China mining slump batters heavy-equipment makers

Producers of building and mining equipment steel themselves in the face of China's downturn

PUBLISHED : Saturday, 25 August, 2012, 12:00am
UPDATED : Saturday, 25 August, 2012, 2:10am

Xu Biao could sit in his office waiting for orders to roll in during a mainland building boom two years ago. Now, he is on the road trying to drum up business.

"Life is difficult," Xu, a sales manager at Maanshan Fangyuan Slewing Ring, said. "Every client is cutting production."

Maanshan Ring supplies parts to Sany Heavy Industry, XCMG Construction Machinery and other equipment makers in competition with some big rivals.

Caterpillar, which sources 25 per cent of sales in Asia, Komatsu and Sany have all slashed output in the world's biggest construction-equipment market this year as a demand slump caused by slower economic growth has spread from building to mining. Sales of large excavators, mainly used by miners, last month slid the most since January 2009, contributing to the 15th successive decline in the overall market.

"The market is just getting worse," Wang Shuangming, an analyst with consultancy China Construction Machinery Business Online, said. "It doesn't matter if you're a foreign or domestic producer, everybody is in the same boat."

Excavator sales fell 24 per cent from a year earlier in July to 5,827, according to China Construction Machinery Association data revealed by Nomura Holdings. Sales have dropped year on year every month since May last year after a government clampdown on real estate triggered a building slowdown. Construction of railways also slowed following a deadly crash in July last year.

Demand for the biggest and most expensive excavators, which weigh more than 40 tonnes, had largely withstood the slump because of demand.

However, a slowdown in coal prices has dented the overall market, causing sales to tumble 53 per cent last month.

Total fixed-asset investment in mainland coal mining slowed to a 3 per cent growth rate from 19 per cent in June. "A slowdown in mining investment in China has just begun," Nomura analyst Wenjie Ge said in a research report this month, adding that the downturn "may last longer than the market expects".

He forecast a 27 per cent decline in total excavator sales this year.

Caterpillar, the world's largest maker of construction and mining equipment, had slowed production at its chief mainland excavator factory, including a two-week shutdown last month, spokesman Jim Dugan said.

The plant, located in Xuzhou, Jiangsu province, builds mid-size Cat 300 series excavators and track-type tractors.