Citi analysts have conducted a Global mining survey where they tracked the 12 month forward looking capex & services spend intentions of mining customers. Those involved in the survey are expecting the capex to decline on an average by 14 percent year on year over the next 12 months, with some projects getting delayed to 2016 and 2017.
The survey, conducted by analysts (Natalia Mamaeva, Timothy Thein, Graeme McDonald and others) includes more than $300 billion in annual sales by customers.
Capex and equipment price to decline
According to the survey, 78 percent of the respondents expect to bring down their future capex budgets. Estimates of the analysts include a downtrend of 36 percent, from a previous estimate of 30 percent over 2013/15 compared to 2012. Overall, analysts expect an L-shape recovery instead of a U-shape or a V-shape one.
On average, survey participants expect equipment prices to come down by 4 percent year-on-year over the next 12 months compared to a 4 percent increase estimated in the past 16 surveys and 8 percent at the peak of 2012. Out of the total, 78 percent of participants are planning to “pushback prices on mining services,” according to analysts.
The ‘pushback’ from respondents were mainly related to drilling equipment, tractors/dozers, and mining trucks while crushing equipment, pyro processing and pumps were affected to a lesser extent.
Aftermarket sales/orders also expected to decline
For the first time, analysts included aftermarket/service related questions (spare & wear parts, consumables and service systems) in the survey. On average, respondents are expecting service related spend to come down by 4 percent year on year in 2013 with a decline of 5 percent expected in 2014. In the second quarter, aftermarket sales/orders came down. Analysts note that for Sandvik aftermarket sales/orders were down by 7 percent while for Mesto, the decline was of 3 percent compared to an average growth of 10 percent over last five years.
CAT Dealers in China are expecting a stable outlook in terms of near term demand trends. Positives mentioned by some of the dealers include more investment into the development of infrastructure and roadway investment. Risks according to dealers were mining weakness and tighter credit availability. A group of dealers thinks that the inventory levels are very high compared to the previous survey and higher incentive levels can bring down the dealer inventory to extent.
Analysts take on the related stocks
Top picks by Citi analysts are FLSmidth due to appointment of new CEO and deep value, and Electrolux AB (ADR)(OTCMKTS:ELUXY) a beneficiary of declining commodity price. Both the dealers are assigned Buy rating. Atlas Copco and Metso Oyj (ADR)(OTCMKTS:MXCYY) have been assigned Sell rating. Caterpillar Inc. (NYSE:CAT), Joy Global Inc. (NYSE:JOY), HCM, Komatsu, Sandvik and The Weir Group PLC(LON:WEIR) have been assigned Neutral rating.