Top Digger Warns Excavator Demand Will Slow In 2019 As Trade War Slowdown Worsens

Markets' seeming invulnerability to fears of a trade-related slowdown in 2019 has finally dissipated, and equity markets in the US have finally caught down to the rest of the world. Amid the selloff, shares of industrial giants like manufacturers of mining equipment - Caterpillar in the US and Komatsu and Hitachi in Japan - have been hit particularly hard.


And with both the WTO and executives at the world's largest container shipping company warning that they expect a further contraction in international trade next year, it's perhaps hardly surprising that this trend - along with  softening of commodity prices - is expected to blunt growth in demand for excavators and other mining equipment, according to the CFO of Hitachi, a manufacturer of some of the heaviest mining equipment used by industrial giants around the world.

The WTO's trade outlook indicator showed that trade likely neared the "below trend" level during Q4.


And global trade volume has dipped this year:


Hitachi CFO Tetsuo Katsurayama told Bloomberg that demand in the year starting April 1 will probably shrink, or remain flat, following three years of growth. He tied this to falling commodity prices, as well as tensions about the US-backed trade war, fading US stimulus, China's worsening economic outlook, continued Fed rate hikes and even the uncertainty surrounding the UK's chaotic Brexit negotiations.

"There’s no doubt the financial situations will somewhat put the brake on investment appetite" for both construction and mining equipment, Katsurayama said in an interview in Tokyo. "We can’t separate ourselves from the financial markets."

Growth in North America and India may not be able to compensate for a slowdown in Western Europe, the Middle East and Africa, Katsurayama said. During the current cycle, some 229,000 excavators are expected to be sold during the year ending March 31, 2019, up 4% from a year earlier and not far from the 2010 peak. Though even if demand weakens in the year beginning in April, Katsurayama said he doesn't expect the number of units sold to fall "substantially" below 200,000 units. And an expected wave of replacements could offer a boost.

But unless the end of a US-China trade war triggers a sharp rebound in slowing trade, industrial bellweathers like Hitachi (down 40% this year), Komatsu (down 44%) and Caterpillar (down 26%), will likely continue to take it on the chin.