The cutting tool industry faces an array of disruptive challenges ranging from auto industry efforts to produce 100 percent electric vehicles, widespread
jitters over lower oil prices, shifts in parts production
levels taking place in the aerospace market, growing calls
for customization, and a dearth of new talent entering
In addition, experts say that the consolidation trend that
triggered an estimated 200 mergers and acquisitions
among cutting tool manufacturers since the turn of the
century likely will continue through and beyond 2019.
The available market for the U.S. cutting tools sector
is in the $5 billion range, with most cutting tool value
derived from milling and hole making—about 38 percent
and 20 percent of the total, respectively, according to
a 2018 report by international management consulting
firm McKinsey & Company. In both areas, indexable
tools—those with removable cutting tips—are growing at a
higher rate than solid tools, both carbide and non-carbide,
because they’re less expensive and easier to repair.
Despite concerns over possible disruptive headwinds in
the years ahead, market veterans still see cutting tools
as a remarkably robust and resilient market that has long
weathered ups and downs and express confidence that
ultimately the sector will benefit from the trend.
Only the Paranoid Survive
“Whenever something disruptive happens, it could open up
all kinds of new industries for cutting tools—opportunities
we don’t even know about right now,” says Steve Stokey,
executive vice president and owner of Dover, Ohio-based
Allied Machine & Engineering Corp., an international
manufacturer and supplier of hole making and finishing
tooling systems. “As they say, only the paranoid survive.”
Stokey adds that people usually tend to notice the things
that are going away and overlook what might be around the
corner. “We’ll be looking at the new innovations that will be
popping up, those that are going to need a different kind of
cutting tool or different kind of approach in a big volume
way that can help customers solve problems,” he says.
In the meantime, cutting tool manufacturers that are key
players in the automotive sector, including Allied, are keeping
a close eye on automakers’ “green” momentum away from
gas fueled and hybrid cars toward full electric vehicles (EV).
Some recent auto forecasts have given the internal
combustion engine, a huge market for cutting tools, only
two generations before completely disappearing.
“The automotive companies don’t want to build hybrids
that have the electric motor and the internal combustion
engine, so we can be five to eight years away from not
having all those wonderful parts to be machining, and
that could have a tremendous effect on the cutting tool
industry,” according to Stokey.
Phil Kurtz, board of directors vice chairman of Chino,
California-based Wetmore Tool & Engineering Co. and
president of the United States Cutting Tool Institute, agrees
and says that the EV trend already is having an impact.
“There are a lot fewer machined parts in electric cars,”
Kurtz notes. “In a gasoline engine you’ve got a lot of
drilling and milling done for the engine itself and then the
transmission and rear end.
“You’ve still got a differential or drive train in the back
in the electric car, but the need for [machined parts] in
the transmission and electric motors is quite a bit less,
so heavy machining is decreased in the electric car. In
my opinion, I don’t know how fast we’ll migrate over to
[electric cars], but they’re out there for sure and it has
made a difference.”
Still, forecasters and analysts remain positive that the
industry will remain strong.
“We do believe as electrification continues to increase
in market share, it will have an impact on cutting tools
demand,” Jannick Thomsen, partner at international
management consulting firm McKinsey & Company,
told Industrial Distribution. “We also believe that from
an aggregate perspective other markets will offset that
Medical, defense, and oil & gas are among the segments
from a growth perspective in the coming years that can help
offset the anticipated decline in auto cutting-tool demand
as the all-EV shift takes hold, according to Thomsen, who
adds that aerospace is expected to remain attractive.
While the general consensus among executives
contacted is that oil & gas, traditionally subject to
short-term price, production, and political swings, will
continue to be a strong market, there is some longer-term uncertainty ahead for the sector if electric vehicles
By Mike Botta, Contributing Editor
Cutting Tools: From Auto to Oil to
Aerospace, Disruption Lies Ahead