Caterpillar Experiencing Weak Demand

August 28, 2013

 

In recent news reported from the Sydney Morning Herald Caterpillar, a leading mining equipment manufacturer, has reported a 43.5% drop in quarterly profit and has cut its outlook for the year due in large part to steeper-than-expected inventory reductions by dealers and weak demand from the mining industry. Caterpillar is the world's largest maker of mining and construction equipment but has had to reduce its global workforce by 8% in the past year. The company has also indicated its cost-cutting measures would continue into 2014.

 

Due to low metal prices mining companies around the world have had to lower capital and operating costs and have also had to put an immediate hold on expansions and new projects since there is not enough capital to sustain any new project for more than a month or two at most. Gold, copper and silver have all been cancelled new mine projects due to murky forecasts and in turn the need for mining equipment has reduced substantially.

 

In the second quarter of 2012 Caterpillar reported a profit of $960 million while in 2011 that profit was $1.7 billion. In addition to mining Caterpillar also relies heavily on construction and is hoping that the rebound in real estate won't be unhinged by rising interest rates. As with many large industries the focus for Caterpillar has been on China and its sustained growth, but even that economic wave has its peak. How long China can continue to make up for lost sales elsewhere remains to be seen but Caterpillar is confident it will rebound from these tough fiscal quarters.