Heavy Equipment Makers Are Pinning Their Hopes

Heavy equipment makers are pinning their hopes on a stimulus fuelled rebound in China in 2013, after suffering another bruising quarter as the global economy slowed faster than expected with little respite seen before the end of the year. Japanese excavator maker Komatsu Ltd said on Tuesday it saw demand in China for construction and mining equipment falling 40 per cent in the last three months of 2012, a day after Chinese rival Sany Heavy Industry Co Ltd reported a near-60 per cent slump in third quarter profits. "The Chinese machinery sector is experiencing a bottoming-out period," said Zhang Cheng, an analyst at Changjiang Securities in Shanghai. "We expect next year the machinery sector will maintain at current level or gradually pick up. Two reasons. First, fixed assets investment next year is expected to be a bit better than this year. Secondly, the base this year is low." Global makers of heavy machinery have suffered as the economy in China, the world's largest construction market, has lost steam since the second half of 2011. The country's economic growth rate slowed to 7.4 per cent in the last quarter, the slowest pace in more than three years. Caterpillar, the world's largest maker of tractors and diggers, slashed its 2012 forecast last week for the second time this year, noting that sales in China had slowed in the third quarter and had yet to improve. The cautionary note was the latest in a string of comments from big U.S. manufacturers, including General Electric Co and Honeywell International Inc, that the economic recovery remains tenuous and tepid at best. In Europe, France's Schneider Electric, an engineering and infrastructure company, also cut its full-year sales forecast last week, while Sweden's SKF, the world's top bearings maker and a manufacturing bellwether, said earlier this month it was cutting production as demand faltered. LOOKING FOR TURNAROUND Whilst there have been signs of improvement in some markets - Caterpillar's third-quarter results were slightly ahead of forecasts on rebounding sales in the United States - much attention remains focused on the outlook for China. Komatsu reported a 14 per cent fall in operating profit on Tuesday, with strong sales in Japan and North America failing to offset falling demand in China and Indonesia, and it did not see much improvement in China before the end of the Japanese financial year, which runs from April to March. "We do not expect China to grow so much," CFO Mikio Fujitsuka told reporters. Â "If things go well, the revenue for the second half is likely to be up 10 billion yen ($125 million) from the first half, while if things go poorly, it could be 10 billion yen lower than the first half," he added referring to the company's construction machinery business in China. Japan's Hitachi Ltd also reported falling profits on Tuesday, in part due to weaker Chinese demand. "There's been quite an impact particularly from China on the construction machinery division," said Executive Vice President Toyoaki Nakamura. "My impression is that we are starting to see quite a (negative) impact from China, quite suddenly on our earnings, especially on construction machinery and high functional materials, areas where the immediate market conditions are quickly reflected on results." Sany Heavy is bullish about the prospects for a 2013 revival, with the company's president, Xiang Wenbo, telling Reuters in an interview on Friday he expected the once-a-decade Communist Party leadership transition that gets under way next month to usher in a "golden age" of development. Caterpillar also expects China to ramp up stimulus spending next year, when it sees Chinese economic growth rebounding to 8.5 per cent, although the Illinois-based company does not expect the global economy to improve until the second half of 2013. Switzerland's ABB, which makes components for the oil and gas industry and big infrastructure projects, said last week it had seen a stabilisation in orders from China in the third quarter. France's Schneider also said a decline in sales in China had stabilised in the quarter just ended, although it remained cautious about whether the recovery would come in the first or second half of next year. "We do not know when it will come. I'm certainly not pointing to clear evidence that the recovery for China is for the beginning of 2013," Schneider's finance chief, Emmanuel Babeau, told a conference call on Thursday. Source: The Economic Times