Latest posts by Blake Griffin (see all)
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- Big data model from Interact Analysis used to improve sophistication of market model dynamics
- Extensive primary research used to train and enhance model
- Motor drive forecast in previously unavailable depth to an industry, country, and motor power level
It is well understood that the market for low voltage AC motor drives is heavily dependent on the performance of the manufacturing sector. However, comparing the growth of the motor drive market with the growth of the entire manufacturing sector does not provide the clearest understanding of the market’s dynamics. The Interact Analysis Manufacturing Industry Output Tracker provides us with data on both industrial production (the value of good produced) and machinery production (value of machines used to produce goods) dating back 12-years. It does this by aggregating the manufacturing surveys of major manufacturing economies under a common taxonomy in a data-set of over 1.2 million data points. Using these two sets of data in tandem with data we’ve sourced through interviews with motor drive suppliers, we are able to provide a far more sophisticated and nuanced view of the relationship between drive demand and manufacturing.
In order to model demand for drives for our forecast, we first had to get an understanding for the relationship between industry production and machinery production. To demonstrate this relationship, let’s look at one segment’s performance over the last 12-years:
This graph shows the relationship between pulp and paper production growth and pulp and paper machinery production growth. Ultimately, pulp and paper production drives demand for pulp and paper machinery and demand for such machinery will always hover around the industrial production curve. You’ll quickly notice however, that the two are not perfectly in sync. Machinery is a capital intensive good and as such sees more pronounced peaks and valleys as manufacturers upgrade facilities and lines with new machinery when production levels are high, and conserve spending on such items when production is slow. This relationship is true across all industries we cover and is the starting point at which we begin to forecast drive demand.
Since drives are not typically considered a capital intensive good, the demand for drives does not see the same peaks and valleys that the machinery production curve sees. In times of high industry production, manufacturers do not rush to upgrade their drives in the same way that they would rush to upgrade or buy a new piece of machinery. This is because drives do not require the same up-front cost as large machinery, which in many cases can only be afforded in boom times. On the contrary, when times are tough, most manufacturers will still be able to afford to replace or retro-fit drives. The result is a drive demand curve which will only extend above the machinery production curve when industrial production is growing faster than machinery production.
One significant aspect not accounted for by these two curves is the affect that non-manufacturing sectors have on the drives market. Areas like water/wastewater, power, and HVACR are all areas which heavily utilize drives. The machinery used in these sectors would be captured in the machinery production curve; however, any growth as a result of replacement or retro-fit has to be assessed separately as these numbers would not reflect in the industrial production curve. Increases or decreases in demand from these areas have the effect of putting distance between the machinery production curve and the drive demand curve. When all of this taken into consideration, the drive demand curve will sit in between the machinery production curve and the industrial production curve.
The extent to which these rules are followed varies per region for reasons having to do with the size of machinery sector and the size of drive applications not included in the value of industrial production. Take first for example, our forecast for APAC:
APAC is a good example of a region with a high machinery production presence. In 2018 the ratio of machinery production to industrial production in APAC was 1 to 9. That is to say, for every 1 dollar of machinery output there was 9 dollars of industrial output. Between EMEA, APAC, and the Americas, APAC has the highest ratio of machinery production to industrial production. The region’s high rate of machinery production is reflected in the positioning of drive demand curve. The demand for motor drives is much more dependent on the success of machinery production in APAC than in other regions and as a result is much more closely coupled to the machinery production curve.
Now compare this with the Americas:
The Americas have the lowest ratio of machinery production to industrial production. Where APAC’s ratio was 1 to 9 in 2018, the Americas was 1 to 37. This indicates that the demand for drives in the Americas is much less dependent on fluctuations in machinery production. Additionally, the proportion of drives sold to HVACR versus the total market is higher in the Americas than any other region. The resulting demand curve is one that is not as closely coupled to the machinery production curve and instead pushes closer to the industrial production curve.
Looking at these curves gets at the fundamentals of the model used in our report covering the market for low voltage AC motor drives. With the depth of data provided by the Interact Analysis Manufacturing Industry Output Tracker, we can model down to the industry, country, and power level. This means users of our data will be able to view demand for drives at a level of detail that has been previously impossible. For example, with our data, users could view the anticipated demand for drives under 2.2kW in the Austrian Food & Beverage market. With 34 industry/machinery splits, 32 country splits, and 11 power splits, the number of ways which you could view the market is effectively endless. If you are interested in receiving this data or would like a briefing by the lead analyst, please contact email@example.com.