Several months after ending U.S. assembly of injection presses, Demag Plastics Group Oct. 16 unveiled its new Chinese factory that it projects will double the company's production in the country by 2010.
The Schwaig, Germany-based firm expects its new Ningbo factory to produce more than 1,000 machines a year by 2010, driven by increasing demand in China for more sophisticated presses and plans to use it as an export base for the rest of Asia and America
The growth will come as rising costs and a stronger yuan push Chinese firms to shift from cheaper, low-end injection machines to the mid- and high-performance machines Demag offers to China, said Stefan Greif, vice president China, at a news conference at the Ningbo plant.
``We know we'll use this factory at full capacity very quickly,'' said Gerhard Massfelder, chief executive officer of Demag's Ningbo plant. Massfelder is retiring at the end of this year after 42 years with Demag, and Greif will take his job.
DPG's new 118,400-square-foot Chinese factory replaces a much smaller one it had originally set up in Ningbo in a joint venture with China's largest press maker, Ningbo Haitian Group Ltd. Demag ended that partnership in 2005, because it no longer legally needed a joint venture and because it wanted to bring more of its technology to China, Massfelder said.
The German company said it has seen sales grow 50 percent a year in China for the last three years, and sees openings as China's market moves upscale.
The company projects, for example, the market for the kind of mid-range machines it makes in Ningbo will grow from 19,000 today to about 25,000 in three to five years.
For high-end machines similar to what it makes in Germany and exports to China, the change will be more dramatic. China buys about 1,000 a year now, but demand will grow to 5,000 in that time frame, Greif said.
At the low-end, by comparison, demand will drop from about 20,000 today to 10,000, as rising labor and other costs in China start to push cost-sensitive manufacturing elsewhere, he predicted.
``The very cheap products will go to Vietnam or India or wherever,'' Greif said. ``The Chinese competitors, if they don't change their technology, they will die.''
He said as Chinese competitors like Haitian add technology, their machines are getting more expensive, while Demag and other foreign firms are reducing their higher costs by manufacturing in China: ``It's only a question of who is faster.''
DPG reaffirmed its previously announced plans to start making a version of its IntElect fully electric press in Ningbo, and said it will unveil a 100 metric ton model for China at the Chinaplas 2008 trade show in Shanghai. It plans to start exporting those to the United States in late 2008, offering what will be a standardized, low-cost electric for that market.
It plans to start making 50-, 160- and 210-ton IntElect presses at Ningbo in 2009.
As well, it plans to expand capacity of its Dragon model injection press in Ningbo, from 250 tons currently, with prototypes of a 280-ton model later this year and a 500-ton version in late 2009. It will have crane capacity in Ningbo to make presses up to 800 tons.
Much of its Chinese sales thus far have been in telecommunications and electronics markets, where presses are smaller, but the company said it plans to target packaging and automotive in China as it adds press sizes in Ningbo.
DPG's global operations have been restructuring the last two years, with the closing of the U.S. assembly operations and layoffs at its German factories, as it opened new factories in India and China. As well, the company has been the subject of rumors that it could be sold by its parent company, Chicago-based Madison Capital Partners.
DPG President and CEO Klaus Erkes, who spoke at the Ningbo event, said the company has turned the corner financially. He said Madison supports the company's strategy, although he declined to comment directly on the sale rumors.
``If it is true or not, if it will happen or not, what we have is an owner-independent strategy,'' he said. ``The potential buyer would buy us for our strategy and follow it.''
Erkes said the company sees a potential market for making its Titan-model large-tonnage press in either India or China. It used to make that model in the United States, but is studying manufacturing it in Asia.
Also, Erkes commented on the competitiveness of Demag's German plants. He said that as long as European customers tend to shy away from commodity machines and prefer presses with specific engineering tailored to them, and the European market retains its size, the German plants will be competitive.
The company's U.S. plant, in Strongsville, Ohio, suffered because the market collapsed for the large-tonnage Titan presses it was making, he said.