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‘Challenging’ markets hurt Joy profits

Keywords: Tags  Joy Global, earnings report, mining equipment, commodity prices, steel, iron ore, metallurgical coal, copper Mike Sutherlin

CHICAGO — Joy Global Inc.’s earnings fell in its fiscal third quarter due to lower sales and weakened commodity markets that are becoming more challenging in the wake of depressed metal and raw material pricing around the world.

The Milwaukee-based mining equipment manufacturer posted net income of $183.19 million for the three months ended July 26, down 5.3 percent from $193.52 million in the same period a year earlier on sales that dipped 4.9 percent to $1.32 billion. The company’s fiscal third-quarter bookings of $695.4 million were down nearly 36 percent from a year ago.

"Most mined commodities are in or near supply surplus for the first time in over a decade," president and chief executive officer Mike Sutherlin said Aug. 28. "This is primarily the result of the post-recession economic recovery falling short of expectations. The eurozone is just starting to recover from a multi-year recession, China growth has slowed and growth in the U.S. remains sluggish."

The surplus has moved commodity pricing down, "making higher-cost mines uneconomic, (which) will result in closures that will rebalance the market. Until this happens, there is little incentive to invest in new mine capacity," the company said.

Prices for industrial metals and bulk commodities have declined by 20 to 40 percent over the past 18 months, the company said.

Global steel production rose 2.6 percent during the first half of 2013, with almost all of the increase coming from China, Joy said. The company estimated there are 300 million tons of excess steelmaking capacity globally, with most of that in China and Europe. "This has limited steel pricing, but volumes have continued to support demand for iron ore and metallurgical coal," it said. "Current ore pricing continues to support investment in capacity expansion, but only in high-grade, low-cost regions."

Metallurgical coal production is more fragmented with less price support, the company said, but pricing has begun to stabilize after declining for most of this year. "Stockpiles of both iron ore and met coal are at low levels, setting the stage for restocking and price support in the second half of 2013," Sutherlin said.

Joy Global sees copper as having the best fundamentals among mined commodities. "Since reaching record highs in June, global inventories have declined 14 percent, prices have rebounded 10 percent and inventories at bonded warehouses have declined 50 percent since the first quarter. These developments are supporting continued investment in (copper) mine capacity expansion," the company said.

However, miners’ reduced cash flows have resulted in them cutting capital expenditures by as much as 40 to 50 percent, and spending will remain low until demand improves enough to move commodity pricing above marginal cost and toward incentive levels.

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