Growth engine

CW looks at the growth of construction equipment saless in Europe

Building construction accounts for the biggest customer segment in Europe.
Building construction accounts for the biggest customer segment in Europe.

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In Europe, construction-equipment sales are on the increase. CW looks at the impact this will have on the global industry.

Although the absolute level of demand for construction equipment in Europe “is still fine, the mood of European companies is changing,” stated Johann Sailer, president of the Committee for European Construction Equipment (CECE) at a press conference on the occasion of the CECE Congress in Berlin. “One of the biggest issues is the strong gap running across Europe,” he said.

Markets like Spain and Italy had to face even further decreases in the first half of the year, while others like the Scandinavian and Baltic markets, or even Turkey, have experienced a good rise in demand, and big markets like Germany, France and the UK recently have shown clear signs of slowdown.

The CECE monthly business barometer index, which reflects the business climate in the European construction industry, has decreased for four months in a row, which is “a bad sign,” stated the CECE. Both current business and future sales expectations are evaluated negatively by the majority of the industry people surveyed.

A clear indicator for this is a decline in incoming orders. “The danger of the further escalation of the Euro crisis remains one of the biggest threats, since it is leading to uncertainty and thus less investment on the customer and public side,” said the CECE.

On average, the European construction equipment industry is estimated to see a 6% production growth by the end of this year. However, the outlook for 2013 is “rather pessimistic.”

It is expected that the still well-performing markets will no longer grow at the same speed as they have after the crisis.

“And those that by now must have hit the bottom line will recover only very modestly. Beyond Europe, it is especially the weak Chinese market that worries the industry. In China, local construction equipment sales have dropped by 40% in the first half of the year, and will probably end up with a 25% decline by the end of it,” said the CECE.

In Europe, equipment related to building construction is expected to stay on the growth path, while demand for earthmoving and road equipment cannot be expected to see much momentum as of today.

In H1, earthmoving equipment sales have not changed much compared to the previous year. In total, a little more than 28,000 units were sold, which reflects the comparatively good absolute level of the industry. Wheeled excavators were the best-performing product group, with sales unchanged compared to the same period last year.

Big-volume machines such as crawler excavators and wheeled loaders stayed within single-digit declines, whereas skidsteers, backhoe loaders, dozers, dump trucks and motor graders all recorded a decline. Compaction equipment is in a slightly better shape than earthmoving, yet it looks like growth will also come to an end by the end of the year.

Light compaction equipment already recorded sales declines in the first half of the year, while self-propelled rollers are still on a growth path, and sales of asphalt pavers remain almost unchanged.

Given a pessimistic outlook for the European civil engineering industry, with austerity programmes and a general lack of new road projects in most countries, the equipment industry will derive its growth in coming months only from replacement investments.

This will probably imply further decreases, especially in Central and Eastern European countries, where equipment fleets are young and replacement is unlikely on a big scale.

Building construction accounts for the biggest customer segment in Europe. Concrete equipment and tower cranes are still in a long-term process of recovery from crisis. On a year-to-date basis, tower crane sales in Europe are now up between 5% and 10%. However, for the full year of 2012, a single-digit growth remains the most likely scenario.

Although demand is accelerating, the absolute level in Southern European countries remains “devastating.” In the concrete equipment industry, demand is growing again, but also here with big differences according to country.

For truck mixers, CECE statistics recorded a solid growth of above 20% in the first half of the year, compared to the same period the previous year. Batching plants and mixer systems have shown similar results.

Prospects for concrete equipment are “not too bad,” reported the CECE. With a positive outlook for the building construction industry in some European countries, demand should exceed sheer replacement.

Current incoming orders at above last year’s level confirm this trend for the next months, and therefore double-digit growth in sales on a European level for 2012 appear realistic.

Caterpillar sees global economy worsen across 2012
Caterpillar, the world’s largest manufacturer of construction and mining equipment, has lowered its sales outlook for 2012 and 2013, adding to fears that the global economy is worsening. The company announced a record profit in Q3, but a smaller-than-expected revenue.

Bright spots included sales of construction equipment in North America and sales of mining equipment in Asia Pacific. Sales in the Middle East, Africa and CIS were “moderately higher”, while declines were recorded in China and in Europe.

“The decline in the sales and revenues outlook reflects global economic conditions that are weaker than we had previously expected,” said CEO and chairman Doug Oberhelman. “Through the year, we have seen continued economic weakening and uncertainty.”

Production across much of the company has been lowered, resulting in temporary shutdowns and layoffs. Two factors have hit Caterpillar sales: weak end-user demand, and moves by its dealer network to lower its total inventory levels.

In a conference call to discuss the Q3 results, Caterpillar’s top executives said that customer demand was not growing as fast as expected, and that the same conditions were prevalent across construction, mining and power systems, and in all sales regions.

Citing improvements in delivery times and reduced customer demand, investor relations director Mike DeWalt said dealers had too much inventory.

“In response, they have cut order rates to levels well below what they are selling to end customers. As a result, in Q4 we will be reducing production levels quite a bit. We have already announced a number of temporary plant shutdowns, and there will be more coming. It means that, for the next quarter and into 2013, our production will be below end-user demand.”

China was also a major factor, where the company has 16 production factories and nine new plants under production. Sales in the largest construction equipment market in the world remain weak.

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