The Outlook for Construction Machinery

Transcription

1 The Outlook for Construction Machinery Donald A. Johnson Chief Economist 1 Cautionary and Safe Harbor Statement Certain statements in this presentation relate to future events and expectations and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Words such as believe, estimate, will be, will, would, expect, anticipate, plan, project, intend, could, should or other similar words or expressions often identify forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance, and we do not undertake to update our forward-looking statements. Caterpillar s actual results may differ materially from those described or implied in our forward-looking statements based on a number of factors, including, but not limited to: (i) global economic conditions and economic conditions in the industries and markets we serve; (ii) government monetary or fiscal policies and infrastructure spending ; (iii) commodity or component price increases and/or limited availability of raw materials and component products, including steel; (iv) our and our customers, dealers and suppliers ability to access and manage liquidity; (v) political and economic risks and instability, including national or international conflicts and civil unrest; (vi) our and Cat Financial s ability to: maintain credit ratings, avoid material increases in borrowing costs, and access capital markets; (vii) the financial condition and credit worthiness of Cat Financial s customers; (viii) inability to realize expected benefits from acquisitions and divestitures, including the acquisition of Bucyrus International, Inc.; (ix) international trade and investment policies; (x) challenges related to Tier 4 emissions compliance; (xi) market acceptance of our products and services; (xii) changes in the competitive environment, including market share, pricing and geographic and product mix of sales; (xiii) successful implementation of capacity expansion projects, cost reduction initiatives and efficiency or productivity initiatives, including the Caterpillar Production System; (xiv) sourcing practices of our dealers or original equipment manufacturers; (xv) compliance with environmental laws and regulations; (xvi) alleged or actual violations of trade or anti-corruption laws and regulations; (xvii) additional tax expense or exposure; (xviii) currency fluctuations; (xix) our or Cat Financial s compliance with financial covenants; (xx) increased pension plan funding obligations; (xxi) union disputes or other employee relations issues; (xxii) significant legal proceedings, claims, lawsuits or investigations; (xxiii) compliance requirements imposed if carbon emissions legislation and/or regulations are adopted; (xxiv) changes in accounting standards; (xxv) failure or breach of IT security; (xxvi) adverse effects of natural disasters; and (xxvii) other factors described in more detail under Item 1A. Risk Factors in our Form 1- K filed with the SEC on February 21, 212 for the year ended December 31, 211. This filing is available on our website at th Annual Economic Outlook Symposium 1

2 Construction Is All about Economic Growth U.S. Results for 1947 through 211 Held 8% of the time % Change in Private Construction GDP growth < 2.5% Construction decreases GDP growth > 2.5% Construction increases % Change in U.S. GDP Source: Computed using data from Bureau of Economic Analysis/Haver Analytics 3 Construction in Developing Countries Average Annual Percent Rates of Growth (23 211) Strong growth! China Argentina India South Africa Indonesia Russia Turkey Brazil Source: Haver Analytics 4 26 th Annual Economic Outlook Symposium 2

3 U.S. Construction 1,2 Trend Growth Rates 1, % 1.2% 1, % U.S. Construction Put in Place (Billion 25 Dollars) Not so good! Source: Census Bureau/Bureau of Economic Analysis/Haver Analytics 5 Worldwide Machine Industry YTD 212: - 8% Growth Rates 21 46% % January 28 Units = 1 12-month 6 4 (Data through September 212) Source: Association of Equipment Manufacturers/Chinese Construction Machinery Manufacturers 6 26 th Annual Economic Outlook Symposium 3

4 Worldwide Machine Industry (ex. China) January 28 Units = 1 YTD 212: + 14% 12 Growth Rates % % month 12-month 4 (Data through September 212) Source: Association of Equipment Manufacturers/Chinese Construction Machinery Manufacturers 7 7 World Purchasing Manager Indices 65 Above 5 = Growth Weak, volatile recovery 6 Recession Concerns Manufacturing Recession Concerns Services Recession Concerns 55 5 (Data through October 212) Source: Markit/Haver Analytics 8 26 th Annual Economic Outlook Symposium 4

5 Industrial Production Pre-Recession Peak = countries 43 off lows 26 below record highs Latest U.S. Brazil Mexico Source: Haver Analytics Eurozone Poland S. Africa Turkey 9 Russia Japan Australia China Low India Indonesia Korea Low Interest Rates 12 Percents Weighted by GDP 15 of 47 countries at new lows Developing Countries Developed Countries (Partial data through October 212) Source: Haver Analytics/Caterpillar Business Economics calculations th Annual Economic Outlook Symposium 5

6 Tightening in Budget Positions Likely continued in 212 Change in Government Budget Balances as Percents of GDP (From 29 through 211) U.S. 2.4 Canada 1.4 Eurozone 1.9 U.K. 1.6 Japan.8 Australia.8 Brazil.5 Turkey South Africa 1.4 Russia China 1.1 India.3 Source: Haver Analytics World GDP Forecasts Percent Changes in Real GDP Some improvement in World North America South America Europe AME/CIS Asia/Pacific Japan Source: Haver Analytics, Caterpillar Business Economics Forecasts as of 1/22/12. We are not updating or reaffirming our 213 economic outlook th Annual Economic Outlook Symposium 6

7 Metals Prices Weekly FIBER Metals Price Index (199 = 1) 4/12/11 11/23/12 Prices better than last cycle /29/8 4/2/ Source: Foundation for International Business and Economic Research/Haver Analytics 13 Commodity Prices and Costs Most still have favorable margins Commodity Prices vs. Cash Costs of Production Cash Cost * Current Price % Differential Copper ($/lb) % Gold ($/oz) 75 1, % Iron Ore ($/ton) % Thermal Coal ($/ton) % * Cash costs for 9% of production. Source: Brook Hunt, Anglo American, AME and Haver Analytics th Annual Economic Outlook Symposium 7

8 Australian Mining 25 Billion of Australian Dollars Margins declining Profits Capex Source: Haver Analytics/Australian Bureau of Statistics 15 Mining Capital Expenditures 8.5% drop projected in 213; 15.6% drop in Metals and Mining Companies (Billion Dollars) Source: Citibank, Global Capital Expenditure Outlook, 9 September th Annual Economic Outlook Symposium 8

9 United States 17 U.S.: Is a Recession Coming? Indicators not signaling recession May 27 Latest 212 Yield Curve (bps) TED Spread (bps) Money Growth (% Change) Light Vehicle Sales (% Change) Housing Starts (% Change) Freight Movements (% Change) Source: Haver Analytics th Annual Economic Outlook Symposium 9

10 U.S. Construction Housing improving Prior Cycle Best Recent Worst Current Residential Housing Starts (SAAR, Thousand Units) 2, New 1-Family Houses Sold (SAAR, Thousand) 1, New 1-Family Homes Inventory (Months Supply) Composite Housing Affordability Index Homes Foreclosed (per 1, Homes) Nonresidential Total Industry Capacity Utilization (% of Capacity) Commercial Real Estate Price Index Office Vacancy Rate (%) Source: Haver Analytics 19 U.S. Construction Forecasts Growth in Housing Starts (thousand units) Non-residential Building Orders (Annual change, %) Infrastructure Orders (Annual change, %) Source: Haver Analytics, Caterpillar Business Economics Forecasts as of 1/22/12. We are not updating or reaffirming our 213 economic outlook th Annual Economic Outlook Symposium 1

11 U.S. Mining Mining production sluggish Coal Prior Cycle Best Recent Worst Current Central lappalachian Coal Price ($ per Ton) Coal Mining Industrial Production (27=1) Coal Exports (Thousand Short Ton) 8,653 3,513 11,623 Electric Power Generation IP (27=1) Natural Gas/Coal Ratio (%) Other Mining LME Copper Price ($ per Pound) Gold Bullion Price ($ per Troy Oz.) ,731 Metal Ore Mining Industrial Production (27=1) Nonmetal Mining Industrial Production (27=1) Source: Haver Analytics 21 U.S. Mining Production Forecasts Annual Percent Changes Coal under pressure Nonmetals Metals Coal Source: Haver Analytics, Caterpillar Business Economics Forecasts as of 1/22/12. We are not updating or reaffirming our 213 economic outlook th Annual Economic Outlook Symposium 11

12 Central and South America 23 Short-term Interest Rates Holding for now Monetary Policy Rate (%) Brazil Chile Colombia Mexico Peru Pre-recession Peak Recession Low Post-recession High Current Source: Haver Analytics th Annual Economic Outlook Symposium 12

13 Construction Americas South Real GDP - Construction Year-over-Year Percent Change Construction remains solid in most key countries Source: Haver Analytics, Caterpillar Business Economics Forecasts as of 1/22/12. We are not updating or reaffirming our 213 economic outlook Europe/Africa Middle East th Annual Economic Outlook Symposium 13

14 Eurozone Liquidity 2,2 2, 1,8 1,6 1,4 1,2 1, 8 6 Eurozone Base Money Estimate (Billion Euro) 2.4% Average GDP Growth 4 Recession/ (Data through 11/23/212) Weak Growth Source: European Central Bank/ Haver Analytics Up 54% since end of July Eurozone Interest Rates 6 (Data through 11/23/212) Key Eurozone Interest Rates (Percents) Record low rates Month Euribor Deposit Rate Overnight Refinance Source: European Central Bank/ Bundesbank/Haver Analytics th Annual Economic Outlook Symposium 14

15 Eurozone Lending 2 Year-on-Year Percent Change Lending to nonfinancial corporations down 2.1% Mortgage lending To Nonfinancial (Data through September 212) Corporations Source: European Central Bank/ Haver Analytics 29 Industrial Production Indices 14 Indices 25=1 Moderating growth since mid Turkey South Africa (Data through September 212) Source: Haver Analytics/Business Economics calculations 3 26 th Annual Economic Outlook Symposium 15

16 Asia/Pacific 31 China: Bank Loan Growth 2 16 Net Increase from Prior Month (Billion RMB) Record increases in July to September Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: People s Bank of China, Haver Analytics th Annual Economic Outlook Symposium 16

17 China FAI: Infrastructure China Fixed Asset Investment: Infrastructure (YOY %) 6 Aug YOY: + 15% Jul YOY: + 14% Jun YOY: + 19% mma Source: CNBS, Haver Analytics, China Railway Investment Significant growth underway 12 1 China Fixed Asset Investment in Railway: Construction (Billion RMB) Implied ROY Investment Annual Target: 512 bn (Oct) bn (Sep) bn (July) 2 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: The Ministry of Railways, Haver Analytics, Caterpillar Business Economics bn (April) 26 th Annual Economic Outlook Symposium 17

18 Japanese Bank Reserves 5 Trillions of Yen Significant liquidity; more to come Recession (Data through October 212) Source: Bank of Japan, Haver Analytics 35 Caterpillar Sales Trends Aug. Oct. 212 vs. Aug. Oct. 211 Asia Pacific +6 Europe, Africa ME +4 Latin America +9 ROW +6 North America +13 World +8 Source: th Annual Economic Outlook Symposium 18

19 Key Points Developed countries growing slowly Record low interest rates; central banks boosting liquidity U.S. construction should improve Europe in recession; little improvement expected Developing countries to fare better Policy easing underway Economic growth should improve more than a half percentage point Commodity prices to improve slightly Production likely to increase Coal still facing problems Source: Caterpillar Financial Release, October 22, 212, pp th Annual Economic Outlook Symposium 19