4th Quarter 2016:
Fourth quarter surge in shipments of large mining equipment may signal sustainable market recovery.
Having reached what appears to have been ‘rock bottom’ of the severe, four-year contraction in large equipment deliveries, shipments of large mobile surface mining machines shipped during the last calendar quarter of 2016 (as measured by Parker Bay’s Mobile Mining Equipment Index) increased by almost one-third (units) with aggregate value increasing by 28% vs. Q3. These gains came on top of significant improvements during the July-September quarter. Coupled with a myriad of other markers of mining industry improvement, this may well signal the beginning of a sustainable growth cycle.
Explanation of how the Index is Developed The PBCo Mining Equipment Index is a measure of the quarterly evolution of surface mining equipment shipments worldwide. It relies on data from Parker Bay’s Mobile Mining Equipment Database and encompasses the same product range covered by the Database*. The index utilizes the value of equipment as opposed to number of units such that one $10mm excavator has the same weight as five $2mm trucks. Values are not based on the price of each unit as sold but instead an approximate value assigned to machines by size class and product expressed in constant $’s (updated annually). As such, the index does not reflect changes in equipment pricing but rather the overall sales volume. The base for the index is Q1 2007=100. Quarterly figures are not seasonally adjusted. *All products are included except draglines whose low volume, high $ value, long lead time sales can cause fluctuations that don’t reflect the quarterly changes in the market.
Previous Quarterly Write-Ups:
- 3rd Quarter 2016:Mining Equipment deliveries increased 13% over Q2 which was also revised upward by 3% owing to additional units added. As is usually the case, the gains were quite uneven by product, size, region and mineral. In particular shipments of smaller machines increased substantially faster than larger units with the increase in valuation roughly half that of unit shipments. While these figures are encouraging, in large part they reflect the extraordinarily low level of shipments in the first half of this year. Even with further gains in Q4, full-year 2016 shipments are likely to fall well below the already depressed 2015 level. But combined with other measures of mining market activity, these gains may be the start of an industry recovery.
- 2nd Quarter 2016:Whether compared to previous reports sequentially (Q2 vs. Q1 2016), year-over-year (Q2 2016 vs. Q2 2015) or vs. the peak levels that were obtained in 2012, the latest reported deliveries are dismal. Annualizing the latest numbers would appear to result in 2016 shipments equal to less than one quarter’s shipments during 2012. And it ranks among the worst quarters in the past 20 years. There are a number of mining industry measures that appear to indicate an end to the industry-wide contraction, but these are certainly not yet reflected in equipment shipments tracked by Parker Bay.
- 1st Quarter 2016:The value of shipments declined again in the first quarter of the year by nearly 9%; and across all product lines, measured by units delivered, by a substantial 17% from Q4 2015. The large discrepancy between the two owing to some gains among the largest trucks and shovels. The decline was not uniform by product, market or manufacturer and quarter-to-quarter changes may not be representative of longer-term market shares but the cumulative results are nevertheless discouraging.With the total now below 500 units, follow-up reporting by participating manufacturers may change the magnitude of the decline by a greater percentage than when the totals were much higher at the peak. But it seems likely that whatever further reporting may occur, the market contracted yet again. Given the severe contraction that has already occurred, the decline in shipments is fewer than 100 units and a small percentage of the peak levels. But the successive quarterly declines over the past four years brings the cumulative reduction in deliveries to more than 75%. By way of comparison, we calculated the comparable contraction during the last cycle that began in the late-1990’s and it was just under 40%. There are some changes in the level of product and geographic coverage between these two time-frames, but there’s little doubt that the current decline is far more severe than the last one.
- 4th Quarter 2015:Measured in dollar value of equipment, fourth quarter deliveries declined an additional 4.5% from the 3rd quarter and 26% year-over-year. That means current shipments are nearly 75% lower than the cyclical high reached in the first quarter of 2012. But while the total value of equipment deliveries continued to fall, units shipped actually rose by more than 6% in the 4th quarter. This divergence is the result of both an uptick in the smallest size classes, particularly trucks and dozers, and a further deterioration of deliveries of the largest trucks, electric shovels and hydraulic excavators.As we’ve mentioned previously, the larger size classes tend to lag a couple quarters behind their smaller counterparts in the overall market cycle. But while an increase in unit shipments is promising, we do not appear to be on the cusp of a strong recovery. More likely the mining equipment market has reached the point where mines can’t further delay the replacement of aging fleets. This replacement demand should at least put a floor on machine shipments in the short term and act as the primary driver for a return to growth in the coming years.Parker Bay’s recently released “”Market Analysis and Forecast Loading & Haulage Equipment” analyzes the historical evolution of the market and the current conditions facing the sector and forecasts the demand for equipment through 2020 by region, mineral and size class.
- 3rd Quarter 2015:The mining equipment sector failed to hold the small gains recorded in the second quarter, falling to new cyclical lows in Q3 2015. The market was down more than 5% in unit deliveries and around 9% in equipment value, reflecting a greater decline in the larger size classes. This constitutes barely a fourth of the equipment shipped in the first quarter of 2012 when the market peaked. While there may be minor revisions in the coming months, it is unlikely to raise the reported total by more than a few percentage points if that.No geographic market has been spared the downturn, but areas such as Asia, Australia and Latin America that saw the largest growth in machine populations throughout the minerals super cycle have been hit particularly hard. Many of these mining markets now have surplus capacity that is no doubt suppressing new machine deliveries and will continue to do so at least in the short term.Though we believe that we’re seeing the bottom of the current contraction, it appeared that way a year ago before mineral markets deteriorated further and the small uptick in shipments reversed course. Though mineral markets aren’t expected to recover substantially in the near future, replacement demand will drive new deliveries higher as the market works through the surplus stock of equipment and miners are forced to replace machines that are already beyond their typical service life. Parker Bay’s “Market Analysis and Forecast Loading & Haulage Equipment” report analyzes the changes in the mining equipment market and forecasts equipment demand through 2020. The full report will be published in the coming weeks.
- 2nd Quarter 2015:Total units shipped increased by just 2.5% vs. Q12015. Excluding the value of a single large and very high-value dragline delivered in Q1, the value of shipments (Parker Bay estimate, market level prices, fob manufacturer) also increased by 2%. Considering the severity of the Q1 decline and the magnitude of this latest increase, the result gives little reason for optimism short-term.By product line, mining truck deliveries (which account for a majority of all shipments) increased by just 6%. If the current shipment rate continues in the second half of 2015, deliveries will fall by roughly 20% vs. the already very weak 2014 total and less than a third of the peak truck shipments achieved in 2012. There was a significant shift in the size of trucks delivered during Q2: units with payloads of 231-mt and greater declined by 11% while those in the 90- to 190-mt range increased by 13%. This might reflect the severity of large mining companies’ cuts in capital expenditures as they relate to the very largest developments. But we do not expect this to evolve into a long-term shift away from the higher-capacity units.Unlike the modest gains in mining truck shipments, deliveries of excavators/loaders rebounded sharply during Q2 with overall shipments up nearly 50% with gains driven by both hydraulic shovels/excavators and wheel loaders. At this rate, shipments of excavators/loaders will roughly equal 2014 totals but fall below the 2012 number by more than 60%. As with mining trucks, there was a significant shift between size-classes. Units with payload ratings of 35-mt or lower nearly tripled from the severely depressed Q1 number, while units with payloads of 40-mt or greater declined by 13%.
- 1st Quarter 2015:The market for the largest mobile equipment utilized by the world’s highest-producing surface miners retraced modest gains achieved at the end of last year and fell below the lowest levels recorded for the current market contraction. After revised gains of 4% in the final quarter of 2014, deliveries were down more than 17% in Q1 2015.
Parker Bay previously noted the gains in the second half of 2014 as potentially signaling a market recovery while also noting that the volume and percentage of those was quite small. The latest numbers appear to contradict that assessment. Whatever recovery might be taking place in mining markets is having negligible effect on demand for large surface mining equipment to date. It now seems likely that 2015 will be no better or only marginally better than the very depressed 2014 levels. And any sustained and substantial recovery will occur in 2016 or later.
- 4th Quarter 2014:The final quarter of 2014 offered further evidence that the worst may indeed be behind us as we noted last quarter. Fourth quarter shipments were up 3% over the previous quarter. While by no means the swift recovery we saw in 2009, it is nonetheless a positive sign for the industry. Unit deliveries were 2% higher than Q3 and more than 13% above the second quarter.
But despite the positive finish to 2014, year-over-year shipments were down nearly 40% and more than 63% compared to 2012 deliveries. Replacement demand remains a key factor with few shipments to new operations. Depressed mineral prices continue to impede a strong return to growth but barring a significant drop in mineral production, the mining equipment market could continue its slow recovery in just maintaining the existing stock of equipment.
- 3rd Quarter 2014:After two and a half years in decline, the mining equipment market turned up slightly in the third quarter. Unit deliveries were 12% higher than 2Q though the increase on a value-weighted basis was less than half a percent. As can be surmised, shipments of the very largest machines continued downward for the most part with growth coming from the smaller size classes. Larger equipment classes typically lag some months behind in the cycle so increasing value as well as unit volume could characterize coming quarterly deliveries.
Deliveries to copper mines were down nearly 50% from 2Q to 3Q after faring best among mineral classes through the downturn through June. While coal and gold mines, where equipment deliveries fell more than 80% in the past two and a half years, both appear to have bottomed out or even turned up slightly. Replacement demand is likely a major factor in recent quarters with no new operations taking equipment in 3Q. While the need to replace the growing number of older units could boost deliveries further, stronger mineral market conditions will be needed to drive a healthy recovery.
- 2nd Quarter 2014:Equipment deliveries to surface mining in Q2 were down 20% over Q1 and approximately two-thirds from the peak quarterly shipments level achieved in 1Q 2012. The market has now fallen below the lowest point of the 2009 contraction to levels not seen since the the start of 2005 when the industry was in the early stages of a 5-year growth cycle.
Given the severity of the current contraction, Parker Bay considers the 2Q shipments levels as a bottom for the equipment markets globally. However, several factors point to continued low levels of equipment deliveries including: ongoing weakness in demand for some minerals; reduced pricing for many others; greatly reduced capital expenditure plans for many major mining companies; and substantial numbers of equipment currently idled and for sale.
- 1st Quarter 2014:After a full two years in decline, mining equipment shipments are now hovering just slightly above the nadir reached in 2009 following the financial crisis. The first quarter of 2014 had the second fewest deliveries in the past 6 years.
Copper remains the strongest performer among the major mineral classes. For the second consecutive quarter, more equipment went to copper mines than coal; this compared to the last expansion cycle when deliveries to coal mining were nearly two and a half times that of copper. Nonetheless, coal shipments increased slightly after bottoming out in the fourth quarter of last year with less than a fourth as many units as two years prior.
- 4th Quarter 2013:Equipment deliveries were down another 7% in the final quarter of 2013. And just under 40% year-over-year compared to 2012. Seven quarters into the current down cycle, mines took delivery of forty percent as many machines as Q1 2012. While coal and gold continue to drag the market lower, mining equipment shipments to both copper and iron ore recovered in the final quarter. Copper in particular was up nearly a third in Q4 after four quarterly declines. It accounted for a fourth of all deliveries compared to its 12% share during the last growth cycle. This helped drive the Latin American market higher with more shipments than North America and Australasia combined.
- 3rd Quarter 2013:Losses slowed in the 3rd quarter but continued their downward slide. The shipments total fell a further 10% for the quarter and now stands more than 50% below the total achieved in Q1 2012. While still above the absolute numbers delivered during the 2009 downturn, the relative/percentage decline is now greater than that down-cycle. And this downturn has extended longer than that one with the sixth consecutive quarterly decline. Hopefully the worst is over.
- 2nd Quarter 2013:After showing some initial signs of recovery in Q1 with some of the smaller size classes leveling off or even growing slightly, second quarter results erased any hopes of a turnaround, coming in nearly 30% lower. The market is now down 46% since the first quarter of 2012, surpassing the percentage decline in 2009 following the financial crisis. While equipment deliveries to coal mines have declined steadily since the current downturn began early last year, other mineral applications held up fairly well. But as iron ore and copper prices remain well below their 2011 peaks and with gold prices plunging since late last year, second quarter shipments to these key minerals saw their first significant drops of the current down cycle.
- 1st Quarter 2013:The first quarter of 2013 saw the fourth consecutive quarterly drop in mining equipment deliveries. However losses have slowed from the end of 2013 back to single-digits. But after a full year in decline, the market is off 25% from Q1 2012 and closer to a third in terms of the number of units. In a somewhat positive sign for the market, Q1 2013 saw a slight uptick for some of the smaller size classes of equipment which had experience the sharpest declines to date. While not enough to offset the continued losses at the other end of the scale, this is the first indication that we may be reaching the bottom of the current down cycle. Deliveries of larger machines tend to lag a couple of quarters behind in the cycle.
- 4th Quarter 2012:Quarterly shipments were down 14% in the final quarter of 2012 and 12% YoY. This is the first year over year decline since the start of 2010. However despite finishing with 3 negative quarters in a row, 2012 shipments as a whole were up over 15% relative to 2011 coming down from the historical highs reached in the 1st quarter of last year. The last downturn, which began at the end of 2008 lasted only 3 quarters though the drop was more severe than we’ve seen thus far. Units shipped are still twice what they were when the market touched bottom in the 3rd quarter of 2009. And with the unprecedented levels reached in the most recent expansion, it may take a little longer to return to growth this time.
- 3rd Quarter 2012:While still one of the highest quarterly totals ever recorded, units shipped dropped 10% vs. Q2 and over 17% vs Q1 (likely the high point of the most recent cyclical expansion). Given these results and the widespread indications of other mining industry negatives, it is all but certain that the large mining equipment industry has entered a cyclical decline. The questions now are ones of degree and duration. It’s worth noting that even if the fourth quarter results decline substantially, it is most likely that year-over-year comparisons will show 2012 shipments as having increased vs 2011. But Q3 was the first period that showed an unfavorable comparison to year-ago results and these are likely to continue into 2013. We are preparing an analysis of these trends along with a short- and long-term forecast of the mining truck and loading equipment markets that updates a report Parker Bay issued late last year (and which projected the current downturn).
- 2nd Quarter 2012:After four consecutive quarters of record highs, the surface mining equipment market was down 5% in Q2. And with sharper declines for some of the smaller machines, units shipped actually fell closer to 8%. Whether this is the start of a more pronounced and extended correction remains to be seen. But despite the decline, this was still the second strongest quarter ever for surface mining equipment deliveries, up 26% year over year and slightly above Q4 2011. And some products and size classes actually saw significant gains for the quarter but with longer lead times, this may have more to do with lagging behind than bucking the trend. Barring a huge decline in the second half, annual shipments will be up again for the year. What happens in the third quarter will indicate by how much. Four of the last six negative quarters were followed by a return to growth. 2009 on the other hand saw three consecutive quarters with 15%+ drops.
- 1st Quarter 2012:2012 began much like 2011 ended with yet another record quarter for surface mining equipment shipments. More than 3 times as many units were shipped in Q1 2012 as in the third quarter of 2009 when the market bottomed out. The mining equipment market has seen a spectacular double digit average quarterly growth rate in shipments over this period. When taken in this context, the 5.6% quarterly increase in Q1 2012 could indicate that shipments growth is slowing, though the index is not seasonally adjusted and historically 1st quarter shipments tend to slow a bit. Parker Bay anticipates that shipments will more or less level off for the remainder of 2012 and then decline in 2013 before returning to growth. Parker Bay’s analysis and forecast of the mining equipment market will be further detailed in the upcoming edition of its Loading and Haulage Market Report.
- 4th Quarter 2011:Mining equipment shipments in the fourth quarter of 2011 reached a new historical high for the third consecutive quarter. The previous record was set in the final quarter of 2008 immediately preceding the downturn. The most recent figures are up 40% YoY and more than 150% since the market bottomed-out in the third quarter of 2009. This continues the sharp return to growth for the mining equipment market with only one negative quarter among the last 9. And even that one is attributable more to seasonal variation than an actual downtick in equipment demand.