Engineering is set for a tough year with automotive parts makers particularly vulnerable to the collapse in consumer demand. Other companies with ties to the resources sector will anxiously watch the metals exchanges, but at least debt will not be much of an issue for most companies.
Sector watchers will be watching the automotive parts side of engineering with particular interest, in case the government decides to bail out the UK's remaining car manufacturers, which should benefit Bodycote and Tomkins.
Construction has all but ground to a halt, hitting companies like Charter hard, but an economic stimulus package on both sides of the Atlantic to renew and improve infrastructure should provide a lift for Charter's industrial welding machines business as spending rises. In fact, infrastructure spending should benefit almost all the UK-listed engineering companies if it increases demand for heavy equipment.
The year will see further evidence of chief executive Philip Bowman's plans for Smiths Group. Mr Bowman has pledged to reorganise the sprawling conglomerate - symbolised by moving its old headquarters in Finchley to a new location in central London. Mr Bowman must decide how he will rearrange Smiths' corporate structure and what to do with its troublesome medical devices division. The question is whether the board is prepared to stick with underperforming businesses in a downturn, or risk a sale into a falling market. Analysts believe a disposal would be the preferred option, but the company has made no clarification of its strategy.
The state of the metals market could also point towards an early recovery for some companies. The AIG metals index bottomed out over the festive period and some commodities such as copper enjoyed a small rise in value. While some analysts attribute this to some technical movements in the AIG index, it could pressage a recovery in Weir Group's shares, which have fallen more than 60 per cent from their peak and has moved in step with the price of copper.
Undoubtedly, the year ahead will be tough for the engineering sector, but with companies relatively debt-free, the result of an earlier debt crisis in 2003, most will be able to ride out the year in a relatively secure financial position. The first tranches of debt are not due for repayment until at least May 2010, according to analysts' estimates.
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