GRUNDFOS MACHINING INDUSTRY

issue 3, 2012

Update on the economic SitUation and development in Selected SectorS

The Seoul of SucceSS Korea’S can-do Spiritbethinkinnovate

1

4

7

2

5

8

3

6

2

3

4-10

Fig. 1, Economic Expectations for Key Countries and Industry Sectors(Source: ZEW indicator, ZEW, 17 April 2012)

Fig. 2, New Passenger Car Registrations in Europe (Source: ACEA, 17 April 2012)

Fig. 3, Machine Tool Order Intake in Germany(Source: VDMA, May 2012)

Fig. 4, Machine Tool Order Intake in Japan(Source: JMTBA, May 2012)

Fig. 5, Machine Tool Order Intake in U.S.A.(Source: AMT, 09 April 2012)

Fig. 6, German Business Climate – Industry and Trade(Source: Business Climate Indicator, Ifo Institute, 20 April 2012)

Fig. 7, The Grundfos Global Automotive Indicators(Source: Automotive Information Platform, MarkLines.com, May 2012)

Fig. 8, The Grundfos Raw Material Price Index(Source: London Metal Exchange, Steel Business Briefing, CME Group, May 2012)

About Grundfos Industry Indicators

The Seoul of Success – how South Korea’s Can-Do Spirit can lift the Machining Industry

Industry Indicators

Fig. 1 - 8

Page 4 - 10 / Industry Indicators

2 | GRUNDFOS MACHINING INDUSTRY

aboUt GrUndfoS

indUStry indicatorS

This quarterly newsletter can give you a gen-eral idea of which way the wind is blowing in the machine tools industry. It is a special supplement to our subscribers of Knowledge Link, our new website for the machining industry.

Almost all the charts and graphs here are publicly available. They come from the three major machine tool associations – in Ger-many, Japan and the United States – as well as global surveys from market analysts.

We make the final graphs ourselves, the Grundfos Raw Materials Index and the auto-motive Monthly Production Output by coun-try and manufacturer. We build the latter up from available automotive production figures. Grundfos Machining Industry seg-ment uses automotive production statistics, because that market is such a big part of the machine tools industry. Based on that,

we try to estimate how the coming one- to three months will look.

Why do we want to share these statistics? Because we have a common interest in see-ing how the market is doing. So please: read these statistics and comments as indicators alone.

We publish a full version of the Grundfos In-dustry Indicators quarterly in five languages, as well a monthly version in English only.

The Grundfos Industry Indicators Copyright 2012 Grundfos A/S. Permission to reprint graphs, tables and data has been granted to Grundfos from the various organisations rep-resented in the publication. If you have com-ments or questions on the data from those organisations, please contact them directly with the links provided. We welcome your other comments.

iSSUe 3, 2012

Chances are good that you recognize brands like Hyundai, Kia, Samsung, LG and Daewoo – or you own their products. It was not so long ago that nobody outside of Ko-rea had heard of them. The success story behind these companiesillustrates the big-ger saga of South Korea’s success over the last half century, where we started with nothing and grew to one of the world’s largest trade markets. The Korean machin-ing industry must remember this story when facing new challenges today.

THe MIRACleSouth Korea – and particularly Seoul, on

the great Han River – lay in ashes at the end of the Korean War in 1953. Our small coun-try had become one of the world’s poorest. We lacked natural resources, we were short in food and supplies and we suffered from overpopulation. The World Bank reported in 1961, “Korea’s prospect for development is anything but bright.”

But the Korean people have what we call a “Can-Do” spirit. If we dream something, we believe we can do it – and then we get it done. When we became one of the world’s poorest countries, we wanted to rebuild our nation, and we achieved it.

Fifty years ago, our leaders in business and politics drove the change. They set us on a course for growth by way of educa-tion, industrial development and export. We started with nothing, and by 2011, we became the ninth country in the world to reach more than $1 trillion in trade. We call it “The Miracle on the Han River.”

Business guru Peter Drucker once said, “We can hardly mention the history of eco-nomic growth of the 20th century without mentioning South Korea.”

THe lITTle GIANTToday, South Korea ranks No. 1 in the

world for shipbuilding and LCD displays. We are second globally in semiconductors, and our automotive and steel industries rank fifth and sixth, respectively.

In the global machine tool market, South Korea ranks fifth – about half the size of the German market and one-third of Japan’s. You can call us “The Little Giant.” Our ma-chine tool companies supply mainly the domestic market, helping the Hyundai’s and Kia’s and Daewoo’s to keep growing.

Broadly, our industries face some new challenges today. One of these is energy – to break our complete dependence on foreign imports of oil and gas. Another is our currency rate. We have a lot of for-eign money coming into Korea due to our high trade. As I write this, the problems in Greece and the euro zone have caused our currency – the Korean won – to lose nearly 3% of its value in the last month alone. Our domestic suppliers are suffering.

Thanks to the Can-Do Spirit, Korea is finding solutions to these challenges. Our industries are beginning to invest heavily in renewable energy and sustainable solu-tions. Samsung C&T signed a Global Green Cooperation Agreement with Grundfos in October 2011 for using and developing sustainable and energy-efficient products for modern construction. Some of these solutions are on display at the EXPO 2012, which opened in May in Yeosu, Korea.

In terms of foreign exchange, we are working very hard to increase our reserves for more stability. We are also trying to in-crease Foreign Direct Investment in South Korea, encouraging companies to build fac-tories here.

THe SANDwICH pRobleMThe Korean machining industry has its

own challenge. It has what you might call a sandwich problem, where Korea is in the middle of forces from above and below. On the top, we feel the pressure from Germany and Japan with high quality, well-known brands. Underneath is China with its com-petitive positioning and relatively cheap products.

To get out of this sandwich, our local ma-chine tool companies must remember the

Can-Do Spirit. Currently, Korean companies manufacture machines of a lower technical standard, sold mainly to the local market. To compete with foreign companies, Ko-rean manufacturers must improve product quality by going with the most advanced, global suppliers, like Grundfos. Ours will help to lift their own product quality with longer lifetimes, higher efficiency and low-er operation and maintenance costs.

In competing against lowest cost, it is important for the machining industry to understand the concept of Life Cycle Costs (LCC). On average, energy costs re-sult in 85% of a normal pump system’s LCC. Switching to highly energy-efficient pump technology can lead to LCC savings of up to 50%. While high-efficiency motor technol-ogy can cost a little more on the initial price tag, the payback period for this difference is usually 2 years or less. After that, the sav-ings by using the higher quality equipment is just “money in the bank.”

Small, local competitors with limited resources serve the Korean machine tool pump market today. With our Asian Ma-chining Industry Business Competence Centre (MIBC), we can improve our custom-ers’ channel to the global market and help them differentiate from the competition.

In November 2011 in Chungsuk, one of our three Korean factories, we launched our new MTA immersible pump range for filtering systems, dedicated to the “dirty side” of machining processes.

We are here to add value to the Korean machining industry – to help lift it above its current challenges. Remember the Can-Do Spirit! Remember the Miracle on the Han!

When Grundfos Korea opened 23 years ago, it had nothing. About eight years ago, we made a goal to double our sales revenue within four years. We believed we could do it. And we did that, helping us to become the largest pump company in our market. We achieved that because we believed we could do it. The Korean machining industry can do it, too.

how SoUth Korea’S can-do Spirit can lift the machininG indUStry

The seoul of success

By Kang Ho Lee, General Manager, Grundfos Pumps Korea, Ltd.

CoMMeNTARY

GRUNDFOS MACHINING INDUSTRY | 3iSSUe 3, 2012

Grundfos analyst: Global growth cooling down

economic expectations for Key Countries and Industry Sectors

Global industrial manufacturing is still sending positive sig-nals, although growth is cooling down.

The overall situation is diverging. Economic activity is slow-ing in the euro zone, along with a subdued situation in China, while the U.S. continues its high level of manufacturing activ-ity.

The order intake in the machine tool industry in Germany, Ja-pan and the U.S. has stabilised on a reasonable level.In the meantime, light vehicle production in February and March was higher than it has been in a long time

Frank BaakeSenior Strategy & Intelligence Analyst

“The ZeW indicator of economic sentiment for Germany has increased by 1.1 points to a level of 23.4 points in April 2012. Thus, the indicator has risen for the fifth consecutive time.

compared to the previous month the indicator of economic sentiment is nearly unchanged. This indicates that economic expectations have sta-bilized. This assessment shows that the financial market experts surveyed by ZeW in general ex-pect a further positive development of the Ger-man economy during the next six months.

economic expectations for the eurozone have increased by 2.1 points in April. The respective indicator now stands at 13.1 points.”

The ZeW indicator of economic sentiment is as-certained monthly. up to 350 financial experts take part in the survey. The indicator reflects the difference between the share of analysts that are optimistic and the share of analysts that are pes-simistic for the expected economic development in Germany in six months. The survey also asks for the expectations for the euro-zone, Japan, Great Britain and the u.s.A.

For more information, visit ZEW’s website at zew.de.

1

iSSUe 3, 20124 | GRUNDFOS MACHINING INDUSTRY

ZeW indicator of economic sentiment (Germany)

iSSUe 3, 2012 GRUNDFOS MACHINING INDUSTRY | 5

The German Engineering Federation (VDMA) writes: “For the German machine tool industry, the order intake in March was -18.1% compared to the same month in 2011 and fell by 9% in the first quarter, but 2011 numbers were historically high. The domestic demand increased significantly in March (+39%) compared to previous month.”

The VDMA (Verband Deutscher Maschinen- und Anlagen-bau - German Engineering Federation) is a network of around 3,000 engineering industry companies in Europe.

For more information, please visit the VDMA’s website at vdma.org.

New passenger Car Registrations in europe

Machine Tool order Intake in Germany

“In March, demand for new cars in the EU was negative for the sixth consecutive month, with a decline of 7.0% compared to March last year.

While retaining their im-portance in terms of vol-ume (1,453,407 new cars), March registrations have not been at this level since 1998. Over the first quar-ter, the EU market shrank by 7.7%, compared to the same period a year ago, with a total of 3,312,657 new registrations.”

For more information, see ACEA’s web-site at acea.be.

2

3

iSSUe 3, 20126 | GRUNDFOS MACHINING INDUSTRY

4

5

According to the Japan Machine Tool Builders’ Association (JMTBA), “The order intake for the Japanese Machine Tool In-dustry in March 2012 was +2.4%, compared to March 2011, but +12.8% compared to the previous month, February 2012, mainly supported by a strong domestic demand.”

For more information, please visit the JMTBA’s website at jmtba.or.jp

Machine Tool order Intake in Japan

Machine Tool order Intake in U.S.A.

The Association for Manufacturing Technology (AMT) writes, “February U.S. manufacturing technology orders totalled $444.06 million according to AMT. This total, as reported by companies participating in the USMTC program, was up 9.3% from January and up 35.2% when compared with the total of $328.44 million reported for February 2011. With a year-to-date total of $850.40 million, 2012 is up 21.7% compared with 2011.”

The United States Manufacturing Technology Consumption (USMTC) report, jointly compiled by the two trade associa-

tions representing the production and distribution of manu-facturing technology, provides regional and national U.S. con-sumption data of domestic and imported machine tools and related equipment. Analysis of manufacturing technology consumption provides a reliable leading economic indicator as manufacturing industries invest in capital metalworking equipment to increase capacity and improve productivity.

For more information, visit the website at amtonline.org.

iSSUe 3, 2012 GRUNDFOS MACHINING INDUSTRY | 7

“The business climate in manufactur-ing improved again in April on the pre-vious month. The manufacturers sur-veyed see both their current business situation and their business outlook as significantly more positive. Manu-facturers are increasing their capacity utilization. Their recruitment plans are slightly more conservative than last month.”

The Ifo Business Climate Index is based on ca. 7,000 monthly survey responses of firms in manufacturing, construc-tion, wholesaling and retailing. The firms are asked to give their assess-ments of the current business situa-tion and their expectations for the next six months. They can characterise their situation as “good,” “satisfactorily” or poor” and their business expectations for the next six months as “more fa-vourable”, “unchanged” or “more unfa-vourable.” The balance value of the cur-rent business situation is the difference of the percentages of the responses

“good” and “poor”; the balance value of the expectations is the difference of the percentages of the responses “more favourable” and “more unfavourable.” The business climate is a transformed mean of the balances of the business situation and the expectations. For calculating the index values, the trans-formed balances are all normalised to the average of the year 2000..The CESifo Group, consisting of the Centre for Economic Studies (CES), the Ifo Institute for Economic Research and the CESifo GmbH (Munich Society for the Promotion of Economic Research) is a research group unique in Europe in the area of economic research. It combines the theoretically oriented economic research of the university with the empirical work of a leading Economic research institute and places this combination in an international environment.

For more information, visit the website at cesifo-group.de.

Ifo business Climate Germany:

German business Climate – Industry and Trade6

iSSUe 3, 20128 | GRUNDFOS MACHINING INDUSTRY

Data source: Marklines co. ltd

Data source: Marklines co. ltd

The Grundfos Global Automotive Indicators

The year 2012 started with rising production numbers. According to the first indicators from March, this trend continues. The major countries had a record high production in March – with highest growth in China.

7

iSSUe 3, 2012 GRUNDFOS MACHINING INDUSTRY | 9

The Grundfos Raw Materials price Index

Raw Materials Update

Raw materials price index, General status May 2012

Source: London Metal Exchange, Steel Business Briefing, CME Group.

Source: London Metal Exchange, Steel Business Briefing, CME Group.

Grundfos cost Analyst Jesper Bjer-regård Juul comments on the price fluctuations of raw materials and their impact on the manufacturing industry. he writes:

“Bleak outlook for global economy”

• The US Federal Reserve talked ofkeeping interest rates low until 2014, but it made no suggestion over more quantitative easing [injecting dol-lars into the money supply in order

to lower interest rates]. In the mean-time, economists were taken by sur-prise by the big drop in March US durable goods orders, which fell 4.2%, versus expectation of a 1.7% drop.

•US economic growth slowed to anannualized pace of 2.2% in the first quarter of the year, down from 3% in the final three months of last year.

• Europe's largest economy, Ger-many, dealt a nasty surprise on the economic front with Markit's flash

manufacturing Purchasing Managers Index (PMI) falling sharply two points to 46.3. A figure below 50 suggests a contraction in manufacturing activ-ity. The number represented the fast-est drop in nearly three years.

These factors all affect the world’s com-modities industries.

8

iSSUe 3, 201210 | GRUNDFOS MACHINING INDUSTRY

iSSUe 3, 2012 GRUNDFOS MACHINING INDUSTRY | 11

be think innovate

GRUNDfoS Holding A/SPoul Due Jensens Vej 7DK-8850 BjerringbroTel: +45 87 50 14 00www.grundfos.com

The

nam

e G

rund

fos,

the

Gru

ndfo

s log

o, a

nd th

e pa

yoff

Be–

Thin

k–in

nova

te a

re re

gist

ered

trad

emar

ks o

wne

d by

Gru

ndfo

s hol

ding

A/s

or G

rund

fos A

/s, D

enm

ark.

All

right

s res

erve

d w

orld

wid

e.05

12/i

ND

usT

RY/1

0489

-D&

i

MACHINING INDUSTRYbUSINeSS CeNTReS

ASIAcompetence.asia@grundfos.comTel: (+81) 52 939 1505

eURopecompetence.eu@grundfos.comTel: (+49) 211 929 690

AMeRICAScompetence.us@grundfos.comTel: (+1) 913 227 3400