CHICAGO Heavy equipment maker Caterpillar Inc. was caught off-guard by the depth of shrinking demand for mining equipment, but it is adapting to changing market conditions.
Peoria, Ill.-based Caterpillar has implemented a range of cost-saving measures, including temporary plant shutdowns, a worldwide headcount reduction of more than 13,000 over the past year, a 20-percent capital spending cut and general austerity measures companywide, Mike DeWalt, vice president of strategic services, said during an earnings conference call (amm.com, Oct. 23).
After all that, "our mining group is looking at structural cost reductions that we would take with us as volume turns up, (like) shifting production between facilities, rationalizing some product lines, rationalizing smaller facilities, consolidating functions and other actions," president and chief financial officer Bradley M. Halverson said.
Its difficult to predict where the market is heading, but Caterpillar leaders said they are getting good anecdotal information that is helping them adapt and become more flexible.
"Were still seeing strong mine production," DeWalt said. "Some of the big mining companies are setting production records. But were still not receiving nearly as many orders as we expected and our outlook is lowered as a result."
Caterpillar, which saw mining equipment sales fall 42 percent in the third quarter compared with a year earlier, is expecting another decline in end-user demand in 2014.
Several mining company executives have indicated that "any expansion in the near-term is dead. Its over. Its not going to happen," chairman and chief executive officer Douglas R. Oberhelman said. However, mines have raised output of commodities like iron ore and coal. "In my discussions with these guys, they have been pretty bullish (and) are really focused on increasing productivity, getting a lot more production out with fewer resources."
Oberhelman does not believe mining machinery demand will stagnate for long. "One to three years out, the world will grow," he said. "China will not implode. It will continue to attract iron ore and coal."