Xu Biao could sit in his office waiting for orders to roll in during a Chinese building boom two years ago. Now, he’s hitting the road trying to drum up business.
“Life is difficult,” said Xu, a sales manager at Maanshan Fangyuan Slewing Ring Co. (002147), which supplies parts to Sany Heavy Industry Co. (600031), XCMG Construction Machinery Co. and other equipment-makers. “Every client is cutting production.”
Caterpillar Inc. (CAT:US), which gets 25 percent of sales in Asia, Komatsu Ltd. (6301) 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 spreads from building to mining. Sales of large excavators, mainly used by miners, last month plunged the most since at least January 2009, contributing to the 15th straight decline in the overall market.
“The market is just getting worse,” said Wang Shuangming, an analyst with consultant China Construction Machinery Business Online. “It doesn’t matter if you’re a foreign or domestic producer -- everybody is sitting in the same boat.”
Total excavator sales fell 24 percent from a year earlier in July to 5,827, according to China Construction Machinery Association data cited by Nomura Holdings Inc. Sales have dropped year-on-year every month since May 2011 after a government clampdown on real estate triggered a building slowdown. Construction of new railways was also cut following a July 2011 train crash.
Demand for the biggest and most expensive excavators, which weigh more than 40 tons, had largely withstood the slump because of demand from miners. A slump in coal prices has dented this sector, causing sales to tumble 53 percent in July. Total fixed- asset investment in Chinese coal mining slowed to a 3 percent growth rate from 19 percent in June.
“A slowdown in mining investment in China has just begun,” Nomura analyst Wenjie Ge said in an Aug. 21 note. The downturn “may last longer than the market expects.” He has forecast a 27 percent decline in total excavator sales this year.
Caterpillar, the world’s largest maker of construction and mining equipment, has slowed production at its main Chinese excavator factory, including a two-week shutdown last month, Jim Dugan, a spokesman, said by e-mail. The plant, in Xuzhou city, Jiangsu province, makes mid-size Cat 300 series excavators and track-type tractors, according to the Peoria, Illinois-based company’s website.
The equipment-maker has cut working hours in China and it’s exporting most production to help ease inventory that built up after an anticipated sales pickup failed to happen, Mike DeWalt, director of investor relations, said this month during a Jefferies Group Inc. event.
“The current sales level in China is quite depressed,” he said according to a transcript. “We ended up with more inventory in China than we needed and it’s probably going to take us the rest of the year to work it down.”
Komatsu and Hitachi Construction Machinery Co. (6305), Japan’s two biggest construction-equipment makers, have both cut their operating profit forecasts because of the China slowdown.
Komatsu expects nationwide excavator sales to fall as much as 30 percent in the year ending March, compared with an earlier forecast for an increase of as much as 5 percent, Yasushi Sakano, president of its global retail finance division, said July 31. Existing Komatsu machines in China were used 10 percent less than a year earlier because of the slowdown, he said, citing tracking data.
The company is paring Chinese excavator production in line with sales to maintain “appropriate” levels of inventories, said Hiroshi Ishihara, a spokesman. Sales fell 50 percent last month following a 57 percent drop in the quarter ended June, he said. The Tokyo-based company was surpassed by Sany as the biggest excavator maker in China by units last year, based on China Construction Machinery Association data.
Hitachi reduced its excavator production in China by almost 60 percent from a year earlier in July following a 50 percent cut in the quarter ended June, said Keiichi Suzuki, a Tokyo- based spokesman. The company is maintaining a five-day week at its plant in Anhui province, while allocating more time to training to improve efficiencies and cut costs, he said.
At Maanshan Fangyuan, whose slewing rings let cranes and other heavy loads rotate, production is also being cut after profit slumped 78 percent in the first half. Salesman Xu, who didn’t use to travel often, is now out at least two weeks a month seeking deals, he said.
“I have to work much harder,” he said. “Otherwise, competitors will steal my clients.”
Maanshan Fangyuan has slumped 25 percent in Shenzhen trading this year. Sany has fallen 8.9 percent in Shanghai and its mining-focused affiliate Sany Heavy Equipment International Holdings Co. (631) has dropped 32 percent in Hong Kong. Caterpillar has declined 3.3 percent in New York.
Many equipment-makers in China are giving staff two days training a week or a day’s unpaid leave to curb output, said Wang Jinxing, vice secretary-general of the China Construction Machinery Association. Demand may pick up if the government rolls out supportive measures, he said.
The Central Bank has cut interest rates twice since June and allowed lenders to offer bigger discounts on loans to spur investments. Premier Wen Jiabao said earlier this month that slowing inflation allowed more room to adjust monetary policy.
The excavator sector “is an oversupplied market,” said China Construction Machinery Business Online’s Wang. “Only a government stimulus can save it.”
Sany, based in Changsha, Hunan province, has stepped up its training during the slowdown after more than doubling its workforce in two years to 51,827 at the end of December, according to data compiled by Bloomberg.
“There are problems after our explosive growth,” said Vice Chairman Xiang Wenbo, without elaboration. “We took on employees as if we were in a war.”
The company, which also makes concrete pumps, mixers and cranes, hasn’t made any job cuts because of the demand slump, said Board Secretary Xiao Youliang. Its excavator sales fell 15 percent in the first seven months, according to Nomura.
Sany also postponed a $2 billion Hong Kong share sale last month, according to people with knowledge of the matter. XCMG Construction (000425) canceled a $1.1 billion offering in September 2011. The company, which makes wheel loaders, cranes and bulldozers, reported a 29 percent drop in first-half profit this year.
“Every equipment-maker is working hard to cope with the weak market,” said the trade group’s Wang. “They will have no reason to ramp up production while sales continue to be down.”
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