Caterpillar remains cautious about the state of the mining industry

April 25, 2016

Caterpillar cut its 2016 revenues forecast again and now projects its sales to be between $40 and $42 billion, or $2 billion lower than the previous projections.

Sales of its construction machinery in China are starting to improve, but remain sluggish and while there are signs that things could be improving in the mining sector with rising commodity prices, the excess of supply is keep Caterpillar cautious about the future of the sector.

“Commodity prices improved from their recent lows, but excess supply remains. It is not clear at this time that the current prices are either sustainable or sufficient to drive increased demand for equipment,” Caterpillar chief executive officer Doug Oberhelman said. “Mining customers continued to focus on improving productivity in existing mines and reducing their total capital expenditures, as they have for several years.”

Oberhelman said modest government stimulus spending in China on infrastructure projects had lifted the company’s spring equipment shipments there for the first time in at least three years. Equipment demand also is rising ahead of China’s new emissions standards for engines that are expected cause higher prices for machinery.

“I’m very cautious about how far [the demand] goes,” said Mr. Oberhelman on an investor call. “We’re going to have to watch this month by month.”

Other good news came out of the bauma trade show in Munich, Germany in April where oders were above expectations, and feedback from European clients was much more positive than in recent years.

The Wall Street Journal reported that Caterpillar is facing the fourth straight year of falling sales and that the company is trimming thousands of jobs to cut costs.

Executives cautioned against interpreting some of the brighter market signals as evidence of a sustained recovery in the global equipment market for construction and mining.

Business conditions remain challenging in most of Caterpillar’s markets. The rising volume of commercial and residential construction in the U.S. typically drive higher demand for construction machinery, but Caterpillar’s North American sales in the sector fell 18 percent from a year ago, weighed down by a glut of used machinery pulled from idle frack oil and natural gas fields.

The recent uptick in commodity prices also hasn’t spurred its mining equipment business, with sales down 26 percent in the quarter. The energy slowdown and overcapacity in the U.S. rail industry pushed its engine sales down by a third.

Caterpillar expects prices for its equipment to fall about 1 percent this year, double its previous forecast. With rivals such as Volvo AB and Komatsu Ltd. struggling against excess inventories and weak demand as well, Caterpillar said it won’t risk losing market share to rivals.

The company reported a profit of $271 million for the quarter ended March. 31, compared with $1.25 billion a year earlier. Sales fell 26 percent to $9.5 billion.


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