Bloomberg News

Hitachi Construction Targets Latin America for Mining Expansion

November 15, 2012

Hitachi Construction Targets Latin America for Mining Expansion

Hitachi Construction Machinery Co. excavators bound for shipment sit in a lot in Yokohama City, Kanagawa Prefecture, Japan. Hitachi Construction will have a tough fight to catch Caterpillar and Komatsu as they are the established players in Latin America for large mining equipment, said Hiroyuki Soma, an analyst at Mizuho Investors Securities Co. Photographer: Tomohiro Ohsumi/Bloomberg

Hitachi Construction Machinery Co. (6305), the world’s biggest maker of giant excavators used in mining, plans a sales drive in Latin America to take market share from Komatsu Ltd. (6301) and Caterpillar Inc. (CAT:US)

Hitachi’s making the move into the resource-rich continent where its competitors dominate mining equipment sales as demand slows in Indonesia and Australia. The company will work with Deere & Co. (DE:US), its U.S. partner that handles marketing for Hitachi in the region, Toshiaki Takase, vice president at the company’s global mining operation group, said in an interview.

“We’re far behind Komatsu in Central and South America,” Takase said at the company’s Tokyo headquarters. “We’ll need to put our energy and drive into that market.”

Takase wants to double Hitachi’s 10 billion yen ($123 million) annual sales in Latin America within a couple of years “as a first step” to close the gap with Tokyo-based Komatsu that sells more than 10 times that amount in the region, he said.

Hitachi Construction will have a tough fight to catch Caterpillar and Komatsu as they are the established players in Latin America for large mining equipment, said Hiroyuki Soma, an analyst at Mizuho Investors Securities Co.

“It’s important for them to build a dealer network with , Deere, but in addition they’ll need to directly deal with major miners” and Hitachi’s quality customer base will help that, he said.

Brazil Target

Brazil and Chile are the company’s next target for expansion in the resource-rich region after it gained a foothold in Colombia, Takase said.

Hitachi previously kept its focus on expanding in Asia and mostly stayed away from North and South America, where Komatsu had the ambition to catch up with Caterpillar, the world’s biggest maker of construction and mining equipment, Soma said.

Central and South America were Komatsu’s biggest market for mining equipment after Asia in the year ended March 31, according to an Oct. 30 company presentation.

Hitachi last month forecast sales and profit for the current year that missed its July target as falling coal prices cut mining activity in eastern Australia and Indonesia.

As economic growth in Latin America and Africa fuels demand for raw materials, this will help Hitachi keep its global sales of mining equipment at the current year’s levels of 182.1 billion yen in the fiscal year starting April 1, 2013, according to an estimate by Takase.

Hitachi Construction, half owned by Hitachi Ltd. (6501), Japan’s second-biggest manufacturer, rose 1.6 percent to 1,390 yen as of 11:04 a.m. in Tokyo trading. The stock has gained 7.3 percent since the beginning of this year. Komatsu has fallen 2.3 percent in the same period, while Caterpillar has dropped 10 percent.

Mining Slowdown

The European debt crisis and slower growth in China are beginning to curtail demand for Hitachi, Komatsu and Caterpillar machinery. Weaker commodity prices prompted companies including BHP Billiton Ltd. (BHP) and Fortescue Metals Group Ltd. to put off projects and cut jobs.

With the slowdown, Hitachi Construction may delay the start of operations at plant expansions in Hitachinaka city, northeast of Tokyo, Takase said. In March, the company said it would spend 40 billion yen on the factories that would start up in 2013. A decision will be made at the end of March, Takase said.

Hitachi’s biggest excavator weighing 800 metric tons is as tall as a three-story building and costs as much as 1.3 billion yen. Hitachi holds a 30 percent global share of the market for large excavators weighing more than a 100 tons, while it has a 10 percent share of dump trucks that can carry at least 150 tons, Takase said.

As a latecomer to the dump-truck market, Hitachi wants to boost sales of the vehicles, given as many as five trucks are sold for every excavator, said Takeshi Kitaura, an analyst at Deutsche Securities Inc.

“The company can grow its sales because it has built a reputation for excavators and made customers recognize its brand,” Kitaura said.

To contact the reporters on this story: Masumi Suga in Tokyo at msuga@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net

To contact the editors responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net; Jason Rogers at jrogers73@bloomberg.net


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Companies Mentioned

  • CAT
    (Caterpillar Inc)
    • $102.51 USD
    • -1.83
    • -1.79%
  • DE
    (Deere & Co)
    • $83.64 USD
    • -0.51
    • -0.61%
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