June 26 (Bloomberg) -- Komatsu Ltd., the world’s second- largest construction machinery maker, said sales in China are beating its forecasts, as the nation’s $585 billion stimulus plan fuels demand.

Industrywide sales of excavators in China fell by 15 percent in April from a year earlier and showed break-even growth in May, slightly better than Komatsu was expecting, Taizo Kayata, senior executive officer in charge of Komatsu’s China operations, said yesterday in an interview at the company’s headquarters in Tokyo.

“The impact of China’s infrastructure construction has been gradually emerging in May and June,” Kayata said. “We expected our sales in China to be slightly negative this quarter, but now it looks like sales will be about flat.”

Komatsu and its rivals, including U.S.-based Caterpillar Inc., are counting on China’s plans to build railways and roads as part of a 4 trillion yuan stimulus package to boost demand while business elsewhere remains weak. China’s stimulus spending is driving sales of large excavators used in construction, offsetting waning demand from smaller coal mining companies that were battered by the end of the mining boom last year, Kayata said.

Japan’s construction-machinery shipments plunged by a record 65 percent to 71.8 billion yen ($749 million) in April as recessions at home and in Europe and the U.S. undermined construction demand, the Tokyo-based Japan Construction Equipment Manufacturers Association said May 28.

‘More Confident’

Kayata said that the company’s June sales in China are likely to grow by between 10 and 20 percent, and gain momentum in coming months. “I’m more confident about our forecast that demand will improve in the second half, and the recovery rate may be stronger than we were expecting.”

The company is producing as much as 30 percent more excavators weighing between 30 tons and 36 tons than initially planned at its plant in Jiangsu Province, eastern China, the executive said. That comes after the market for these machines shrank by 20 percent in the January-to-March period and by 50 percent in the preceding quarter.

Revenue from China will grow to around 15 percent of Komatsu’s total sales this year, up from about 10 percent in the fiscal year ended March 31, Kayata said.

“With strong Chinese sales and weak global demand, Komatsu’s exposure to China will increase, making the company more dependent on the region,” said Shusaku Takayama, an analyst at Tokyo-based Okasan Securities Co., who predicts China’s excavator market will expand about 15 percent this fiscal year. He rates Komatsu “neutral.”

Komatsu, which has gained 37 percent this year, closed 1.6 percent higher at 1,530 yen on the Tokyo Stock Exchange.

To contact the reporters on this story: Masumi Suga in Tokyo at msuga@bloomberg.net; Hiroshi Matsui in Tokyo at hmatsui2@bloomberg.net.

Last Updated: June 26, 2009 02:43 EDT