What happened? What’s going to happen?
As 2008 began, I wrote on this web site: “There are some signs of difficulty in various sectors of the mining and large earthmoving equipment industries but even stronger indications that these closely linked businesses will continue to build on the successes and strong performances of the past four years.” Right. And Wrong.
By many measures, 2008 was a very good year for this industry. For at least nine months, mineral output, profits, capital expenditures, and large equipment purchases and deliveries continued as if nothing bad could happen. Then it did. A global financial crisis began to escalate at about the same time that many of the world mining industry’s key participants gathered in Las Vegas for MINExpo. The venue and the ebullient attitude on display along with the wide array of suppliers’ new offerings of equipment, components and services contrasted sharply with news reports in late September that all was not right with some of the biggest names in U.S. financial services. Problems quickly spread worldwide and escalated in ways that few anticipated.
Now, just five months after the close of MINExpo, virtually every mineral sector is in the process of a contraction not seen for close to a decade. The claim of a commodity ‘super-cycle’ seems like a distant dream for those companies that had so recently struggled to keep up with supplying coal, copper, iron and dozens of other vital, but suddenly less sought-after minerals. Mineral prices plunged, sales slowed, output is being adjusted through successive reductions at small and large operations worldwide. Once hard-to-find miners are being furloughed, and 2009 CapEx budgets have been cut by tens of billions.
What a difference a year makes (or five months, if you prefer). We’ve come to the end of a five- to six-year cycle that brought the mining and mining equipment markets to new heights and we’ve headed into a down cycle whose magnitude is hard to gauge. From the perspective of one who closely monitors one segment of the long-lived production equipment vital to many of the biggest miners, Parker Bay is in a position to measure where we’ve been.
Deliveries of the largest mining trucks, shovels, excavators, loaders, dozers, and related mobile equipment were all at or near records in 2008 – all measured in Parker Bay’s Mobile Mining Equipment Database. Even as the mining industry expansion came to a screeching halt in the fourth quarter, deliveries of these machines (as reported to Parker Bay directly by the manufacturers) were closely in line with preceding quarterly shipments. Growth had leveled off throughout 2008, but the large backlog of orders sustained output and deliveries at the major equipment manufacturers’ plants though year-end.
That will change and change dramatically in 2009. In one of the keynote presentations at MINExpo, a large manufacturer’s CEO alluded to a three-year backlog of mining equipment orders. Though specifics on order and backlogs are hard to come by, recently announced curtailments in plant operations, and planned layoffs of tens of thousands of workers producing these big machines would seem to indicate the recently proffered large order backlogs are less than 100% solid. And, in any case, the incoming orders are falling precipitously. BHP Billiton recently estimated the global mining industry’s 2008 capital expenditures at US$112 billion. In contrast, the Company projected that same measure would decline by 45% in 2009 and trend down further in 2010, totaling just US$52 billion.
Predictions, even those made by a company that accounts for a considerable share of the projected CapEx, are no less subject to overestimation on the down side than on the upside. But whether the decline comes to 50%-plus, as BHP posits, or a less but still substantial contraction, there seems to be little doubt now that 2009 will witness a significant decline in mining equipment industry activity and fortunes. How these manufacturers address this dramatic change in markets and opportunities will be critical to their long-term success. Some may face issues of corporate survival while others are better prepared to address necessary near-term retrenchment from positions of strength established during the past five-year boom. Mergers or discontinuation of product offerings might occur if the downturn is long and severe. But decisions need to be made with solid information and measures of market activity. And in this regard Parker Bay may be able to assist manufacturers, component and service suppliers, and the mining customers they serve.
Parker Bay was founded in 1996 as the mining and mining equipment industries were entering the last significant down cycle, one that lasted for years. The reasons for the next upturn will include many of the same ones that led to the expansion of 2003-2008. Along with new ones unique to the world and its unfolding mineral needs. The timing is uncertain, but mining industry growth will resume, and along with it, capital expenditures and large equipment orders. And Parker Bay hopes to continue to assist existing and new clients in assessing the opportunities and preparing for future gains.
It promises to be an interesting year.