China’s Digger Market Poised for Recovery Says Top Supplier

  • Inventories ‘nearing zero’ as business conditions pick up
  • Industry’s fortunes may be about to turn, KYB chairman says

China has cleared its excess of excavators, suggesting that business conditions for construction equipment makers selling into the world’s second-biggest economy will begin to improve as they boost output, according to a top supplier of machinery parts.

China’s slowest growth in decades, and its impact on mining and construction, has hurt sales of firms from Caterpillar Inc. of the U.S. to Japan’s Komatsu Ltd. The industry’s fortunes may be about to turn as supply and demand balances, according to Masao Usui, chairman of Tokyo-based KYB Corp.

“Inventories are now nearing zero, meaning the number of units that users want and the amount of production will match. Up till now, demand and output weren’t equal,” Usui said in an interview at the company’s headquarters this week. The 80-year old Japanese firm says it’s the world’s top supplier of excavator cylinders, and makes parts for Caterpillar, and Komatsu’s smaller Japanese rival Hitachi Construction Machinery Co.

Construction equipment makers are suffering from a prolonged sales slump in China, where infrastructure spending has weakened, and among their global mining customers who have scaled back activity amid a collapse in metals prices. The manufacturers have responded by shedding workers and cutting excess capacity.

Hitachi Construction predicted in April that sales of diggers in China, excluding units produced by local suppliers, will fall 6 percent in the financial year to March, shrinking the market to one sixth of its 2010 peak. Usui shares the cautious view of KYB’s biggest customer in the industry that China’s demand for equipment isn’t yet improving.

Still, according to Bloomberg Intelligence, China’s excavator sales rose 7 percent last month, albeit against a low year-ago base, lifting the first half by 5 percent and reversing from a 38 percent plunge in sales last year.

In China, KYB has cut cylinder output capacity in half to 6,000 units a month and reduced its capacity in Japan by 20 percent to 12,000 units. Some of KYB’s Chinese production is now diverted to other markets, including Southeast Asia and even Japan, according to Usui.

The slump has reduced sales at KYB’s hydraulic components unit to 27 percent of its total in the year to March, from 41 percent in 2011. Automotive components made up two-thirds of KYB’s sales and its biggest customer is Toyota Motor Corp.

KYB shares rose as much as 5 percent and were 1.7 percent higher at 365 yen by 11:47 a.m. in Tokyo. Hitachi Construction Machinery advanced as much as 3.8 percent and Komatsu by 2.8 percent, outpacing the Nikkei-225 Index.

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