Hitachi Construction CEO Flags Slower China Demand, Output Cuts

Hitachi Construction Machinery Co., Asia’s second-biggest producer of building equipment, is expanding cuts in production at its factory in China to pare excess stockpiles because sales are dropping more than anticipated.

China shows no signs of recovery and industry sales of excavators are likely to fall by about half this month, matching declines in April and May, Chief Executive Officer Yuichi Tsujimoto said Tuesday in an interview. The Japanese company plans to operate its plant in the eastern province of Anhui at 40 percent to 50 percent of capacity in the July-September quarter, he said.

“At this moment, it feels odd -- construction plans exist but they are not being implemented,” Tsujimoto said at Hitachi Construction’s Tokyo headquarters. “I had expected demand in China would fall but not that much.”

Slower growth in Asia’s biggest economy, combined with President Xi Jinping’s campaign against corruption, has stalled construction projects in China, further threatening an excavator market that’s already set this year to shrink to less than a quarter of its 2010 peak. Hitachi competes against industry leaders Caterpillar Inc. and Komatsu Ltd. in China.

The slowdown in the nation, the world’s biggest buyer of commodities, is also linked to demand for mining equipment, which comprises 15 percent of Hitachi’s sales. Tsujimoto expects industry demand for mining equipment to fall by more than 10 percent this year. Major resource suppliers such as BHP Billiton Ltd. and Vale SA, both of which are Hitachi customers, have flagged slower expansion plans.

India Market

While demand has continued to dip in resource-rich areas such as Latin America and Australia, Tsujimoto sees signs of recovery in India. Prime Minister Narendra Modi’s push to develop coal projects to secure energy supplies has resulted in a number of customer queries, Tsujimoto said.

Hitachi Construction Machinery, half-owned by Japanese industrial conglomerate Hitachi Ltd., offers a range of products from excavators to wheel loaders and dump trucks. It holds the largest share of ultra-large excavators and supplies mining equipment to most major resource suppliers.

Amid the slump in demand, Tsujimoto has emphasized sales of parts and after-sales services. The company plans to nearly double such sales to 300 billion yen ($2.4 billion) by March 2019, he said.

Using data collected through sensors and GPS devices installed on each of its machines, Hitachi plans to discuss parts replacements with customers before issues arise. Such a system allows the Japanese equipment maker to monitor how its machines are used at construction sites.

“A big recovery in demand is unlikely to be seen for some years,” Tsujimoto said. “We must consider steps to withstand such an environment.”