HONG KONG – Xu Biao could sit in his office waiting for orders to roll in during a Chinese building boom two years ago. Now, hes hitting the road trying to drum up business.
Life is difficult, said Xu, a sales manager at Maanshan Fangyuan Slewing Ring Co., which supplies parts to Sany Heavy Industry Co., XCMG Construction Machinery Co. and other equipment-makers. Every client is cutting production.
Caterpillar Inc., which gets 25 percent of sales in Asia, Komatsu Ltd. and Sany have all slashed output in the worlds 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 doesnt matter if youre 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. 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 worlds 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 email. The plant, in Xuzhou city, Jiangsu province, makes mid-size Cat 300 series excavators and track-type tractors, according to the Peoria, Ill.-based companys website.
The equipment-maker has cut working hours in China, and its 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 event.
The current sales level in China is quite depressed, DeWalt said. Every equipment-maker is working hard to cope with the weak market, said Wang Jinxing, vice secretary-general of the China Construction Machinery Association. They will have no reason to ramp up production while sales continue to be down.