Mr. Samir Bansal
Off-Highway Research, India
As a matter of fact, the construction equipment includes a wide variety of equipment put to use in mining, earthmoving, material handling and others multifarious applications. But this section of the write-up sheds light on the global market scenario of equipment including articulated and rigid dump trucks, asphalt finishers, backhoe loaders, crawler dozer and loaders, crawler and wheeled excavators, mini excavators, motor graders, motor scarpers, skid-steer loaders, and wheeled loaders.
In the midst of repeated economic downturns in the major markets in regions like Western Europe, North America and Japan, the total sales declined by 5 percent in 2008, but a major impact became noticeable in 2009 resulting in contraction of the total industry by 23%. Indian market also dwindled down during the period, but the Chinese market remained unfazed and continued to grow. Global sales of construction equipment improved by 12% in 2010 led by growth in the emerging markets and achieved a new peak of over 1 million units in 2011. Resultantly, on account of weak global sentiment, it is estimated that the industry would again decline by 11% in 2012. All the regions including China are expected to witness a decline in sales except North America, which continues to recover, albeit at a modest rate.
The threadbare study of the regional sales indicate that the share of developed markets of North America, Western Europe and Japan, while the developing economies are gaining share, leading to a new world order in equipment sales and production encouraging manufacturers to shift the production of equipment and components towards the developing world.
Following a disastrous market collapse during 2006-09 in North America, when demand slumped from 223,000 to 77,000 units, sales recovered in 2010 by 17%. The continued growth seen in 2011 was even better, at 39% to 125,000 units, while it is estimated to grow by 7 percent in 2012. The future now looks positive, but the industry believes that the future growth would be gradual.
In the aftermath of a sharp fall in 2009 of almost 50% in Japan, caused by stagnation in public works, a dramatic decline in private investment, and problems for rental companies disposing their old fleets, demand bounced back in 2010. It continued to climb back in 2011, but is expected to decline in 2012. Not much optimism is left in this market at the moment, which is expected to remain below 50,000 units in 2016.
In spite of the fact that Indian market will remain much smaller than North America and China, its importance will continue to draw the attentions of construction equipment manufacturers because this market is predicted to grow by over 60% by 2016 compared to the current level. This market is characterised by the dominance of local manufacturers for all the major products, but in some of the equipment, import penetration is reasonably high.
Articulated dump trucks, crawler loaders, rough terrain lift trucks and wheeled excavators are fully imported, whereas there are minimal imports for backhoe loaders, compaction equipment and mobile compressors. Some of the international manufacturers sell only imported machines, and others promote local as well as imported machines. Majority of motor graders and skid-steer loaders are imported along with select models/large size asphalt finishers, crawler dozers, crawler excavators, mobile cranes, rigid dump trucks and wheeled loaders. Overall, imports constituted about 7 percent of domestic sales in 2011.
During 2012, the political and economic climate in the country remained non-conducive to the healthy growth of the infrastructure sector. The growth rate of the Indian economy was 6.5 per cent in the financial year ended March 2012, down from 8.4 per cent achieved in each of the previous two fiscal years. The overall half yearly GDP growth rate for the period ended September 2012 at 5.4 per cent was down from 7.3 per cent in the corresponding period of the previous year. The RBI followed a tight monetary policy during 2011 and 2012 to control inflation which resulted in increase in the cost of borrowings. These along with reduced investment activity contributed to the slowdown in the industrial sector.
The core sector’s infrastructure supportive industries registered a growth of 3.2 per cent during April-September of the current financial year against a growth of five per cent during the corresponding period of the previous year. Due to industrial slowdown affecting tax revenues coupled with higher expenditure on subsidies on fuel and fertilisers, fiscal deficit increased to 5.8 per cent of GDP in the fiscal year ended March 2012 as against an estimated 4.6 per cent. The budget for the financial year ending March 2013 aims at reducing the fiscal deficit to 5.1 per cent of GDP and three per cent by March 2017.
Devaluation of the Indian currency is another concern for the industry as it depreciated by 12.7% against the dollar in the fiscal year ended March 2012 and by another 7.8 percent at the end of September 2012 compared to March 2012. Policy decisions along with administrative and procedural bottlenecks for land acquisition and rehabilitation, statutory approvals and clearances, litigation and long-term funding are the major challenges currently being faced by construction and mining projects in India.
In the long-term, however, the domestic construction equipment market will be driven largely by the planned development of infrastructure and the economic growth of the country under the ongoing 12th Five Year Plan (April 2012-March 2017). The total investment in the 12th Five Year Plan is projected at Rs. 51,464.27 billion compared to Rs. 27,746.57 billion in the 11th five year Plan. As percentage of GDP, the average investment in infrastructure stood at 7.22 per cent of GDP in the 11th Five year plan, while the 12th plan projects it at 9.14 per cent.
The major factor favoring the growth of the construction equipment industry is the sheer scale of work yet to be done in the infrastructure sector. The increased size of projects and steadily declining availability of manual labor also favor the demand for the mechanization of work at construction sites. Despite the challenges, Off-Highway Research remains bullish about the long-term prospects of the construction equipment market and forecasts it to grow from estimated 66,000 units in 2012 to 105,730 units in 2016.