Hitachi Construction Expects Mining Companies To Fuel Sales

By Masumi Suga - Jun 7, 2012 1:02 PM GMT+0800

Hitachi Construction Machinery Co. (6305), the world’s biggest maker of giant excavators, expects its global sales of mining equipment to reach a record this year as customers press ahead with projects in resource-rich countries.

The company won an order from Vale SA (VALE5) to supply excavators and dump trucks for an iron ore project in Africa and has secured a contract for gold mining equipment in Turkey this month, said Toshiaki Takase, vice president at Hitachi Construction’s global mining operation group. Sales from mining companies may surge by a third to 200 billion yen ($2.5 billion) in the year to March, the company said.

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An undated handout photograph shows a Hitachi Construction Machinery Co. large hydraulic excavator, left, and a rigid dump truck. Source: Hitachi Construction Machinery Co. via Bloomberg

“More and more orders will come,” Takase said June 5 in an interview at the company’s Tokyo headquarters. “We’re not concerned” about a slowdown from mining companies, he said.

Takase’s outlook puts his company at odds with others in the industry paring forecasts as the largest mining companies curtail investments or re-evaluate plans. Joy Global Inc. (JOY), the U.S. maker of P&H and Joy mining equipment, cut its full-year earnings and revenue forecasts last week amid concern that China’s economy is slowing.

Commodity prices have declined 17 percent from this year’s high on Feb. 24, according to the Standard & Poor’s GSCI Spot Index of 24 raw materials.

BHP Billiton Ltd. (BHP), the world’s largest mining company, said on May 15 that it will fall short of its $80 billion capital- expenditure target over the next five years. Caterpillar Inc., the world’s largest maker of construction and mining equipment, yesterday said demand from the U.S. coal-mining industry is slowing.

Orders Hold Pace

Regardless of growth projections, Hitachi Construction hasn’t seen cancellations or a slowdown in orders, Takase said. The company is already negotiating new excavator orders for delivery in 2014 because contracts for the current and next fiscal years are secured, he said.

“We see strong sales in Australia, Indonesia, the U.S., Latin America, Africa and Russia,” Takase said, dismissing any concern that Europe’s debt woes will slow equipment demand.

Industry sales of mining excavators weighing 120 tons to 800 tons will likely surge by 67 percent to 1,500 units a year globally by 2020, Takase said, citing the company’s estimate. Sales from dump trucks weighing at least 150 tons will probably increase about 30 percent to 1,700 units, he said.

A 550-ton excavator, twice as heavy as an Airbus SAS A380 and as high as a three-story building, is used to scoop rocks or minerals for loading on dump trucks.

Concerns About China

Any adjustment in the mining-equipment market will probably be avoided in the short term if the Chinese government takes steps to boost its economy, said Yoshikazu Shimada, an analyst at Tachibana Securities Co., who rates Hitachi Construction Machinery “outperform.”

To capitalize on demand, Hitachi Construction, which gets 72 percent of its sales from Asia, in March unveiled a plan to invest 47 billion yen on new plants in Japan and Indonesia, challenging industry leaders Caterpillar (CAT) and Komatsu Ltd. (6301)

Caterpillar derived 51 percent of its sales from North and South America, with Asia and the Pacific regions accounting for 25 percent last year. The U.S. accounts for 51 percent of Joy Global’s sales.

Joy Global has declined about 40 percent since its February high as mining companies reduced spending amid falling demand for coal in the U.S., forcing the Milwaukee-based manufacturer to cut fiscal 2012 forecasts.

Hitachi Construction, half owned by electronics maker Hitachi Ltd. (6501), has risen 13 percent this year, outpacing a 4.5 percent gain in Tokyo-based Komatsu and 1.9 percent advance for the benchmark Nikkei 225 Stock Average.

Acquisition of a company such as Joy Global, a producer of underground mining equipment, isn’t being considered because its product mix doesn’t match Hitachi Construction’s, Director Michijiro Kikawa said in a Dec. 22 interview while he was president of the company.