Weakening orders for elevators in China may indicate that manufacturers such as Schindler Holding AG, Kone Oyj, ThyssenKrupp AG and Otis are about to experience a similar plunge in local demand as the mining-equipment industry.
The Chinese market, the world’s largest for new elevators, last year grew the least since 2000 because of the country’s slowing real-estate sector, data compiled by Bloomberg Intelligence shows.
“Newbuild residential prices have fallen at an accelerating rate in 2015 and are accompanied by declines in new floor space started,” according to an analysis by Johnson Imode and Mustafa Okur of Bloomberg Intelligence.
The slowdown is a setback for the world’s biggest elevator makers, whose business was boosted in recent years by massive Chinese investments in new buildings and urban infrastructure. China accounted for about 70 percent of global elevator orders last year and the major elevator producers have doubled Asia-Pacific sales on average since 2010, according to Bloomberg Intelligence.
“Comparisons with mining and construction equipment suppliers seem pertinent,” given the order intake of these companies has dropped by almost half from its peak in 2012 and profits fell sharply as China demand waned, said Imode and Okur.
China’s construction boom saw mining-equipment orders increase sharply on rising demand for commodities including iron ore and copper. As result of the economy’s slowdown, mining-equipment order intake then dropped 44 percent from its peak in the third quarter 2012, according to Bloomberg Intelligence. Chinese steel production grew by only 4 percent in 2012, a quarter of the average growth since 2000.
According to Bloomberg Intelligence, global elevator companies may not be able to offset a drop in Chinese equipment orders as most other major markets are saturated and developed. The weak demand may spur consolidation in the global elevator industry, the analysis said.
The four big elevator producers’ lucrative maintenance sales in China have also grown less than new equipment sales, partly because these services are mainly provided inhouse or domestically. That is clouding their long-term prospects and has decreased their average earnings before interest and taxes margin by 1.8 percentage points from 2010 to 13.7 percent last year, according to Bloomberg Intelligence.