The end of the boom?

Bauma China, the International Trade Fair for Construction Machinery, Building Material Machines, Construction Vehicles and Equipment, takes place in Shanghai between 27-30 November, 2012. At 300,000 sqm it may not be quite as large as the Intermat show in Paris, which grew to 375,000 sqm this year, but according to organiser Messe Munich it is the largest it has held in the country.

Eugen Egetenmeir, managing director of Messe Munich claims the show is 40% larger than previous editions. He says that demand even exceeded the room available at its Shanghai venue

“This statistic shows how important the Asian market still is for the global building machinery industry,” he said. “We are very pleased to report that Bauma China will be taking up all the available capacity at the SNIEC, even though we were not able to meet every request for more booth space.”

This event is normally a decent indicator of technology that is coming out of China and also the types of machines global manufacturers will be pitching at Tier II markets such as the Middle East. Traditionally the presumption has been that most machines sold will be shipped back onto mainland China but with the Chinese economic miracle currently in a malaise, nobody is quite sure whether the post show boats could be heading further afield.

The Chinese government’s tougher stance on budgets and crack down on local government construction-led spending sprees has had the desired effect of holding back inflation but it has been a massive wake-up call to domestic Chinese companies as well as foreign manufacturers that had thought that the country’s appetite for machinery could never be exhausted.

The boom drove capacities so far above current demand that it is unclear how long it will take manufacturing to be truly productive.

The pre-show press release’s talk of “despite a slight slowing down in the pace of economic growth in China, this large country is still a veritable “hot spot” in the global construction sector” is more a reflection of the size of the market (it is still the single largest in the world) than the realities for producers.

The successive failures of XCMG and Sany to raise money on the stock exchanges of China’s off-shore financial hubs, the collapse of excavator demand and manufacturers turning Chinese factories into export houses are all indications of arrythmia at the heart of the industry.

According to estimates by the German foreign trade organisation, Germany Trade & Invest (GTAI), in the coming years the People’s Republic is set to further extend its lead over the second-largest internal market, the United States of America. After all, the Chinese government is again tackling gigantic infrastructure projects in its current five-year programme, running from 2011 to 2015. “For example, by 2015 they are planning to build 36 million social housing units, at an estimated cost of 169 billion euros,” it said.

The burgeoning domestic market of the past decade allowed the Chinese construction machinery manufacturers to become major globa players. According to a recent report on the global construction machinery market by the international management consultancy Oliver Wyman, the Chinese manufacturer XCMG, for example, was able to double its turnover between 2004 and 2010, while Zoomlion managed to quadruple its sales. During the same period the broad-based Sany Group succeeded in increasing its sales five-fold to around five billion US dollars. As a result, these three major firms are now in the Top Ten of the global construction machinery market.

While the first half of 2012 saw an almost 40% drop in demand, demand for construction machinery in the coming years is predicted to continue growing strongly, especially if recent interest rate cuts take effect.

A forecast by the China Construction Machinery Association (CCMA), for example, predicts that in 2015, 100,000 cranes will be sold in the People’s Republic. That would be an increase of over 130 percent on the 43,400 units sold in 2010. High growth rates are also predicted for concrete mixing vehicles (+98%) and concrete pump vehicles (+88%). And, in contrast to the 3,019 asphalt pavers that were sold in 2010, in 2015 sales will reach around 5,000 (+66%).

Much has been made about the upcoming changes in president and government, but history suggests it would be better to assume that there is more of the same to come at a political level although this does include a commitment to long term goals in urbanisation and infrastructure upgrades.

The challenge for the larger Chinese manufacturers is how to remain competitive in their own crowded market while expanding globally. Caterpillar’s move to fulfill Middle East orders from China shows that they are no longer the only ones to use cheap Chinese production to keep prices down on the world stage.

So, what opportunities do Western manufacturers have in the domestic construction machinery market in China? Tom Sieber, co-author of the Oliver Wyman reported: “Products from Western manufacturers are best suited to the premium segment of the market in China.”

Also, construction suppliers from Germany have good chance, as Corinne Abele, a representative of GTAI in Beijing, confirms: “International construction suppliers have been represented in China for many years. The growing body of legislation as regards energy-efficiency and the themes of sustainable construction and renovation and modernisation are currently opening up new groups of customers for these companies.” Accordingly, demand for special-purpose machinery, energy-efficient building systems, modern domestic engineering technology and insulation materials is particularly strong.

After an absence of several years, Caterpillar, one of the industry’s most important key players, is returning to bauma China: The company will occupy all of Hall N1 at the Shanghai New International Expo Centre, or some 11,000 square meters of exhibition space.

Rich Lavin, Group President at Caterpillar, on the key player’s return: “We are pleased to showcase new Caterpillar products and to highlight our product support capabilities at bauma China 2012. In total, Chinese customers attending this important show will see six new Cat products and have the opportunity to learn more about Caterpillar’s long-term commitment to supporting the important and growing Chinese market”.

Caterpillar’s CEO Oberhelman recently pointed to rising numbers of building permits and a series of announcements about infrastructure projects – all of which would mean demand for his company’s equipment. Caterpillar is the world’s largest maker of tractors and excavators, and China is the world’s largest user of construction equipment. It’s a good fit for the company.

“I suspect all of that is aimed after the leadership transition and most of that is aimed towards spring of next year,” he said. “If it happens, it’s going to happen then. If it doesn’t, we are in for another kind of slow year in 2013.”
Shantui is perhaps China’s best-known earthmoving manufacturer and is planning to feature the SD10YS, a machine fitted with a Tier 3/Stage IIIA engine. Other new machines on display will include its largest ever wheeled loader, the SL80W along with compactors.

Fellow Chinese company LiuGong has been reluctant to reveal much about the specifics of its new launches for Bauma China. However the company is currently pushing its E-series range in global markets and it is predited that it will add to the range of crawler excavators.

Bauer is launching drill rigs in its BG Value Line range. Three rigs are being shown include the BG 25, the BG 30 and a BG 36. One will be equipped with a kelly bar for a drilling depth of 72m, while the other will feature 2.8 m diameter drilling tools. Metso is introducing the Nordberg C120 jaw crusher to the Chinese and wider Asian markets.