Construction machinery builders prepare for lower sales in China as economy slows

SHANGHAI (Reuters) – The construction equipment industry in China is preparing for a drop in sales in 2019 after two years of strong growth, while work is slowing for new projects and companies are replacing fewer old excavators and cranes, said this week an event in Shanghai.

In China, sales of excavators, loaders and dump trucks – substitutes in the country's infrastructure and construction sectors – will fall by 7 to 8 percent next year, compared to 30 percent in 2018, according to the report. data from the Off-Highway Research consulting firm.

Expected contraction in demand highlights major challenge for Beijing, which is seeking to accelerate infrastructure projects to support economic growth, which has slowed at its slowest pace since the global financial crisis and is under increasing pressure US tariffs.

Many economists believe that the business situation in China will deteriorate before improving, pointing out that the recent stimulus measures taken by the government will take time to be felt.

"There are a number of uncertainties (in 2019), whether in relation to the world economy or global trade," Lu Chuan, chairman of XCMG Construction Machinery Co Ltd (000425.SZ), said on the sidelines of the biennial fair Bauma China.

Industry leaders said growth has peaked and customers are becoming more cautious, which is a concern for Caterpillar Inc. (CAT.N) to his local rival Zoomlion (000157.SZ) and the Japanese Komatsu Ltd (6301.T) on the world's largest construction equipment market in unit sales.

Melker Jernberg, President of Volvo Group (VOLVb.ST), announced the Swedish company that sales for 2019 would be similar to those of this year or a little lower.

"These are still good levels," he said. "But there is insecurity. We wonder what is happening now, how many projects will they start in infrastructure? "

(GRAPHIC: Bulldozer in China – tmsnrt.rs/2RqaB6I)

"CAN NOT DOUBLE EVERY YEAR"

The recent strong growth of the industry is the result of a five-year slowdown that began with the collapse of commodity prices in 2011. Unit sales rose by 81% in 2017 and are expected to grow by nearly a third this year, off-road research. I said.

However, the multi-year repression of debt and pollution in China has led to growth in capital investment – a key indicator of future activity – falling to record lows this year, a trend that policymakers try to overthrow.

Although more and more road, rail and airport projects are getting the green light, analysts note that their sponsors will still need funding before construction begins.

Companies like Sany Heavy Industry (600031.SS), XCMG and Volvo CE have started to invest in technologies such as artificial intelligence and electrification to try to differentiate themselves from their competitors.

The American group, Caterpillar, based in the United States, was also among those who exhibited its latest technologies during its exhibition at Bauma China, which marked its first return to the Shanghai show since its last exhibition in 2012.

"We are anticipating a strong, sustainable Chinese infrastructure market," Tom Pellete, chairman of Caterpillar's construction industry, told reporters at the event, although the market may be slowing.

"(Growth) can not double every year forever."