MIR DATABANK: Review of China's automation market in the third quarter of 2020 and annual forecast

● In the first three quarters of 2020, the overall automation market has remained flat year-on-year. As the economic operation continues to recover, it is predicted that the year-on-year growth rate of the automation market in 2020 will reach 2%.

China's overall automation market size and forecast for each quarter from 2019 to 2020

(Data source: MIR Databank)

* Automation Market Definition:

2. The OEM market in the third quarter of 2020 continued the growth trend of the second quarter, and it is predicted that the year-on-year growth rate of the OEM market in 2020 will reach 8%.

● In the second quarter, the OEM market showed a relatively high year-on-year growth rate due to the global production and logistics disruptions caused by the outbreak of the epidemic at home and abroad. Many core components were out of stock, and agents generally stocked up in a panic in the market, as well as the export of epidemic prevention equipment. In the third quarter, the market gradually returned to stability, and although the month-on-month growth rate declined slightly, it still maintained a good growth trend. It is predicted that emerging industries will maintain rapid development in the fourth quarter, traditional industries will continue to recover, and the OEM market will still maintain a good growth rate.

China's OEM market size and forecast for each quarter from 2019 to 2020

(Data source: MIR Databank)

(Data source: MIR Databank)

● Traditional industries continued to recover in the third quarter, among which the market growth rate of the textile, rubber and plastic industries turned positive year-on-year, with a significant rebound, mainly due to the improvement in domestic consumer demand and the growth of export orders.

(Data source: MIR Databank)

● Based on the current market situation, MIR Rui Industrial predicts that the OEM market size in 2020 will reach 69.7 billion yuan, a year-on-year increase of 8%. Among the emerging industries, 3C and industrial robots will turn positive year-on-year, mainly due to the hot sales of 5G mobile phones from manufacturers such as Huawei and Apple, which continue to increase the demand for equipment replacement in the 3C industry; the difficulty in resuming work caused by the epidemic has prompted more companies to accelerate automation upgrades and promote machine replacement.

● Among traditional industries, construction machinery will have the highest growth rate. To boost economic growth, infrastructure investment has accelerated. From January to September, China has sold 236,500 excavators, a year-on-year increase of 32%, exceeding the level of the whole year last year. The machine tool industry will turn positive in 2020 due to the good demand for machining tools related to mask machines, laser processing machines related to 3C electronics, and machine tools used for the production and processing of precision parts for base stations. In 2020, some traditional industries benefited from the epidemic and the market, and the growth rate will also turn positive year-on-year, such as pharmaceutical machinery, tissue machinery related to toilet paper and disinfectant tissues, and packaging machinery related to epidemic prevention supplies.

Growth of automation products in various OEM industries from 2019 to 2020

(Data source: MIR Databank)

3. The growth rate of China's automation project market turned from negative to positive in the third quarter of 2020, but was severely dragged down by the first and second quarters. It is predicted that the automation project market will show negative growth in 2020.

● Starting from the third quarter, the government’s policies to stimulate the economy and the infrastructure projects that started construction in the first half of the year began to gradually recover in terms of procurement of automation products. It is predicted that the project-based market will continue to maintain a small positive growth in the fourth quarter, but it is severely dragged down by the first and second quarters. It is predicted that the growth rate of the project-based market in 2020 will decrease by 5% year-on-year.

China's project-based market size and forecast for each quarter from 2019 to 2020

(Data source: MIR Databank)

List of some rail transit industry projects that have started in the first half of 2020:

(Information source: MIR Rui Industrial compiled based on public information)

● The third quarter was the first time since the outbreak of the epidemic that the growth rate of the project market turned positive year-on-year. Among them, the metallurgical and municipal industries were the main drivers of growth, while the electricity, automobile, chemical and other industries were still relatively sluggish and in a state of negative growth.

(Data source: MIR Databank)

● It is predicted that all sub-sectors of the project-based market will decline to varying degrees in 2020. The investment growth rate of the real estate industry continues to slow down, affecting the steel industry in the metallurgical industry, making the growth rate of the metallurgical industry lower than that in 2019; the investment in the mining industry fell by 9.5% year-on-year from January to September, and it is highly likely that the market growth rate of automation products used in the mining industry will turn negative year-on-year in 2020; affected by the epidemic abroad, the demand for crude oil has declined, and the price has plummeted, dragging down the growth rate of the chemical products market.

Growth of automation products in various project-based industries from 2019 to 2020

(Data source: MIR Databank)

(Information source: MIR Rui Industrial compiled based on public information)

2. 5G still has a strong driving effect on the automation market

● As of the end of September, China has built a total of 690,000 5G macro base stations, and the cumulative number of terminal connections has reached 160 million. This year, there are about 500,000 new 5G macro base stations. The annual 5G station construction target has been completed ahead of schedule. It is predicted that more than 1.7 million 5G macro base stations will be built in 2021; the order of 5G networking is to deploy macro base stations first and then small base stations, but the interval between the deployment of the two will not be too long. It is expected that 5G small base stations will explode in 2021-2022, and the number will be at least one million.

(Information source: MIR Databank)

● As the construction of 5G networks gradually accelerates, the penetration rate of 5G mobile phones is also increasing rapidly. Changes in the RF part of the 5G mobile phone industry chain and the material of the back cover of mobile phones have brought new growth points for automation equipment manufacturers.

3. Objectively view the pressure on macroeconomic growth

● In the first three quarters, the total retail sales of consumer goods decreased by 7.2% year-on-year. It is very likely that negative growth in consumption will become a reality in 2020. There are still uncertainties in exports. In 2020, the global economy fell into recession due to the impact of the COVID-19 epidemic. Except for China, major economies in the world are expected to shrink throughout the year. On the one hand, due to the economic recession, foreign demand may weaken; on the other hand, after other foreign countries gradually resume production, they may also regain some market share previously replaced by Chinese exports.

● In October, the number of newly confirmed COVID-19 cases in France, Britain and Germany broke previous records in a single day. A second outbreak of the epidemic occurred in Europe and there is also the possibility of a second outbreak of the epidemic in China. We need to strictly prevent imported cases from abroad. Sino-US relations have not improved and trade frictions may increase again.

In summary, the automation market performed better than expected in the third quarter, which boosted our confidence that the year-on-year growth rate of the overall automation market in 2020 can turn from negative to positive; China's economy has recovered steadily and continued to improve, but uncertainties such as domestic consumer demand, foreign exports, Sino-US relations and the epidemic still exist. The factors that affect the automation market by the macro economy cannot be ignored. We should have a mentality that opportunities and challenges coexist to actively face various changes in the market.