Komatsu Joins Japan Peers in Signaling Toll of China Slump

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Komatsu Ltd. joined other big industrial suppliers in Japan to warn that earnings are suffering as China’s slowdown bites into sales of construction equipment.

China’s industrial growth is flagging as the government tries to shift to an economy led by consumption and not investment. As the world’s biggest maker of building and mining equipment after Caterpillar Inc., Komatsu is particularly keyed to the outlook for the world’s second-largest economy and biggest buyer of raw materials.

The Tokyo-based company’s 14 percent decline in first-quarter profit, reported Wednesday, follows a similar result from Hitachi Construction Machinery Co. Japan’s second-biggest maker of building equipment said Tuesday that profit fell by half due to weakness in China.

“Chinese demand declined by 50 percent in the first quarter,” Yasuhiro Inagaki, senior executive officer of Komatsu, said on a conference call. “Unlike in the past, demand didn’t increase much after the Lunar New Year” in February, a peak demand season in China.

Equipment makers are also seeing declines in sales of larger diggers and dump trucks used by mining companies amid a deepening slump in prices for copper, iron ore and coal.

Kobe Steel Ltd., which produces everything from metals to excavators, also said Tuesday that earnings at its construction machinery unit slid 84 percent.

Deteriorating Demand

“Demand in China is deteriorating further as the country’s large-size infrastructure investment remains stagnant,” Naoto Umehara, executive vice president of Kobe Steel, told reporters Tuesday in Tokyo. “We have yet to see any sign of a recovery.”

Caterpillar last week cut its full-year sales forecast after the U.S. dollar strengthened and the company said important end-user industries remain weak. Revenue will be about $49 billion in 2015, down $1 billion from its previous projection, the Peoria, Illinois-based company said.

Komatsu left its profit forecast for the year to March 2016 unchanged at 138 billion yen. Inagaki said the rate of decline in Chinese demand is likely to be slower from the second quarter.

“We will closely monitor the situation in China as the government may take more steps to stimulate the economy,” he said.

The company began warning at least a year ago that sales in China were falling more steeply than anticipated. In April, it reported a 15 percent decline in fourth-quarter profit.

Chief Executive Officer Tetsuji Ohashi said last month that conditions in China remained tougher than previously forecast due to customers’ reticence to place orders because they’re unsure when building projects will start.

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