So they might be the ones showing “selective optimism” about a new report indicating better times ahead for mining equipment sales.
In a week in which Sweden’s Sandvik announced further plant closures in Europe and adjustments in Australia in the face of persistent weak mining demand, a Citigroup quarterly survey tracking the 12-month forward-looking capex and service spend of mining companies pointed to improved prospects for capital expenditure in the year ahead.
“Survey participants expect to increase mining capex by 3% over the next 12 months versus flat at the time of our 3Q14 survey,” Citi said.
“This marks the first time since 3Q12 that capex over the next 12 months is showing year-on-year growth.
“Looking ahead into 2016 capex on average is expected to increase by 5.2% yoy. [2016] continues to be the big year for capex with 54% of the miners planning to substantially increase capex versus 50% in the last survey.
“The survey captures circa US$360 billion in annual sales.”
Citi conceded it “might seem a bit odd that our survey points to increased capex intentions” amid global macro concerns and negative commodity price action since its 2014 September-quarter survey report.
So from a market-exposure perspective, it wanted to “stress our selective optimism” with a ‘buy’ on Sandvik rival Atlas Copco (for exposure to favoured copper), and relative caution on Metso (iron ore) and Joy Global (coal). Caterpillar, Hitachi and Komatsu have not raised expectations about mining equipment sales in 2015 in their latest market reports.
“Even though our capex model suggests continued yoy falls in spend over the next few years, the further cuts will be mainly related to infrastructure, in our view, less for upstream equipment where we calculate demand already down significantly – 70-80% from the peak – and now at more than a decade-low level,” Citi said.
“Our global mining capex model now points to a compound average decline of 13% in spend until 2016 from 2013 – unchanged from our Q314 survey. The yoy capex declines are abating for 2015. The model now indicates an 11% yoy capex decline in 2015 – verus -13% three months ago and -15% six months ago.”
Citi said there were marked differences in the outlook for different commodities, with copper and gold “preferred”, iron ore continuing to slide, and coal remaining weak. The former meant drill rig, mine-loader and pump demand remained relatively strong, while sales of draglines, hydraulic excavators and rope shovels would remain weak.
The weakness in iron ore and coal markets is likely to continue to put pressure on equipment prices.
Citi’s latest survey showed 85% of mining participants would “consider buying from a low-cost equipment supplier”, with Chinese manufacturers seen as real threats to the established heavyweights in the global equipment business.
A better question for future surveys would be, who is actually buying the low-cost equipment?
First published on affiliated portal Mining-Journal.com.
