Joy CEO Says China Coal Miner Demand to Gain as Power Use Rises
Stock Chart for Joy Global Inc (JOY)
Joy Global Inc. (JOY), the world’s second-largest maker of mining equipment, expects demand from coal producers in China to gain this year as the economy picks up and energy use increases.
“We have active discussions going on with customers,” Michael Sutherlin, chief executive officer of Milwaukee-based Joy Global, said in a telephone interview today. “We expect in the second half of 2013 to see strong orders out of China. We expect Chinese orders to be up year over year.”
Joy Global has declined 22 percent in the past year as slower economic growth from the U.S. and China, the world’s largest consumer and producer of coal, prompted miners to curb capital spending. Two-thirds of Joy Global’s revenue comes from coal producers globally and about 18 percent from sales to China’s mining industry, Sutherlin said.
Long-term expansion of coal-powered power plants in China and India over the next three to four years will bolster demand for Joy’s mining equipment, Brian Rayle, a Cleveland-based analyst for Northcoast, who recommends buying the shares, said in a report March 13. The pace of China’s economic growth increased to 7.9 percent after seven quarters of deceleration. China’s power consumption will increase by as much as 8.5 percent this year as the economy expands, the China Electricity Council, a group of the nation’s biggest power producers, said Feb. 28.
Joy Global tracks about 400 gigawatts of coal-burning power generation capacity globally and China is in the process of adding 75 gigawatts in the next couple of years, Sutherlin said. Along with higher coal-fired power generation, steel production and export orders in China over the last few months look “encouraging,” said Sutherlin, 66, who will retire in February. Edward L. Doheny II, who has been president and chief operating officer of the company’s underground mining equipment division, will take over by year-end, the company said on March 14.
Joy Global rose 0.2 percent to $58.39 at 11:46 a.m. in New York.
The company has “strongly positioned” itself to benefit from a rebound in coal demand through its 2012 acquisition of International Mining Machinery in China, Rayle said. While the global coal market has begun to rebound from 2012, miners will delay capital spending until later in the year, he said.
Sutherlin said he is trying to increase the amount of revenue IMM captures from servicing and maintenance after the original machine sale.
Globally, the company’s bookings in the quarter ended Jan. 25 fell 29 percent from a year earlier to $1 billion as customers opted to delay new projects in favor of making current mines more productive and efficient, Joy Global said on a Feb. 27 call.
Miners around the world don’t appear to be delaying more projects, Sutherlin said. The delays had led miners to spend even less than their already-lowered capital budgets called for and now “we are starting to see a turning point,” Sutherlin said.
In the U.S., where the coal industry contracted last year as a warm winter and lower natural gas prices eroded demand, demand for parts and maintenance may improve sequentially quarter over quarter this year as miners schedule delayed machine servicing or rebuilds, he said. Currently, there is no need to expand the machine fleet in the U.S., he said.
Caterpillar Inc., based in Peoria, Illinois, is the world’s largest maker of mining equipment.
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