Mining equipment: market update

Materials World magazine
7 May 2014
Surface mining equipment, image courtesy of Caterpillar

The mining equipment market is predicted to bounce back from global recession, according to new mining industry research. Guy Richards reports.

In February this year, mining equipment behemoth Caterpillar reported a sharp drop in its 2013 revenues, down 16% to US$55.7bln. With mining companies cutting back on purchases of new machines and equipment, and delaying maintenance and repairs as they sought to lower their operating costs, Caterpillar – which generates nearly a third of its business from mining – was only one player in the market to feel the pinch from the downturn in the sector.
Prospects for Caterpillar and the other mining equipment companies are expected to start looking up again soon though, at least according to some recent reports. Three firms – Freedonia Group, GrandView Research and Transparency Market Research – have published research that says the equipment market is set to bounce back soon and grow at a healthy rate for the next few years.
All three come out with broadly the same figures – a compound annual growth rate (CAGR) of 8–8.6% to US$117–147 billion – and over roughly the same timescale, 2017–2020. Similarly, by and large, they all come up with the same hotspots in growth in terms of geographical regions, types of application and equipment.
Regionally, the reports all point to the Asia- Pacific market – particularly China and India – as posting the strongest sales growth over the period. The region already holds more than 60% of global market share, and the voracious demand for metals and minerals there is forecast to increase, with China in particular expected to be the largest purchaser by a wide margin and to dominate demand. Close behind is South America with countries such as Brazil, Chile and Peru, as companies look to develop the region’s deposits of bauxite, copper and iron ore. In fact it is industrialising countries such as these, as well as China and India, that will determine global patterns of investment. After that come Africa and the Middle East, followed by Europe and North America, the latter two actually being expected to lose market share over the next few years.
By application, the market is shared between metals mining, which accounts for nearly 40% of equipment sold, coal mining at just over 30% and the rest for minerals mining. There is general agreement that the metals sector is set to grow the fastest, with CAGRs of 8.7–11%, but for coal and minerals the forecasts don’t match.
For coal, Freedonia says growth in primary metals production and rising global energy demand will spur growth in coal mining machinery sales, as will ongoing efforts to mechanise coal mining operations in China. But a shift away from coal as an electricity source in developed countries will restrain overall demand advances. The firm therefore expects the market to rise by 6.5% a year, representing the slowest gains of any market segment. In the minerals sector, Freedonia believes expansion in construction spending and agricultural output will boost consumption of construction aggregates and fertiliser minerals such as phosphate rock, and hence sales of related equipment. It therefore expects sales in this area to rise by 7.4% a year.
GrandView, on the other hand, expects relatively slow growth for minerals equipment and fast growth for the coal sector. ‘We’ve estimated the coal mining market to grow marginally faster than the global average of 8.1%, on account of expected high demand from developing markets of Asia Pacific and the rest of the world, which represent a sizeable market share,’ says a spokesperson for the company. ‘Mineral mining is expected to grow at a relatively slow pace due to unfavourable regulatory restrictions on mineral mining operations in some parts of the world.’
There is greater consensus as to the types of equipment that will be in most demand. Surface mining equipment is expected to continue being the dominant product segment, with drills and breakers the fastest growing, at a CAGR of 9.7–10.2% depending on the report. Behind that, at a CAGR of about 9.5%, will be crushing, pulverising and screening equipment. Then, at nearly 9%, comes mineral processing machinery. Underground equipment, including long-wall and continuous mining machinery, is set to grow in-line with gains for the overall market, at about 8.7%.
Sceptics may ask at this point how the figures are arrived at, and unfortunately the researchers don’t shed a lot of light here. For example, Transparency Market Research will only explain that its estimates and forecasts are ‘made after critical analysis of various macro and micro-economic factors which directly and indirectly affect the market growth,’ while GrandView Research says its forecasts are based ‘on economic factors including GDP in addition to raw material pricing trends and regulatory scenarios’. Freedonia, meanwhile, gives no specific explanation.
On top of that, a forecast is, after all, just that. But by looking at what equipment manufacturers and mining consultancies are saying it is possible to gauge the extent to which the research estimates can be relied upon. More importantly, perhaps, they are in a good position to estimate when the expected upturn will come.
As a starting point, research published in February 2014 by Trefis Team, a group of US engineers and analysts, concludes that the mining sector could see a recovery in early 2015, if not by the end of 2014. A spokesperson from Trefis Team explains, ‘Right now, mining companies are working their newer machines more hours at the expense of their older machines, which typically require more frequent part replacements and repairs. Eventually, these companies will have to undertake aftermarket machine part purchases in order to prevent their machines from downtime.
Additionally, mine production and consumption of commodities such as coal and iron ore continue to grow and is expected to rise through 2014 based on improving global economic growth. We figure this trend will also increasingly compel mining companies to resume new machine purchases.’
For new projects it will, of course, take time for an upturn to make itself felt. Mike Beare, mining engineering consultant at SRK Consulting, says, ‘Since [the summer of 2013] the market has gradually picked up, and we see more projects obtaining the funds they need. This would be expected to start translating into construction of new projects in the next year or two. At the moment, there are very few mining-related Competent Person Reports, but when the mining equity markets pick up, we would expect to see a higher demand for our services.’ From the manufacturers’ perspective, while companies generally won’t give out forward-looking guidance, some, including Caterpillar and Sandvik, have made public statements that offer some clues.
In January, Caterpillar’s CEO Doug Oberman said, ‘Despite our expectation that mine production will continue to increase, we expect mining companies to further reduce their capital expenditures in 2014. As a result, we’re expecting sales in [our mining division] to decline modestly.’ At about the same time, and by contrast, Sandvik Mining’s vice-president of surface drilling Ken Stapylton said he expects coal and iron ore to remain strong in 2014, and sees a big shift towards automation.
This last point is echoed by Transparency Market Research, which highlights enhanced demand for technically enhanced solutions as a factor in driving the market, but this doesn’t tally with Beare’s experience, who says, ‘[Although] the equipment suppliers are generally producing equipment that is getting more and more sophisticated in terms of technology, SRK is more often asked to specify cheaper equipment to reduce capital costs than to source high-tech solutions to enhance productivity’.
Commenting further on other aspects of the research, he says, ‘There is no surprise that Asia and South America are the places with the highest growth, although I would have expected Africa to be fairly close to them. Feedback from our clients suggests that the two big uncertainties about Asia are India and Indonesia.’ While India’s mining regulations are widely viewed as corrupt an lacking in transparency, Indonesia’s new Mineral and Coal Mining law, which came into force in January 2014, prohibits the export of unprocessed minerals. ‘The mining industries in both those countries are affected by government policies that have adversely impacted on investment. If these policies persist then I would expect there to be a substantial negative impact on equipment demand in that region.
‘It is not surprising that future demand for mining equipment is in the metal sector because there is uncertainty about government policies towards coal all over the world,’ adds Beare. ‘But I am surprised to see that drills and breakers are in highest demand. We would expect that for loaders and trucks to be greater, but this could reflect some large operations having to purchase new drilling fleets over the coming years. It may also reflect the fact that some operations choose to continually rebuild their trucks and loaders, therefore smoothing out the demand for those products.’
Trying to predict the future for anything is always by nature fraught with uncertainties, but at least in this instance there are some consistent trends. One thing is clear – the good times will soon be back for the mining equipment market.