Japanese media: Japanese machine tool exports to China are not showing signs of bottoming out

"Nikkei Business News" reported on October 24 that the Japan Machine Tool Industry Association (Japan Labor Union) released the September machine tool order amount (determined value) released on October 23, showing that Japan’s export orders to China decreased by 22.0% year-on-year. It fell to 18.9 billion yen. It was lower than the previous year for 7 consecutive months. In China, the trend of reducing investment is expanding due to trade frictions and other effects. There is still no sign of bottoming out, and the downside risks to Japanese machine tool companies' share prices and performance are strengthening.

“Chinese customers are beginning to pay attention to price and performance”, and the head of Tsugami Corporation, an automatic lathe manufacturer for auto parts manufacturing, personally feels the change in business in China.

In the last 1-2 years of boiling due to Chinese orders called “buy buys”, some Chinese customers did not pay attention to the price, saying “all in all, sell it to us”. Car-related customers are concerned about whether they can buy a machine tool. The person in charge said that the serious seller market, which is abnormal, "has returned to the usual negotiations."

The person in charge of the brother industry also said that "orders from China have obviously slowed down." The company is known for its home sewing machines, but one of the main cash cows is machine tools for China. The company's machine tools are used in China to produce smartphone cases that have consistently supported the company's performance. However, the headwinds of the US trade war are now blowing up in China.

From the perspective of Japanese machine tool makers, foreign demand in Europe and the United States remained strong overall, but orders for China were down by about 30% in September due to sluggish orders in the automotive-related sector. Sales of high-priced models have declined, and on low-priced models, the number of customers who purchase multiple units has also decreased.

Previously, the main reason for the slowdown in the Chinese market was the decline in electronic manufacturing foundry services (EMS) such as smartphones, but the impact seems to have expanded to the automotive and robotics industries. Da Yu’s president, Mr. Hua Mu, said, “China is still a growth market in the medium and long term, but customers will remain on the sidelines in the next six months or so.”

According to statistics from the Japan Machine Tool Industry Association, foreign demand (exports) increased by 1.1% in September to reach 89 billion yen. Compared with August, which was 21 months lower than the previous year, it turned into an increase. Due to the effect of the exhibition held in Chicago in September, exports to the United States increased by 27.4% to 29.7 billion yen, a record high, and Europe and the United States performed strongly.

On the other hand, the weakness of the Chinese market, which accounts for 2-3 percent of external demand, is becoming more apparent. Among exports to China, orders for electronic and precision equipment such as electronic manufacturing services fell 62.9% year-on-year to 2.7 billion yen. In addition, orders for general machinery that are closer to the economic reality have also fallen by 15.6% to 5.4 billion yen.

Variations can also be seen from air compressors that are indispensable for factory automation. Sato Koshi, director of securities research at Nomura Securities, said that AirTAC, a Taiwanese air compressor company, reported a 2% decline in sales in September 2018 compared with the previous year.

90% of the company's sales come from mainland China. As of May 2018, it maintained a growth of 2-3 percent, but after entering June, the growth rate plummeted to around 1 digit. Saito said, "The US increased tariffs were initiated in July, but (observed data found) the impact of the timing of punitive tariffs has already appeared."

Harmonic Drive Systems, a precision reducer manufacturer used in various production equipment such as industrial robots and semiconductor manufacturing equipment, reduced the order amount (individually) by about 60% from July to September 2018.

In view of the slowdown in China's economic growth as a major sales channel, there will be concerns about the deterioration of performance in the future, so the share price of machine tool concept stocks has shown a downward trend. In the Tokyo stock market on October 23, stocks of FANUC and Toshiba Machinery hit a new low since the beginning of the year.

What is remembered by market participants is the expected downward revision of the full year of the 2018 fiscal year (as of February 2019) issued by Yaskawa Electric on October 10. The company's executive executive director said on Tuesday that in addition to trade frictions, "the deterioration of Chinese corporate capital turnover is also one of the reasons for equipment investment to turn to wait and see."

Mitsui UFJ Morgan Stanley Securities' Mi Mi Cheng said, "Although the Chinese government may take economic stimulus measures, it will take a long time to produce results." For the results of the April-September 2018 release of related companies that will be fully launched in the future, whether the impact of the performance will be expanded like Yaskawa Electric, the market is becoming sensitive.

The director of the Japan Machine Tool Industry Association, Amano Justice, said that it is difficult to say that it has bottomed out. To what extent does the impact of the trade war showing the risk of intensification increase? For each machine tool company, etc., the risk cannot be eliminated or will continue for a while.

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