1990 abrasives-industry forecast.

1990 abrasives-industry forecast

For abrasives suppliers, the operating environment traditionally has been a stable economy with steady demand, little global pressure, and readily available capital. Now we're faced with a turbulent economy, stagnant demand, strong global pressure, and the need to provide a wider array of services.

Nevertheless, 1989 was a solid year of growth for those suppliers with the resources to react quickly to change. And 1990 offers opportunities, not only growth, but also prosperity for suppliers who can cut lead times and provide value-added services to customers in areas such as technical support and computer networking.

1989 was strong

As 1988 drew to a close, we said that "1988 will prove such as strong year that just matching its sales and profits will constitute success for most of us in 1989." While 1989 did not match the banner year of 1988--no one expected it to--it did meet our predictions as a good, profitable year overall, thanks in part to a steady demand from the major manufacturing sectors.

We believe that the continued health of several key abrasives markets, including the aerospace and machine-tool industries, will continue this market stability for the first part of 1990. However, there are turbulent times ahead, and only those abrasives suppliers ready to take charge of change will prosper.

1990 signals are mixed

Traditionally, market demand for abrasives follows the manufacturing index. In particular, we look to the aerospace, automotive, and machine-tooling industries for economic signs. While we are seeing mixed signals for overall growth in the manufacturing sector, indicators for some key markets are encouraging.

Our research indicates that automotive production was down by 10 percent in the second half of 1989. Undoubtedly, the fortunes of the auto industry will have a major impact on abrasives sales in 1990. Nevertheless, there are several bright spots in the forecast. For example, the aerospace industry continues to boom, primarily because of robust commercial-aircraft sales.

Similarly, good times are forecast for the machine tool industry in 1990. Leading Edge Reports, a national market research firm, projects substantial growth for machine tools in the years ahead. Its predictions are based on an increase in domestic demand, and the establishment of Voluntary Restraint Agreements to limit imports.

Looking at all manufacturing segments, demand for abrasives in general will be flat. But even flat demand will provide an opportunity for suppliers with the broadest lines, or those who serve niche markets, to take business away from mid-size suppliers.

No supply shortages

The availability of abrasives will not pose a problem for end users in 1990. In general, there is plenty of capacity left. In fact, supplies of most raw materials should hold steady for at least the next five years. However, there is some concern that the supply of bauxite, which is used in the production of fused aluminum oxides, may be affected by internal politics in mainland China--the world's largest source of this mineral.

Raw materials will be the catalyst for a slight rise in 1990 abrasives prices, at a rate slightly higher than inflation. This increase is based on the continued rise of raw-material prices, and on the rise in the price of resins, key components of bonded and coated abrasives. Traditionally, resin prices rise with the price of fossil fuels, and an increase in fuel prices is predicted for 1990.

Demand for service

The turbulent market conditions faced by the abrasives industry will be intensified in 1990 by more demanding requirements from customers. In an effort to combine quality with cost-effectiveness, end users are "turning up the heat" for vendor certification, on-time delivery, and technical service. The biggest end users are paring down their vendor list, usually limiting it to those suppliers who have met their quality standards.

This emphasis on service will trickle down to distributors. Major manufacturers who purchase abrasives and other consumables through distributors will specify the supplier of those abrasives, in effect off-loading some purchasing responsibilities to their distributors, and paying a premium for it. General distributors who don't provide these value-added services risk losing the business to a specialist.

Technical advice also will be in greater demand. Distributors will look to their abrasives suppliers for help in providing information needed by end users to make the most of today's premium abrasive products. Suppliers also will have to provide their distributors with market-niche knowledge to help them compete with smaller specialty distributors.

Quality push drives R&D

Obviously, the global push for quality industrial products dramatically impacts the abrasives business. In all areas of metal-working, quality translates into demands for tighter tolerances, better finishes, and, especially in the aerospace industry, extreme sensitivity to any metallurgical damage. In turn, these demands call for higher-quality and finer-grit abrasive products.

One of the most important new technologies impacting the abrasives business is ceramic aluminum oxide. For instance, Norton's SG abrasive is being used with great success in the tooling, aerospace, and automotive industries, where it is shortening grinding cycles and lowering overall grinding costs because it requires less truing and dressing--permitting heavier infeeds while lasting longer.