Komatsu Ltd.’s customers in China are reluctant to buy construction equipment because they are unsure when building projects will start, underscoring the challenges the Japanese supplier and its peers face in a market that is cooling more than expected.
“Things in China are tougher” than previously forecast, Chief Executive Officer Tetsuji Ohashi said last week in an interview at the company’s Tokyo headquarters. “Customers themselves are unsure of the timing for the start of construction works. It feels like they’ll wait to buy machinery until after they see that projects are underway.”
Komatsu’s concerns in China mirror those of Hitachi Construction Machinery Co., which last week said excavator demand this quarter is running almost 50 percent below year-ago levels. In response to conditions in China, Komatsu is reducing labor costs, while Hitachi is cutting stockpiles by operating Chinese plants at half capacity.
Investment in construction is cooling as forecasts show economic growth slowing to 6.8 percent this year. That is putting pressure on China’s excavator market, which was already set to contract to less than a quarter of its 2010 peak this year, according to an estimate by Hitachi Construction Machinery.
Komatsu and Hitachi Construction Machinery compete in China against international rivals such as U.S.-based industry leader Caterpillar Inc. and Sany Heavy Industry Co.
Komatsu is the world’s second-biggest maker of building and mining equipment.
Komatsu’s Ohashi is pushing for structural reform in China, Thailand and elsewhere in the Southern Hemisphere. Part of the effort includes job cuts and shutting warehouses used to store parts. The company is also trying to cut energy use by adapting lessons learned in Japan, where it is working on a project to reduce power following the 2011 earthquake and nuclear disaster in Fukushima.
“While demand for miniexcavators, typically used at small civil engineering works in urban areas, are relatively good, we see weak demand for bigger excavators,” meaning full-scale construction works have stalled, Komatsu’s Ohashi said of the China market.
Hitachi Construction Machinery, half owned by Japanese industrial conglomerate Hitachi Ltd., is also trying to adapt to the slump in demand. Chief Executive Officer Yuichi Tsujimoto said last week that his company has slashed operations at its excavator plant in the eastern province of Anhui and plans to remain at 40 percent to 50 percent of capacity in the coming quarter.
Signs of a recovery in the global mining equipment market are yet to emerge and conditions will likely remain tough next year, Ohashi said. Caterpillar and Komatsu dominate sales of the large dump trucks used to carry everything from iron ore to copper, while Hitachi Construction Machinery holds the biggest share for sales of ultralarge excavators.
In recent meetings and discussions with top mining executives, Ohashi said he’s been informed resource suppliers will likely resume capital spending around 2017 or 2018, one to two years later than what they had previously said. That echoes the view held by Mitsubishi Corp.’s chief financial officer.
The mining equipment market is set to contract for a fourth straight year in fiscal 2015.
Among major commodities, the outlook for iron ore is especially tough as a glut of steel curbs demand for the key raw material and potentially forces some mines to close, Ohashi said. The outlook for coal and copper is less pessimistic than iron ore.
“The only thing for sure in the mining industry is that everyone turns in the same direction,” Ohashi said. Once a miner begins investment, the rest will match “meaning demand will come back all at once.”