Mining equipment manufacturers are predicted to do an about-face and grow following a period of decline.
Last year major mining machinery manufacturers Joy Global and Caterpillar saw massive drops in revenue due to a difficult market.
Cash from its operations have also fallen 7% down to $195 million.
Joy also recorded a huge $155 million pretax non-cash intangible asset impairment charge as part of its global branding initiative.
It followed a 43.5 per cent drop in the company’s second-quarter earnings. It coincides with weak demand in its operating segments, particularly mining.
Caterpillar’s net income came was $US960 million on revenues of $US14.6 billion. This compared with last year’s profit of $US1.7 billion on revenues of $US16.7 billion.
Given these results, the company lowered its 2013 global economic growth outlook to just over 2 per cent. Previously it had forecasted 2.5 per cent
However this trend is set to reverse according to a new report.
A study by research company Freedonia Group has predicted growth in the sector.
It predicts that “global demand for mining machinery is forecast to expand 8.6 per cent per year through 2017 to USD $135 billion”.
It went on to highlight the Asia Pacific region and both Central and South America as the fastest growing markets for mining equipment.
This is supported by the change in Joy Global’s international focus, explaining in a recent company statement that it is “accelerating the application of Joy technology and operational excellence programs into our local China product groups, and believe these new products will generate incremental sales growth in 2014″, adding that it will “continue to shift our production capability eastward close to our demand growth potential”.
However many of the major manufacturers may see competition coming from these markets as miners look to Chinese and Indian made machinery more and more.
Speaking at an investor conference last year Rio Tinto CEO Sam Walsh explained the miner’s positive stance to equipment made in this region and the increasing quality of the machinery.
“It tends to be sophisticated purchases, which sort of is a little bit intriguing,” Walsh said.
He explained that these included haul trucks, ship loading technology, and rail cars.
Pointing to the examples of a rise in quality, Walsh said: “Funnily enough, when the original ore cars came in and we evaluated those against the traditional supplier, the quality was actually much higher”.
“Instead of spot welds, for example, on the sheet metal they were actually continuous welds.”
Caterpillar has already shifted some production overseas, with companies like Sandvik manufacturing mining machinery specifically for operations in the region.