Date
17 January 2017
Caterpillar has shed more than 5,000 people so far this year to realign its cost structure with sagging demand for its products. Photo: Internet
Caterpillar has shed more than 5,000 people so far this year to realign its cost structure with sagging demand for its products. Photo: Internet

Caterpillar reels from falling commodity prices, Chinese rivalry

Even during the Great Depression in the 1930s, construction machinery titan Caterpillar managed to grow its business.

But its sales have been shrinking since hitting a record in 2012.  Last year its revenue decline accelerated to 15 percent.

The company has been reeling from the falling prices of commodities of all sorts, including metal and coal, according to China Securities Journal.

As the profitability of miners plummet, so does their appetite to invest in new projects and machinery.

Uncertain global economic outlook is expected to continue to becloud Caterpillar’s future, which will be further dimmed by intensifying rivalry in the sector.

Rivalry is nothing new to the company. It has seen its business thrive in the face of competition from such companies as Sweden’s Volvo or Japan’s Komatsu.

But this time around, cut-throat offerings from Chinese makers are particularly hard for Caterpillar to handle.

Overwhelmed by excess capacity at home, top Chinese brands like Sany Heavy Industry (600031.CN) and Zoomlion Heavy Industry (01157.HK) are reportedly taking advantage of their lower costs and pushing its models, typically low- to mid-range products, by pricing them 15-40 percent lower than comparable offerings of established players like Caterpillar.

Chinese companies’ share of the global construction machinery market is estimated to be about 7-8 percent, the report said.

The number is expected to go up to 15 percent by 2025, compared with less than 2 percent just three to four years ago.

Going after the international market, though hurting rivals, has not solved the Chinese makers’ problem.

Hasty expansion during their heyday continues to take its toll on the Chinese companies’ revenue and income.

Last year both Sany and Zoomlion barely broke even. Back in 2011, both reported earnings in excess of 8 billion yuan (US$1.2 billion). 

It seems for the time being, other than digging a bigger hole for the industry, Chinese makers have not gained much from its aggressive pricing strategy.

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CG

EJ Insight writer

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