Caterpillar to cut jobs in response to mining woes

April 8, 2013

Caterpillar announced 460 job cuts at its plant in Decatur, IL as part of its efforts to cope with lower demand.

Citing weakness in the mining sector, Caterpillar, the largest maker of mining equipment in the world, also had announced lay-offs and instituted a shortened working week last year.

The company will cut up to 300 jobs at a facility in South Milwaukee, WI, which it acquired when it bought mining equipment manufacturer Bucyrus in 2011. In late February, Caterpillar announced it would cut 1,400 jobs in Belgium, citing rising costs and the troubling state of the European economy, which has seen weakness in both its core construction and mining sectors, the Financial Times reported.

Caterpillar is not the only equipment manufacture facing difficult issues as the mining industry struggles to cope with lower commodity prices and rising costs, all while facing a slowing demand for resources and commodities from China.

Joy Global, a Milwaukee-based mining equipment services group, reported a roughly 30 percent drop in orders in the quarter ended January 25, to $1 billion, compared with a year earlier. In the previous two quarters, Joy orders dropped 5 percent and 25 percent, respectively, year on year, according to the Financial Times.

Last October, Joy announced it would cut up to 250 jobs in response to slowing business.

Coal producers, and the companies that supply mining equipment, including Caterpillar, have suffered amid a boom in U.S. natural gas. The price of U.S. natural gas reached an 18-month high on April 5, at $4.124 per million British thermal units.

But a surge in output in recent years has driven prices as low as $2 per million btu last year, causing demand to spike among petrochemical plants and industries configured to take advantage of the boom.

The effect on U.S. coal producers has been severe: coal production and coal power generation fell by a tenth in 2012.

The economic slowdown in China saw growth fall to 7.8 percent last year, the lowest in more than a decade, driving down to single-digits demand for commodities such as iron ore, copper and coal.

Demand growth remains anaemic, which has kept global prices for commodities below their post-financial crisis peak in 2011, according to data from the International Monetary Fund. China, the world’s largest steel producer, also saw steel inventories reach record levels in February, suggesting buying remains constrained.

Still, Caterpillar is optimistic about the market, which it has said will see GDP growth near 8.5 percent this year, driving up commodity prices and demand. Increased Chinese demand would help boost Caterpillar sales in Australia and South America, among other places that supply China with natural resources.


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