July 2 (Bloomberg) -- Komatsu Ltd., the world’s second biggest maker of building and mining equipment, said sales in China are falling more steeply than anticipated, joining larger peer Caterpillar Inc. in flagging fraying Asian demand.
Komatsu’s sales in China, where economic growth is slowing, dropped dramatically in April and May and it will probably miss its annual target for the nation, Chief Executive Officer Tetsuji Ohashi said in an interview, citing delays to the start of some construction projects. At the same time, he said the bottom for mining machinery demand could be nearing.
As a seller of equipment to both mining and construction companies, Komatsu is particularly vulnerable to fading growth in China, the world’s second-biggest economy and its biggest buyer of raw materials.
“Since the impact of China is big, we will closely monitor the situation,” Ohashi, 60, said at the company’s Tokyo headquarters last week.
While China’s slowdown risks putting downward pressure on commodity prices and the brakes on miners’ spending, Ohashi said the mining equipment market could be “very close” to bottoming out. Even if there’s no recovery or flattening in demand in the fiscal year to March, he expects to see more mining companies seeking quotations for products as “they cannot miss investment timing for their growth.”
Komatsu’s China sales in the two months were about 20 percent lower on the previous year, he said. The nation accounted for 9 percent of Komatsu’s total last year and the company had hoped to grow that to 10 percent this year.
The rest of Asia-Pacific, not counting Komatsu’s home market of Japan, made up 20 percent, including sales to the mining nations of Australia and Indonesia that are feeding China’s economy. Peoria, Illinois-based Caterpillar last month reported a 30 percent fall in Asia-Pacific sales for the three months through May.
Komatsu fell as much as 0.4 percent to 2,353 yen as at 10:11 a.m. in Tokyo. The stock has gained 10 percent this year, compared with a 20 percent increase in Caterpillar.
Rio Tinto Group, one of Komatsu’s biggest customers and a mainstay supplier to China, is one of the miners paring spending to contend with previous over-investment. The London-based company, which has almost half its assets in Australia, has been on a drive to strip out more than $2.3 billion in costs since the start of last year, while expansions, like the underground stage of the massive Oyu Tolgoi copper and gold mine in Mongolia, have been put on hold.
Regardless of short-term fluctuations in demand, miners will need more equipment to dig up the mineral resources that will support global growth in population and urbanization, and the need for more roads, schools, hospitals and other infrastructure in emerging economies, Ohashi said.
Komatsu forecast in April that global demand for mining equipment in the financial year to March 2015 would hit a 2002 trough of about 2,000 units, down 38 percent from a year ago, as miners continue to cut spending. The market’s 2011 peak saw around 7,000 units sold.
Ohashi said mining sales are unlikely to contract further from that conservative estimate. Komatsu makes proportionately more profit on its mining dump trucks and excavators, as the field of suppliers is less crowded than in construction.
In China, Ohashi said he expects some improvement in demand from the second half due to government stimulus spending. The company forecast in April that demand would be flat to 5 percent lower in the financial year to March.
“We expect the firm to have gotten off to a slightly weak start,” to this fiscal year, said Toru Nakahashi, an analyst at JPMorgan Securities Japan Co. in Tokyo, in a report dated yesterday.
Nakahashi said he maintains his view that the market for mining equipment will bottom this fiscal year and that “we expect all bad news to be out this summer.”
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