluminium windows and doors, which could get crumpled in a shipping container on their way to or from Australia.”
However on the down side, Finch pointed out that these manufacturers are exposed to the trends in the construction sector, with only one downstream market.
“What we saw coming out of the GFC in 2008, 2009 and 2010 was a lot of stimulus spending being directed towards educational institutions resulting in a burst of activity, and then winding back,” she said.
“Though we are seeing construction indicators picking up in the current year.”
On the other side of Finch’s ledger are the losers; the automotive industry.
“In the view of many commentators it has been a long time coming. In the past few years the locally built cars have not been as popular in the domestic market as imported vehicles, and only Holden was able to reach export markets to a significant extent,” she said.
“So it has always been a vulnerable industry.”
Then there is the chemical industry, which has been making a lot of explosives for the mining industry in recent years.
However, Finch admitted it’s a bit of a patchwork industry in itself, with some sectors exporting high and importing low in terms of value add unit price.
“For example pharmaceutical manufacturers, with Australia a significant producer of opiates, however we are importing a lot more soap then we ever used to, meaning our soap and cleaning compound manufacturers are doing particularly poorly, especially with several global players pulling out of Australia,” she said.
She said other manufacturers moving their operations off-shore are the big energy users such as the aluminium refining industry, who have experienced a lot of volatility in the past five years.
“We see this as a pattern, where an international company is faced with the decision of reinvesting in Australia or moving their operations elsewhere. Unfortunately they tend to go with the later,” she said.
“We also see this pattern with metals manufacturing to an extent, which is also very energy intensive.”
However the food industry marches to the beat of its own drum, according to Finch, in the same way agriculture machinery does.
“It really does depend on the production volumes in Australia, which includes the processing industries such as fruit and veg, poultry and cheese processing,” she said.
“It’s the performance downstream of the farmers essentially, whether they are having a good or bad year due to weather conditions, and raining or not.”
Finch said it is striking to see how many companies in the top 100 list are in the food industry, the biggest industry with around a quarter of the companies on the list.
Regarding the rankings, Finch said it is no surprise to see petroleum companies at the top of the list.
“They handle really high value products, however new refineries are opening up in the region which are now able to meet Australia’s strict standards on fuel,” she said.
“There are now a couple of large sophisticated refineries in Indonesia, for example, which capture a lot of economies of scale, so they have cheaper production costs. “This in turn is seeing major players pulling out of Australia regarding petroleum refining, with Shell the most notable.”
According to Finch, the best performing area in the automotive sector is the motor vehicle body and trailer manufacturing industry which includes caravans, motorhomes and truck trailers.
“Conversely the electrical component manufacturing sector is having a really weak year, mainly due to the slowing local car industry and often manufacturing generic parts, so they are facing a lot of import competition,” she said.
Regarding machinery manufacturers in Australia, Finch expects agriculture machinery manufacturers to do a bit better than mining over the next five years as investment flows out of the mining industry.
“We forecast capital expenditure in the mining industry to peak around now, and it looks like there could be a few challenging years ahead for those involved,” she said.
Within the construction industry, Finch said the guttering manufactuing industry has been the highlight of that sector this year, mainly because of the cyclical recovery in residential housing.
“However we are predicting the aluminium windows and doors sector to pull ahead next year,” she said.