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Caterpillar looks for uptick to generate orders

Keywords: Tags  Caterpillar, mining sector, equipment orders, China slowdown, fiscal policy, Mike DeWalt, Doug Oberhelman, Corinna Petry

CHICAGO — The long-term outlook for the global mining sector is positive despite a recent downturn in demand, according to heavy equipment manufacturer Caterpillar Inc.

The economic slowdown in China, bracketed by Europe’s ongoing debt crisis and recessionary conditions, means mine operators have eased off ordering new machines, but as soon as global growth moves higher there will be pressure to mine commodities like iron ore, copper and metallurgical coal, executives at the Peoria, Ill.-based manufacturer indicated.

"The key phrase when we talk about the world economy in 2013 is a bit better, but still weak," Mike DeWalt, corporate controller and investor relations director, said during a conference call.

"In the United States, we’re becoming increasingly optimistic. Interest rate policies and the Fed’s plan to continue injecting liquidity are positive for 2013 growth," he said. "We expect the U.S. economy to grow at least 2.5 percent in 2013. We expect the U.S. housing industry to help (lift growth)."

In Europe, Caterpillar projects "another tough year. Much of the region is entrenched in fiscal austerity (so) we expect the eurozone to struggle to match 2012 and we expect construction activity there will decline," DeWalt said.

Many emerging nations are easing fiscal policies and lowering interest rates, which should contribute to better growth. "Specifically in China, we’re expecting improvement in 2013," he said. Caterpillar foresees 8.5-percent gross domestic product growth for China, a more favorable environment for construction and higher commodity demand.

Chairman and chief executive officer Douglas R. Oberhelman said Caterpillar needs more orders over the next two quarters to meet its forecast. "Order rates can’t stay at the level they were during the second half of 2012; they will need to go up," he said.

The company built a massive mining equipment backlog from early 2011 through mid-2012. "That’s when sentiment changed in the world economy. China was softer, you had an easing of commodity demand, so over the past six months customers really eased off on ordering," DeWalt said.

Caterpillar cut output and worked down finished goods inventories, and some plants will remain idled until new orders accumulate.

Caterpillar anticipates a "slightly firmer" price for iron ore this year, pegging it at $135 per ton, while copper pricing also should improve. "If that happens, that will help the order rates as the miners respond to that," Oberhelman said.

Caterpillar’s forecast for mining remains very good, executives said. "The issue of declining ore grades and deeper mines is still there," DeWalt said.

"I really hope we’ll see world growth move up to 3 to 4 percent at some point. If that happens, it’s going to be mineral-driven," Oberhelman said.

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