Construction equipment industry faces downturn

China's construction equipment manufacturing industry will continue to see declining sales in the third quarter, and its performance next year is expected to be lackluster as well, industry insiders said on Tuesday.

Domestic sales of excavators, one of the industry's main products, saw a year-on-year decline of 36.2 percent in the first eight months of the year, according to data from the China Construction Machinery Association.

Both domestic and foreign construction equipment makers are facing a sales decrease in the third quarter as the country's economic slowdown leads to fewer infrastructure construction projects.

Sany Heavy Industry Co Ltd and Xugong Group Construction Machinery Co Ltd - two big players in the construction equipment manufacturing industry in China - reported their third-quarter results on Tuesday. The earnings showed a dramatic profit decline due to the gloomy economy.

Sany, China's biggest maker of excavators and construction equipment, posted a net profit of 714 million yuan ($113 million) in the third quarter, down 58.76 percent compared with the same period last year. Its net profit in the first nine months fell to 5.87 billion yuan, down 23.43 percent year-on-year.

The company's year-on-year profit decline in the first half was 13.12 percent.

XCMC's net profit for the first nine months dropped to 1.97 billion yuan, a decline of 30.51 percent year-on-year. In the third quarter, it registered a net profit of 378 million yuan, down 37 percent year-on-year.

According to industry data, that was the company's lowest net profit figure in three years.

XCMC's nine investment projects this year had a total value of more than 2 billion yuan, which surpassed its overall net profit in the first three quarters.

Growth ahead?

Xiang Wenbo, president of Sany, was quoted by Reuters as saying the industry will return to a period of high-speed growth during the 2013-2017 period, which he expects to be a "golden age" in China's development.

He estimated the industry will see growth again in the second or third quarter of next year.

However, an industry insider, who works at Volvo Construction Equipment, the world's third-largest construction machinery manufacturer, doesn't share that view.

The insider, who wished to remain anonymous, said that Volvo CE's market share in China has increased this year compared with other overseas competitors in the first nine months, but that sales also declined by around 30 percent.

"How the construction equipment market goes in the fourth quarter will depend heavily on policy," he said. "However, it will not return to growth any time soon, at least not in 2013."

Although demand in the Chinese market remains weak due to the economic slowdown, Volvo CE achieved a good performance in the United States and Brazil.

"The World Cup and the Olympic Games in Brazil have brought big demand for construction equipment," said Zhang Ran, an analyst at CCMA.

However, the demand for construction equipment is not weak throughout China.

Niu Qin, a Volvo CE dealer in the Xinjiang Uygur autonomous region, said the company achieved around 33 percent growth in sales in the region in the first half of the year compared with the same period last year.

"Many coal and gold mines are being developed at present in Xinjiang, which created a huge market for excavators and other types of heavy machinery," she said. "Volvo CE's equipment is fuel efficient, which is warmly welcomed by customers at a time when oil prices are increasing."

The company's annual "Operator Idol" contest final was held on Tuesday. The event, which is co-organized by the Ministry of Industry and Information Technology, aims to promote fuel-efficiency among excavator operators.