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Business Trends

Chinese orders dry up for Japan's machine tools

September bookings drop 22% as factories brace for trade war impact

Aichi Prefecture-based Okuma suffered a 30% drop in orders from China in September.

TOKYO -- The trade tension between the U.S. and China is cooling demand for Japanese machine tools in Asia's largest economy, casting shadows over manufacturers' earnings and stock prices.

Japanese machine-tool makers' orders from China fell 22% on the year to 18.9 billion yen ($168 million) in September, the Japan Machine Tool Builders' Association said Tuesday, marking a seventh straight monthly drop. With no signs of demand bottoming out, companies are justifiably concerned.

At automatic lathe supplier Tsugami, negotiations with Chinese customers have returned to normal after a period of an unusual seller's market, according to one employee. Over the past year or two, some customers did not even look at prices before placing orders. "All they cared about was getting machine tools delivered," the worker said. Automatic lathes are often used to make auto parts.

An employee at Brother Industries lamented how orders from China have slowed significantly. The company known for sewing machines has generated sizable earnings from machine-tool sales in China, where the equipment is used to make smartphone casing and other items. Now it faces headwinds as Chinese manufacturers cut back on capital spending amid the ongoing trade war.

Okuma's Chinese orders plunged 30% in September on lackluster momentum in the automotive sector, even though demand in other overseas markets like Europe and the U.S. remained solid. The slowdown in China had stemmed primarily from the electronics sector, but now the automotive and robotics industries are also curbing orders. "China is a growth market for the medium-to-long term, but we have to wait and see what comes in the next six months or so," said Okuma President Yoshimaro Hanaki.

Machine tool exports from Japan in September climbed 1.1% on the year to 89 billion yen, turning around from a drop in August, according to the industry association. Shipments to the U.S. surged 27.4%, thanks in part to a September expo in Chicago. Exports to Europe were also brisk, underlining the downturn in China, which accounts for 20% to 30% of overall exports. September orders from electronics and precision-equipment makers in China tumbled 62.9% on the year.

Harmonic Drive Systems, which makes precision reducers used in industrial robots and chipmaking equipment, saw its parent-only orders slump by around 60% in the July-September quarter.

The stock prices of Japanese machinery builders have been taking a hit. Shares of automation equipment giant Fanuc and Toshiba Machine slid to year-to-date lows on Tuesday. Still fresh in market observers' mind is Yaskawa Electric's Oct. 10 downgrade in its earnings forecast for the current fiscal year ending February.

In addition to the trade dispute, cash-flow problems at Chinese firms are also at play. "Chinese companies' money-flow deterioration is one reason for a wait-and-see stance on capital spending," said Yaskawa Executive Vice President Shuji Murakami.

Seiichi Miura at Mitsubishi UFJ Morgan Stanley Securities believes any measures by the Chinese government to shore up the economy will take time to bear fruit. Market participants are jittery about any more bad news like Yaskawa's downgrade when additional companies announce their April-September results.

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