“At least for the moment, demand in the South has held up pretty well, even with economic downturn and the credit crisis,” says Gene Buer, executive director of hoist products for Columbus McKinnon, of Amherst, New York. He admits that the strength does not continue to be across the board. He says that while demand from customers associated with energy and large construction projects “is certainly holding its own,” some other market segments—including automotive-related businesses (where there had been strong demand for several years)—are not faring as well.
It also depends where in the South you are, says Richard Warriner, regional manager for Virginia Crane, Ashland, Virginia, and a member of the crane operating committee of the Association of Iron and Steel Technology (AIST).
While demand is ‘very strong’ in certain southern states, including Alabama and Mississippi, there isn’t as
much demand in the Florida panhandle.
“Overall demand has been above average compared with other regions of the United States through most of this year,” says Dana Andrews, vice president of US industrial crane sales for Konecranes Inc., Springfield, Ohio. There has, however, been some signs of demand slowing down in the region—both for new orders and for inquiries—in the last couple of months (starting in September) he says, attributing this partially to credit problems, “but mostly the uncertainty of the financial markets and the direction the new government officials are going to take concerning the economy.
Some customers are waiting
for the markets to shift to a buyer’s market and take advantage of better prices as our industry continues to have too many competitors and suffer from overcapacity.”
Joe DiCesare, vice president of sales for FHS Inc. (formerly known as Florida Handling Systems), Lakeland, Florida, termed demand as generally moderate, although he does admit that there has been ‘a tremendous slowdown’ in the past month or two. But he sees this as a relatively short-term situation, calling the longer term outlook for the south as positive once the current credit crunch is taken care of: “There continues to be strong demand for cranes in the South,” he says. “It is just a question of people being able to get the monies they need to finance capital investments, including the purchase of cranes.”
There are certain sectors—particularly energy-related businesses—that aren’t seeing a slowdown at all, says Fran Witt, a salesman for ProservAnchor Crane Group, Houston. His company was expecting 2008 to be another record year, largely on the back of demand from the energy sector, including the oil and natural gas sector in the South (including Texas), which is a big part of its customer base.
“I don’t see any signs of recession in the South,” despite the fact that a nationwide recession reportedly started December 2007, he says, but that isn’t so surprising. “Recessions usually start up north and make their way south. The South is usually one of the last regions of the country to feel a recession start, as well as one of the last regions to emerge from it,” says Witt.
“Demand is not so much coming from the oil and natural gas exploration and transmission companies themselves, but the companies that support them, including machine shops and fabricators,” Witt says. He adds that even with oil and natural gas prices falling recently, these companies continue to build new facilities and expansions to current ones. “They have large backlogs of work. Some of their backlogs are as long as two to three years, unless they have cancellation of orders.”
And with energy so strong for so long, companies do not seem to be having a problem financing crane purchases, he says. “They learned from the last oil bust in the 1980s to use their earning for capital expenditures.”
Witt says that demand is not only strong in the more traditional energy sector, but also from companies that support the alternative power generation industry, including wind power. He says, there are starting to be a lot of wind farms being built in the South, as well as in Texas, New Mexico, Colorado and other areas where there is “a lot of wide, open space.” This, he says, has brought a lot of companies that make composite blades and other components for wind towers.
“Alternative energy is a good industry to be involved with,” says Steven Wright, owner of Wrights Manufacturing Co., Lakeland, Florida. He says that the alternative energy business is a little slow right now, and could remain so for the next 60–90 days, or even the next six months because the current economic situation has caused some people to delay construction plans. “But that is just for the short term. I think that over the long term we will see positive demand for overhead cranes at alternative energy companies in this region.” This, he says, will be especially true if Congress approves a comprehensive energy bill. “I am optimistic that there will be an energy bill passed soon, possibly by this time next year.”
The steel industry, while possibly losing some steam ever since the financial crisis really came to a head, is also one of the more robust markets for cranes both in the south and nationwide, says Virginia Crane’s Warriner. He observes that for about 15–20 years prior to 2004 or so steels prices were depressed and steelmaking were not investing all that much in their facilities. “Once the price of steel increased, they started to invest more. There was a lot of pent up demand and much of that demand is still not satisfied,” he says, as is evidenced by a number of new steel mills and steel mill expansions, including quite a few major projects in the South.
Most of the new steel capacity being built in the South, probably about 80%, is coming from European- or Asian-owned companies. According to Warriner, these were not as directly affected by the recent downturn in the US economy. “Anyhow many of the construction projects were already in the works when the economy (and the domestic steel industry) started weakening,” he says.
And many of those projects are very major projects, which were at least partially initiated to support the growing New Domestic, or transplant, automotive industry in the South. The New Domestics have been making market share gains versus the traditional Detroit Three (Big Three) automakers over recent decades and opening several new manufacturing facilities, largely in the South, in the past several years.
One of the most active is probably Toyota, which, according to Warriner, is currently building yet another facility in Tennessee. A few years ago Hyundai built its first US assembly plant in the United States (in Montgomery, Alabama) and now its Kia Motors Corp. division is building a facility in West Point, Georgia. Volkswagen is also making the dive into the southern United States, recently announcing plans for a production facility in Chattanooga, Tennessee.
All of these facilities represent new demand for cranes themselves – albeit mainly smaller capacity cranes, notes Mark Fedor, president of Morgan Engineering, Alliance, Ohio. Perhaps the bigger impact on the crane industry, says Warriner, are new facilities being built by automotive support industries, including the steel industry.
There is currently some fear that automakers—and industries supporting the auto industry—might scale back some of their capital expenditure plans given current economic conditions, says Buer. He observes that while the New Domestics have not been hit as hard as the Detroit Three (two of whom, GM and Chrysler, received a partial bailout from the US government in December), they have also seen double digit sales declines. “Anyone connected to the auto industry right now is in trouble,” he says.
But those facilities that are already under construction or that are in advanced stages of planning are generally expected to continue to go ahead. The same holds true, Warriner says, of plans for new steel mills in the region.
One new steel mill—Severstal Columbus (formerly known as SeverCorr LLC) in Columbus, Mississippi—is already built and currently ramping up production. This mill, which has the distinction of being the first US electric furnace steelmaker to target, among other markets, exposed automotive sheet, has, according to Warriner, bought 15–18 heavy duty cranes already. It could possibly purchase more, given plans to expand its steelmaking capacity from 1.5m tons a year to 3m tons by 2010. It is owned by Russia’s OAO Severstal.
Following close behind, Germany’s ThyssenKrupp, through its ThyssenKrupp Steel USA and ThyssenKrupp Stainless USA subsidiaries, is building two new steel mills in Calvert, Alabama: a 4.1m tonne carbon steel sheet mill and a 1m tonne stainless steel mill—which are to be up and running in 2010.
According to company spokesman Scott Posey, ThyssenKrupp Steel USA has already purchased 63 overhead bridge and gantry cranes, including three river terminal slab handling cranes with capacities ranging from 20 tonnes to 120 tonnes. He says that in addition to these cranes, which are currently being fabricated at various locations in the United States and Canada, ThyssenKrupp Steel USA plans to purchase another 141 cranes (semi-gantries, monorail hoist systems and jib cranes) as well as approximately 60 specialized below-the-hook lifting devices for the carbon sheet mill.
ThyssenKrupp Stainless USA has bought 20 overhead bridge cranes with lifting capacity of between 16 and 45 tons for its cold rolling works, which is due to begin production in late 2009, says spokeswoman Mary Mullins. In the future, she says ThyssenKrupp Stainless USA plans to purchase about 10 monorail cranes, five jib cranes, five wall cranes, one gantry crane and seven electric overhead traveling cranes with capacities of between 1-16 tons, for the stainless mill’s melt shop, as well as two scrap handling cranes (one 15 ton crane and one 180 ton crane), two slab handling cranes (40 tons each), two charging cranes (300 tons each) and one 80 ton tundish crane.
Despite the current economic downturn, ThyssenKrupp “remains confident in our long-term success in the NAFTA market and our decision to build and operate these facilities in Alabama,” the company spokesperson says.
Another steel capacity addition in the region, is Sweden’s SSAB’s expansion of its Access, Alabama facility of SSAB North America Division (formerly known as Ipsco), which includes increasing of the existing facility’s quenched and tempered steel capacity from 100,000 to 400,000 tonnes once completed in 2011. Warriner says SSAB is also committed to going ahead with its construction plans despite the recession.
Demand for cranes from the military sector has also been strong in the south, says FHS’ DiCesare. “Navy bases and helicopter bases have been busy all over the South with a lot of that activity probably a result of the wars in Iraq and Afghanistan,” he says. The shipbuilding industry in the Gulf of Mexico is also very strong, says Warriner.
It is a big question mark, however, what 2009 will bring. “Big projects are already funded, so they are still going ahead. The real problem is with new projects. The credit crunch has created all kinds of problems. Not only has demand been falling, but access to credit has dried up,” observes Columbus McKinnon’s Buer. As a result, Konecranes‘ Andrews predicts that nationwide crane demand could be off as much as 20% in 2009 versus 2008, with the decline being less in the South than certain other regions of the country, partly because the South is comprised mainly of right to work states, where belonging to a union is not a requirement of employment.
“I see industrial activity to continue to grow and expansion to continue in the South at the expense of the North,” he says.
But how much, and if the region is approaching a saturation point that will eventually result in slower growth, is uncertain, says Warriner. He believes that crane demand in the South will remain strong through the second quarter, but could ‘drop off the cliff’ after that. “A lot depends on what happens with the new Obama administration,” he says. “It looks as if he will be giving more support to consumers than to industry, but it is anyone’s guess. It isn’t clear yet.”
He says that because no one knows what Obama’s policies will be a lot of industries are putting capital projects on hold. “There is a lot of waiting and seeing, not just relating to the new Administration, but also to see what the bailout will do and what will happen with the US and global economies.”
