Factors Driving Growth in SecoWarwick's Capital Goods Orders
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Determinants of growth
We currently identify four factors that are influencing growth in orders for capital goods manufactured by SecoWarwick. These are the relocation of production to the US and Europe (onshoring) and deglobalization, electromobility, the development of renewable energy sources, the increase in defense spending and investment in efficiency and reducing environmental impact.
Relocation of production to Europe and US
The covid pandemic clearly halted globalization trends in the industry. Stripped supply chains from Asia in 2020, compounded by shortages of electronic components and rapidly rising transport costs, severely disrupted the production plans of global car manufacturers and hampered the work of many plants relying on overseas supplies. Large corporations in Europe were increasing orders from local companies in 2020-22 (questions mainly about product availability, less about price). The trend was further exacerbated after Russia attacked Ukraine, when part of the supplies from eastern markets was also hindered or stopped (see fertilizers, steel, problems with the availability of Russian aluminum, transformer plates, also titanium for aviation, where Airbus and Boeing covered 30-50% of their titanium needs in Russia).
In our view, further relocation of production to closer locations can be expected in the coming years, benefiting Central and Eastern Europe. Further risks are on the horizon, such as possible Chinese aggression against Taiwan, which could upset the supply channels of Chinese goods, or semiconductors and electronics from Taiwan. In addition, it is worth noting the export restrictions announced in 2Q23 by China on selected metals used in chip production. Examples include gallium and germanium, of which China controls about 80% of global production, while the US imports about 50% of demand from China.
It is also worth noting that China currently supplies more than 70% of the PV modules on which, among others, Europe plans its energy diversification. This last example leads the European Union to seek the most dynamic development of the production of PV and wind farm components in Europe in order to increase independence. A similar strategy is taking place in the area of lithium batteries. The US and China are also trying to become independent of external supplies of key equipment.
