Equipment Co's Suffer Order Book Contractions

Issue 28, January 2013

Heavy mining equipment manufacturers are reporting rapidly contracting order books, affirming falling spending levels across the mining industry.

Caterpillar’s record annual sales of $65.9bn, announced Monday, masked fourth quarter sales declines and new orders “well below” prior levels. Management said that its resources division accounted for the “most significant decrease” in its order backlog, which has fallen 34 per cent in the last year to $19.6bn.

Swedish tooling engineer Sandvik has likewise seen its order intake fall below invoiced sales for the second consecutive quarter. In November, the company closed depots in its mining division in Australia, Canada and the US, shedding 650 jobs.

Atlas Copco, which produces compressors, pumps and boomers, failed to buck the trend this morning, reporting lower quarterly figures. “Uncertainty is still high,” said president Ronnie Letin. Resilient annual earnings however reflect the company’s emphasis on rental and parts, accounting for 40 per cent of sales, plugging the company into operating rather than capital budgets and increasing recurring revenue.

Order book falls reflect subsiding discretionary capital investment across the mining industry, with bulk commodities hardest hit. Brazil proved an exception for Atlas Copco, as did Africa for Sandvik, driven by orders from gold miners seeking to capitalise on high prices. The US coal market firmly led declines, slowing Caterpillar and US-listed Joy Global.

“Overall industry capex could be down 10 to 15 per cent year over year,” Joy’s chief executive Michael Sutherlin has warned shareholders. “The help we initially thought we would get from international markets became another headwind.”

Weakened demand has encouraged the sector to lower inventory to defend cash flow: Caterpillar has tapped $2bn from its inventory in the last quarter, leaving levels equal to 24 per cent of annual sales, in line with peers.

“Reduced production levels are likely to continue at least through the first quarter of 2013, until inventories and dealer order rates move back in line with end-user demand,” Caterpillar chairman Doug Oberhelman told investors. The company expects sales of $14bn in the current quarter.

“Uncertainty is still high.”
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