While the Netherlands is still struggling with the effects of the coronavirus, for most SME manufacturing companies, production is back to pre-pandemic levels. In the first quarter, the domestic order position recovered reasonably well. In the second quarter, the foreign order position also picked up for many companies.
Challenges for the sector now lie mainly in the area of availability and prices of materials. Almost two-thirds face materials unavailability in the first half of 2021. In addition, 95% indicate that material prices have increased.
These are the main findings from the Royal Metal Union Economic Barometer of the SME manufacturing industry for the second quarter of 2021.
Order position domestic
The recovery of the domestic order position in the first quarter, continues in the second quarter. For four in 10 respondents, the domestic order position improved compared to the previous quarter. For two in ten companies, it worsened. Ratings were again slightly more positive in the second quarter than in the first quarter of this year. Over 45% of respondents said they were satisfied, while 12% said they were dissatisfied. Domestic order position expectations for the third quarter are at the same level as in the previous quarter. This is notable because the third quarter is normally somewhat quieter than the second quarter due to the summer holidays. 37% of companies expect a growth in order position while 14% expect a decrease. The average order backlog in weeks increased by more than a week in Q2 compared to Q1 and now averages 10.8 weeks.
Order position abroad
Of the respondents, half say they export. 10% export up to 10% of their turnover. 40% export more than 10%. Among companies exporting more than 10% of their turnover, the export share of turnover is 36% on average. The cautiously positive expectations at the end of the first quarter came true. While the order position abroad improved only slightly in the first quarter compared to the previous quarter, its development was more positive in the second quarter. At one in three exporting companies, the order position abroad increased in the second quarter, while it decreased at 12% of companies. 34% are satisfied and 14% say they are dissatisfied, while the rest are neutral. A tentative increase in the export portfolio is expected for the third quarter of this year. 38% expect a growth in the foreign order position while 12% expect it to decrease.
Prices and availability of materials
While in the first quarter 36% of SME makers increased the selling price, in the second quarter this rose to 61%. Incidentally, this high proportion has been achieved before: namely in the first quarter of 2008. The difference between sectors is large here. Obviously, this increase in selling prices has everything to do with the tension between raw material supply and demand. For 95% of the SME manufacturing industry, purchase prices have increased over the past six months. The average increase in purchasing prices was 30%. For maintenance companies, it was 9% on average, while for metalware companies, the average price increase in purchasing was 55%.
Even more annoying than high purchasing prices, is the unavailability of materials. Almost two-thirds of respondents say they have encountered this in the past six months. 40% of respondents indicated that they had been able to fully compensate for higher purchase prices by increasing their own selling prices. In addition, 5% indicated that purchasing prices remained the same. For more than half of the companies, they cannot (fully) charge the higher purchase prices to their customers.
Staff
Respondents to this Economic Barometer employ an average of 20 people. 18.9 employees on permanent contracts and 1.1 on flexible contracts. The proportion of respondents with more people on permanent contracts developed similarly in the second quarter as in the first quarter of this year. 17% of respondents employed more permanent staff, while 9% said they employed fewer permanent people. A slightly smaller growth rate applies to hired staff. At 14%, the number of people on flexible contracts increased while at 9% of companies it decreased. The share of vacancies continues to grow, with 55% of SME makers having at least one vacancy outstanding by mid-2021. On average, companies have 1.7 vacancies open. Relative to all employees, respondents have on average 4.7% of the workforce with vacancies open. Incidentally, most companies do not expect to fill all vacancies in the next six months.
Operating profit
The development of profitability is not keeping pace with that of the order position. While the order position is steadily increasing, the development of profitability remains stuck at the level of the fourth quarter of 2020. The main reason for this is higher material prices. One in three companies reported a better operating result than the previous quarter, while 20% had a worse quarter. The valuation of the operating result is also slightly more positive in the second quarter after a decline in the first quarter. 48% per cent of companies are satisfied, while 12% say they are dissatisfied with the operating result.
The expected operating result for the third quarter of 2021 is considerably less positive than a quarter earlier. The reason for this is that summer holidays fall in the third quarter, costs are running this quarter while sales are less. For the second quarter, on balance 26% said they expected a better operating profit, now only 13% on balance say they expect a better operating profit in the third quarter. As a result of higher material prices, profit trends are almost the same as in the first quarter of 2021 and the fourth quarter of 2020. Six in 10 companies turn a profit, 25% break even and 15% make a loss.
Investment in machinery - After the initial blow by the corona crisis, the mood to invest in machinery is becoming less negative as the quarters go by. Now, on balance, negative 8% say they will invest less. This is incidentally not as bad as the long-term average which is negative 14%.
Source: Koninklijke Metaalunie
