Komatsu Banks on U.S., Japan Construction as Miners Retreat
Stock Chart for Komatsu Ltd (6301)
Komatsu Ltd. (6301), the world’s second- largest maker of excavators and dump trucks, is betting on a construction revival in the U.S. and post-earthquake rebuilding in Japan to counter flagging demand from miners.
North America and Japan, Komatsu’s biggest markets, are forecast to expand about 20 percent in the year starting April 1, President Kunio Noji said in an interview. Excavator sales in China, Komatsu’s biggest market until 2010, plunged as much as 60 percent this year because of a slowing economy and may only recover after the Lunar New Year in February, he said.
Rising production of natural gas from shale deposits is spurring U.S. manufacturers and industries to increase spending, while confidence among the nation’s homebuilders reached its highest level in more than six years in December. In contrast, global miners including BHP Billiton Ltd. (BHP), the world’s biggest, have curtailed investments because of falling commodity prices.
“Demand in the U.S. is now supported by shale gas and public spending,” Noji said on Dec. 18 at Komatsu’s Tokyo headquarters. “Housing starts have begun increasing. Steps are being taken to boost the U.S. economy.”
Komatsu fell 0.9 percent to 2,087 yen as of 11:30 a.m. in Tokyo, paring its advance this year to 16 percent. Caterpillar (CAT) Inc., the biggest construction and mining equipment maker, has gained 0.2 percent this year.
In October, Komatsu forecast industry sales growth will range from 20 percent to 40 percent in the six months through March 31 in North America and Japan, the markets that together contributed one third of Komatsu’s sales last quarter. U.S. housing starts climbed in October to a four-year high, according to Commerce Department data released on Nov. 20.
Apple Inc. (AAPL)’s plan to spend more than $100 million next year on building Mac computers in the U.S., is symbolic of the manufacturing rebound in the country, Noji said. The Cupertino, California-based iPhone maker intends to shift a portion of manufacturing away from China, the country that has assembled its products for years.
Some overseas companies are also taking steps toward building in the U.S. some products that had been handled abroad. Lenovo Group Ltd. (992) will assemble computers in Whitsett, North Carolina, starting next year, while LG Chem Ltd. (051910) and other companies plan to create batteries for hybrid and electric cars in Michigan.
Caterpillar, Komatsu’s bigger U.S. rival, said in February it will open a plant in Athens, Georgia next year, shifting manufacturing of small track-type tractors and mini-hydraulic excavators from Sagami, Japan. The facility will create 4,200 jobs, including suppliers and outside the companies that will support the factory.
While construction in the U.S. is being fueled by lower energy costs and spending on homes and highways, global demand for mining equipment is expected to decline as much as 10 percent next year, Noji said. Komatsu cut its full-year profit forecast by 17 percent to 157 billion yen ($1.9 billion) in July as declining coal prices cut mining in Indonesia and Chinese sales of construction equipment plummeted, he said.
BHP last quarter decided to delay the approval of an estimated $33 billion expansion of the Olympic Dam copper, uranium and gold mine. Fortescue Metals Group Ltd. (FMG), Australia’s biggest iron ore producer after Rio Tinto Group and BHP, said it’s cutting capital spending and jobs.
Komatsu’s sales of construction and mining equipment in China dropped 44 percent to 21.7 billion yen in the quarter ended Sept. 30, the biggest regional decline, Komatsu said on Oct. 30. China’s contribution to Komatsu’s revenue fell to 7 percent in the fiscal first half from 13 percent a year earlier. The market accounted for 20 percent of Komatsu’s sales two years ago during China’s construction boom.
Dwindling demand has forced Komatsu to operate only 30 percent of its capacity in China, Noji said. Still, Komatsu has retained its employees on optimism demand will rebound and has asked local suppliers to seek other buyers, he said.
“Demand will probably increase after the Lunar New Year” holidays, Noji said. An increase in coal production and resumption of construction projects may revive sales, he said.
In Japan, efforts to rebuild the regions affected by last year’s earthquake and tsunami will probably boost demand in summer, Noji said.
Japan’s Liberal Democratic Party reclaimed power in a landslide victory this week and outgoing Prime Minister Yoshihiko Noda’s successor Shinzo Abe said on Dec. 3 he will take measures to boost consumption and create jobs through spending on public works. Noda had budgeted 20 trillion yen in relief spending for the March 11, 2011 earthquake and tsunami.
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