Construction machinery manufacturers are bouncing back in 2017

Manufacturers have been buoyed by a resilient and dynamic Asian construction scene since the start of this year.

Photo by qinghill on Unsplash

Growing demand for construction equipment in China and Southeast Asia is pushing up the earnings of construction machinery manufacturers.

XCMG believes that overall sales in China’s construction machinery industry are likely to grow by more than 40% this year, thanks to improved quality and efficiency.

For a few years, through 2016, Chinese construction equipment demand stagnated due to the slowing economy and shrinking infrastructure spending by local governments. But since last autumn, infrastructure investment has surged again in the form of public-private partnerships — in which governments draw on private funds and expertise to construct public facilities.

Despite data pointing to a mild economic slowdown in China, infrastructure investment from January to October shot up 19.6% on the year, according to statistics bureau figures.

Asia-Pacific also experienced a higher end-user demand for construction equipment.

Manufacturers are making a great recovery

Construction machinery manufacturers experienced sluggish sales through last year, but they have recovered in dramatic fashion in 2017.

Big-name brands such as XCMG, Sany, Caterpillar, Komatsu, and Hitachi have all enjoyed significant net profits this year.

  • In the January-September period of this year, XCMG Construction Machinery, the group’s Shenzhen-listed unit, saw sales jump 78% on the year to 21.5 billion yuan and net profit soar 370% to 700 million yuan.
  • Caterpillar saw its construction machinery sales jump 37% on the year in the July-September quarter, to $4.85 billion. Asia-Pacific sales across all product categories jumped 37% to $4.89 billion.
“Asia-Pacific saw the second-highest increase in dollar sales, primarily due to higher end-user demand for construction equipment.” — Bradley Halverson, Caterpillar’s chief financial officer and group president

Mine development in Indonesia has also been picking up, providing manufacturers with another source of market confidence.

Will this trend persist?

The biggest question at this point in time is whether the demand recovery will continue in China and other emerging markets.

Komatsu seems to believe so, and has been observed to be increasing its balance of inventory assets by about 178.6 billion yen from the end of March. The company built up extra inventories in view of the order situation in the second half and beyond, reflecting the company’s confidence that the recovery should go on for some time.

  • Komatsu announced that its net profit for the year ending in March is projected to rise by 40%, to 159 billion yen, based on U.S. accounting standards. Komatsu had initially projected a 19% decline to 92 billion yen.
  • Hitachi’s net profit for the current fiscal year is expected to jump 270%, to 30 billion yen, beating the initial projection of a 120% increase to 18 billion yen.

Replacement demand for larger, more efficient, energy-saving machinery is expected, as the Chinese government tackles severe pollution. Advancements in other technological aspects are also expected to follow suit, as manufacturers continue to compete through aggressive product differentiation and regional after-sale support.

Photo by chuttersnap on Unsplash

Ultimately a more robust machinery market

If construction machinery manufacturers are more confident about the industry’s future prospects, it can only mean good things for the entire sector.

It is worth noting that manufacturers are paying attention to two key aspects of their core business:

  1. To ensure a healthy supply of equipment to meet industry demand
  2. To meet the ever-changing needs of the industry through innovation

This can only mean a more robust profile of equipment choices for the entire construction industry, which is highly desirable.

Healthy equipment sales could also point towards a bustling second-hand equipment market down the road, as well as an equipment rental market.

Regardless of your company’s desired machinery profile, the market will be more competitive, and choices will be more diverse.

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