Sales downturn expected to last until govt curbs on property ease

TOKYO - Hitachi Construction Machinery Co, Japan's second-largest heavy-equipment maker, said Chinese demand for excavators will decline in the first half of next year as monetary tightening slows construction projects.

The sales downturn in China, the world's biggest market for construction equipment, "will continue after the Lunar New Year" in the next month, Chief Executive Officer Michijiro Kikawa said in an interview at the company's headquarters in Tokyo. "I had expected Chinese demand to come back sooner."

Kikawa expects industrywide sales of excavators in China to decrease by 30 percent in the year to March 31, compared with a forecast of a 20 percent decline two months ago. China will probably see no growth until June or July, Kikawa said.

Hitachi Construction Machinery gets as much as 40 percent of its annual sales in China in the first three months of the Lunar New Year, which starts on Jan 23 next year.

The company and competitors including Komatsu Ltd are counting on coal and gas development projects in Indonesia and the United States and post-quake rebuilding in Japan for orders as Chinese demand slows.

Europe's sovereign debt crisis also raises the threat of the turmoil spreading to Asia, Kikawa said. Europe's woes "haven't impacted demand for our machinery, though we'll need to keep the risk in mind", Kikawa said on Thursday.

China's government has curbed lending and restricted home purchases to rein in inflation and asset bubbles. The government may start easing and increase spending on stimulus measures next year to boost the economy before the appointment of a new leadership, helping demand after mid-2012, Kikawa said.

Switching focus

Hitachi Construction Machinery is focusing on mining-equipment, a market that's less competitive than construction machinery because of the smaller number of makers, he said.

The company set a target to capture a 30 percent share of the global market for large mining trucks by 2018 to challenge Komatsu and Peoria, Illinois-based Caterpillar Inc. Hitachi Construction Machinery now has a 10 percent share for dump trucks that can carry at least 190 metric tons. It has a 40 percent market share in mining excavators weighing at least 190 tons.

Kikawa plans to boost annual capacity for mining excavators by 60 percent and three times for dump trucks by March 2014 at plants in Ibaraki prefecture, northeast of Tokyo. The expansion is part of a 187 billion yen ($2.4 billion) growth plan unveiled June 23.

Hitachi Construction Machinery gained 0.8 percent to 1,298 yen at the close of trading in Tokyo. The stock has fallen 33 percent this year, compared with a 17 percent decline in the Nikkei 225 index.

Kikawa forecast the Japanese currency will stay high next year in a range of between 75 yen and 80 yen to the dollar. The company will need to source more components outside Japan to counter currency strength that has domestic products more expensive overseas, he said.

Purchases from other countries will probably account for 45 percent of procurement costs by March 2014, up from 35 percent now, he said.

"What measures can we take to survive at these levels?" the CEO said. "We have no choice but to produce products in the regions where they are sold."

Hitachi has also started using cheaper steel supplied by Chinese and South Korean mills to build excavators at home as it cuts costs, he said.

Bloomberg News