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Home >> News >> The Future of Mining Machinery Markets in China and India

The Future of Mining Machinery Markets in China and India

China and India are huge, fast growing, manufacturing countries. To continue in this vein they need huge amounts of raw materials. They are increasingly importing these to fuel their growth. In fact, China is forecast to be the world’s biggest coking coal importer by 2015. China’s and India’s increasing commodities imports are driving prices up, and that is hurting their own trade balances. It is fueling their own inflation. What can they do about it? The most obvious answer is that they will have to mine more of their own raw materials to even slow this trend down. In order to do this they will need more mining machine. This means more business for the two biggest and best mining equipment makers -- Caterpillar Inc. (CAT) and Joy Global Inc. (JOYG). I remind readers that Caterpillar bought Bucyrus recently.

China and India are not the only expanding economies in Asia. There are 45 Asian countries whose economies are forecast to expand by 7.8%+ in 2011 and 7.7%+ in 2012. This means mining is increasing. One example is the planned expansion of the Tavan Tolgoi deposit in Mongolia (China). Current plans are for this coking coal mine to expand from 22.5 million tons per year in 2010 to 60 million tons per year in 2015. This will require more mining equipment. In another case, China’s Wuhan Iron & Steel is teaming with Indonesia’s PT Gunung Garuda to jointly invest $3B over the next five years to build steel plants in North Sumatra and South Sumatra. These will be fed by Indonesia coking coal, which means more mining equipment sales and construction equipment sales. China Power Investments is in talks with Guinea (West Africa) to develop a bauxite mine that would cost $5.8B. This could begin as soon as 2012. These are just a small number of the actual projects that are planned or in progress currently. All should bring business to mining equipment manufacturers, especially the two known worldwide as the best.

Won’t China want to give a lot of its business to Chinese companies? Yes it will, but CAT and JOYG are addressing those concerns too. Joy Global Inc. announced in July 2011 that it would acquire a 41% stake in Chinese mining equipment manufacturer International Mining Machinery Holdings Ltd. JOYG more recently followed this announcement by acquiring an additional 10.5% of the company. Caterpillar has been expanding in China for some time. In its latest announcement on Aug. 29, CAT said it will expand operations in China with a new proving ground and large wheel loader manufacturing facility (dubbed the Asia Pacific Proving Ground). The plant will produce the latest model of wheel loader that is being developed at Caterpillar’s Wuxi Research and Development Centre. CAT currently has 16 manufacturing facilities, three research and development centers, and three logistics and parts centers in China. Both CAT and JOYG are clearly going after the Chinese market in particular and the Asian markets in general -- successfully so far. CAT and JOYG are aggressive and growing quickly -- the marks of top companies.
Both of these companies have been sold off sharply during the recently downturn.

However, as I have attempted to show above, their incomes depend increasingly on economies that are still growing quickly. The sell off is almost certainly overdone. A quick inspection of the financial fundamentals should verify this. There may be some weakness in the EU and possibly in the U.S., but the emerging market sales should hold up well. These are increasingly a large part of these two companies’ sales and earnings. Legging into these stocks now seems likely to help your bottom line. CAT and JOYG stocks are both currently forecast to appreciate in price by 51.3% and 43.9% within one year. When you can get strong stocks like these at a big discount, it’s usually a good idea to buy them. Each is down more than 24% from its recent high, and that is after bouncing upward a bit.

 

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