Caterpillar Looking to Turn Around Mining Equipment Division
December 12, 2014
It has been some time since Caterpillar had anything to boast about concerning sales of its mining equipment. Caterpillar Resource Industries (its mining equipment division) saw revenue decline 37.3% since 2013 and 27% in the first nine months of 2014, ending in September.
Weak sales have been the result of a lack of demand in new equipment as cash-strapped mining sites have been cutting back on spending and doing the best they can with the equipment the already have.
However, according to Forbes Magazine, at a recent conference, Caterpillar said it was working towards building up a strategic inventory of mining equipment. This is mining machinery most likely to see a high demand after the markets turn around.
During this slowdown in the industry, there has been a noticeable turnaround in the mining parts aftermarket as companies avoid buying new equipment and try to service their older machines in a cost-effective manner. However, older machines demand higher upkeep costs due to frequent part replacements and repairs. Caterpillar believes the aftermarket sector has stabilized and has room to strengthen.
While Caterpillar is optimistic that mining equipment sales have hit rock bottom and a turnaround is just ahead, analysts worry that they may have times their strategic inventory buildup too soon meaning they may be sitting on idle equipment waiting for the market to recover. Incurring manufacturing costs on the equipment in its inventory may impact profit margins.
One of the largest suppliers of mining equipment, many companies are watching Caterpillar closely as their decisions and results often have a significant impact on the mining equipment market for buyers and suppliers.