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Caterpillar sees softer demand in 2014

Keywords: Tags  Caterpillar Inc., endmarket forecast, oil and gas turbine market, locomotive market, LNG-powered locomotive, mining equipment market, Credit Suisse Industrials Conference, Mike DeWalt Jim Umpley

CHICAGO — Caterpillar Inc. expects flat to slower business activity across its energy, power systems, rail and mining equipment segments next year.

The company will continue to consolidate its mining equipment manufacturing capacity, strategic services vice president Mike DeWalt said Dec. 4 during Credit Suisse’s Industrials Conference.

Capacity added in the last up cycle was meant to get "more production out of existing facilities," he said, adding that the Peoria, Ill.-based company did not open new plants and does not have multiple facilities doing the same job. While Caterpillar "certainly (has) a lot more capacity than what we’re producing and selling, it does not follow that we should rip out an assembly line and throw the equipment away. That really doesn’t buy you anything."

Instead, DeWalt said, "we’re closing some facilities and consolidating some. We announced three full closures and one partial closure in the last month. There are more structural cost reductions we have yet to announce in 2014 and probably beyond."

"We (are) essentially forecasting a fairly substantial decline in end-user demand next year," DeWalt said.

For oil and gas applications, Caterpillar manufactures reciprocating engines used in drilling and fracturing, solar gas turbines and natural gas compressors used in offshore oil production. Customers include Schlumberger Ltd. and Halliburton Co., both of Houston, Caterpillar’s Power Systems Group president Jim Umpleby said.

Caterpillar is projecting flat revenue from the oil and gas sector in 2014, he added.

"We serve diverse sectors within electric power, from small retail generators sold by our dealers to large power plants. Most of the softness" in equipment demand is from electricity producers above 750 kilowatts, Umpleby said, attributing the dip "to general economic uncertainty and caution about making capital investments."

Caterpillar’s power systems unit includes its Progress Rail/ElectroMotive Division subsidiary, which builds locomotives and locomotive and railcar parts.

"We’re starting to expand internationally and we sold our first transit locomotive within the last year. We will have our first Tier 4-compliant freight locomotive in 2017," he added, noting Tier 4 refers to the latest U.S. emission standards.

"(W)e believe that there will be limited demand for Tier 4 freight locomotives in 2015 and 2016," as roughly 5 percent of the railroads’ locomotive fleet is currently idled.

One of Caterpillar’s railroad customers is using a liquefied natural gas (LNG)-powered locomotive in a demonstration trial, while others are testing LNG units.

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