Crane Renting : Firms Decide to Hold Back Units Despite Demand Picks Up

Crane Renting

Sizeable number of crane renting firms are mulling for holding back their units from employment. This is despite hirers going for acquisitions of units, though in modest volumes on the backdrop of new job contracts being awarded. It is interesting that despite having faced with underutilization of units for couple of years, or even total idling of fleet in certain cases, reputed crane service providers across the country are waiting for a conducive period for renting rates to appreciate further before releasing their assets in the market. However, going by the pace of awarding of new contracts, with other planned for being awarded across sectors of construction, the probable projection could be, that the act of balancing of supply and demand is likely to span till end of 2015 followed by certain firm revival of rates.

Release of new job contracts in a major way will have a time lag. This is owing to the general elections and formation of successive government till May at the centre. Notwithstanding, planned greenfield capacity expansions both in core and industrial infrastructure projects, good numbers of which are expected to reach their peak execution by mid of 2015 following from end of 2014 is expected to pull up hiring rates that is also by when bulk of the underutilized/ idle units are expected to be absorbed.

If examined by the projected off take indications, it could be a firm reason that crane rental companies are continuing to acquire new units for deployment in near future. Mumbai based rental heavy weight, Bhoir has acquired one new Liebherr crawler unit. The crane is currently working in an industrial project. Delhi based crane rental major, Apollo Cranes went for big ticket acquisitions in Excon 2013. It ordered two units each of Sany STC 750, 75 tons, STC 500, 50 tons mobile cranes, and Sany SCC 1000 C 100 tons crawler lattice boom crane from the Chinese company. The cranes will be delivered to Apollo by Sany Heavy Industries India this year. The company is open for additional acquisitions. Mr. Arun Mahajan, Director Apollo Cranes said, "Competitive rates offered by Sany, efficient service track record and timely parts availability made us clinch the deal." The new cranes are likely to be used at upcoming mega crude oil refinery, metro rail and cement plant projects in North India.

Mobile Cranes

Another Delhi based major, Arjun Enterprises has acquired two used 250 tons mobile cranes recently from Australia. According to Mr. Hardeep Singh, Director, Arjun Enterprises, "Given our extensive market network for second hand units and negligible financial liabilities, we could manage to procure, well maintained higher capacity mobile cranes by selling one of our 80 ton Grove, 45 tons Coles and 50 tons Kato truck mounted cranes." The newer cranes obtained by the company, will be deployed for infrastructure projects taking place in the state of Rajasthan, Uttaranchal, and Punjab.

With contractual stipulation laying increasing preference for newer and used well conditioned units, it is expected that the equipment will rake in healthier rental rates in near future when deployed at sites.

Till the rates appreciate to a reasonable extent, big players prefer to hold back their new units. The players are waiting for an opportune moment, when bulk of the existing lower and medium class units from new and smaller entrants will get absorbed in the newer jobs on long-term contracts spanning over three years and above. It is quite inevitable that new and smaller players without delay will enter new projects, notably in the upcoming big ticket Reliance refinery expansion project, or other newly awarded industrial projects on long-term contracts, so as to insulate their units from becoming nonperforming assets. It is estimated that close to 60% of small and medium crane rental companies have large scale bank repayment liabilities.

LNG Terminal
Supply of underutilized and idle units into the new released awarded projects by smaller and medium size service providers, will pave way for new units from big players. This will result towards rate escalation. Further, rate appreciation is more likely if supply schedules become extended from manufacturers during 2014 -15. Releasing financial results in Conexpo USA 2014, crane manufacturing heavy weights mentioned 'remarkable' improvement in off take in US, European and some Latin American markets. Liebherr, Terex, Kobelco all have reported improved sales. With the European Union, US and Middle East economies continuing revival, it is likely that manufacturers may have to extend delivery schedules.

Rental companies at home may brace for extended delivery schedules from OEM's, resulting to have their day, escalating the rental rates for hirers. It is probable that many ongoing projects and to those in a finalization stage for being awarded will gain momentum in construction by end of 2014 requiring larger volume of fresh lower, medium and heavier capacity units. The mega Kochi Refinery expansion by Bharat Petroleum Corporation will gain momentum from 2014 end that is when piling jobs are expected to be completed. This will follow requirement of large number of mobile and crawler units for erection of the trains.

New thermal power project of around 4000 MW, planned by state owned National Thermal Power Corporation in newly formed state of Telengana will create demand for newer units as well in 2014-15. The PSU is presently executing a supercritical project at Kudgi in Andhra Pradesh having one of the largest deployments of heavier crawler units at the site. Indian Oil Corporation's upcoming mega LNG terminal at Ennore near Chennai will also catalyze demand of new units. Following recent environmental approvals, tenders have been floated for construction of 1,80,000 cu‎m storage tanks for the project. IOCL will be shortly entering into a concession agreement with Ennore Port for the terminal.

Turf for Deep Pocket Players

Till the new projects materialize, players looking for appreciated rates will require to hold back their units, while continuing to maintain overheads and associated recurring expenses towards maintenance, spares and bank liabilities. This will be commercially feasible only for eligible players with deeper financial reserves, negligible financial liabilities, well managed fleet, sound business models with strong front and backward market integration. The financially strong crane renting companies will at present only be able to brave the depressed sentiment, only to return with vengeance of strong bargaining power backed by new units at their disposal to rake in the improved hiring rates.
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