OH&S Products

Used mining equipment stockpiled amid turnaround hopes

Inventory is piling up as mines close or production slows, with buyers especially scarce for highly specialised mineral processing machinery.

Supplies are likely to expand in the coming months as some of Australia's biggest projects reach completion, according to Frank Lee, general manager of Ross's Auctioneers and Valuers, in Western Australia.

"Exploration and drilling has pretty much dried up,” Mr Lee said, “but the big thing has been the wind-down in expansions.”

He warned the longer the mining slump drags on, the more likely that equipment available today will fail to meet future specifications on mine sites.
"Some of this stuff will just be scrapped," he predicted.

The surplus of machines is causing prices to fall by as much as 20 per cent, according to dealers, with, for example, a used 20-tonne Komatsu bulldozer that sold for nearly $AUD180,000 a few years ago is now only going for $138,500.

Optimism of a turnaround

Some industry veterans, who have survived decades of commodity booms and busts, note that such deep pessimism tends to mark the bottom of the cycle.

They anticipate the closing of high cost mines and cuts to exploration budgets to tighten supply and reverse falling metals prices.

For now though, the glut of used mining machinery, estimated at $32 billion, according to Ritchie Bros Auctioneers, has made for bargain shopping.

Mike Ebert, president of California-based Machinery and Equipment Company, who anticipates a turnaround, said: “I wish we had unlimited capital to invest in this equipment.”

While cheap, idle machinery offers potential profit for re-sellers, the future sales of the $97 billion to $104 billion global new mining equipment industry will be limited, according to financial information provider S&P Global Market Intelligence.

Kwame Webb, an analyst at investment research firm Morningstar, said new equipment makers have already cut staff and curtailed operations, adding, “"Their customers don’t have nearly as much money as they used to and so I think customers will be fairly cost-conscious for the next few years."

Uncertain geopolitical times

The Financial Times (UK), however, reports on a more optimistic outlook for manufacturers as it says global sales of construction machinery such as bulldozers, excavators and dump trucks are expected to expand.

It cites UK consulting firm Off-Highway Research, which expects a rebound in global unit sales of construction machines in 2017, driven by the gradual replacement of ageing vehicles and its prediction of improved commodity prices.

The consultancy said sales should increase five per cent next year, based on analysis of data from about 1500 interviews with machinery manufacturers and dealers.

“[The year] 2015 was worse than expected for the global construction equipment industry,” Off-Highway Research ‘s managing director David Phillips said. “Emerging markets were generally weak — the only significant exception being India — and developed regions of the world were not strong enough to offset the painful declines we saw in countries such as China.

“Very few companies around the world are as profitable as they were three or four years ago — largely because of the downturn in China.

“When it comes, the recovery is likely to be gradual, reflecting weak business confidence and the uncertain geopolitical outlook around the world.”

Sales of equipment in China tripled between 2007 and 2011 in dollar terms, when the country accounted for four in every 10 construction machines bought.

But since then, weaker building activity means that unit sales last year were down 72 per cent compared with 2011.

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