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Analysis: Indonesia’s heavy equipment industry to grow slightly in 2019
Indonesia’s heavy equipment industry in 2019 is predicted to grow only slightly or even be stagnant
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span>Indonesia’s heavy equipment industry in 2019 is predicted to grow only slightly or even be stagnant. The chairman of the Indonesian Heavy Equipment Association (HINABI) said sales of heavy equipment would decline because of weaker low-calorie coal prices since the end of 2018. This year’s production target for heavy equipment is only 7,000 units, lower than 2018’s of 8,000 units. The production of heavy equipment was recorded at 7,981 units in 2018, up 42 percent from 2017, when it was at 5,609 units.
HINABI stated the prospect of heavy equipment sales in 2019 would shift from the mining sector to others. From 2012 to 2016, mining activities slowed because of the decline in coal prices. As a result, a lot of heavy equipment that became outdated was not replaced.
In 2017, an increase in coal prices helped mining activities recover. Therefore, the users of heavy equipment immediately bought new tools to replace the obsolete ones and tool sales increased in 2017 and 2018. This year, the need to replace equipment is no longer as urgent as in the year before, so heavy equipment orders are likely to be less aggressive than last year. The construction, plantation and forestry sectors are to be the focus of heavy equipment sales in 2019.
On the financing side, the Association of Indonesian Financing Companies (APPI) projects that in 2019 heavy equipment financing would still be struggling, primarily because it is still supported by government projects. This year, APPI estimates heavy equipment financing would increase by at least 2.5 percent on the back of the government’s construction projects. In 2018 was 17,000 new pieces of heavy equipment were financed and in 2019 the number is projected to reach 19,000. The Financial Services Authority (OJK) said multifinance funding for heavy equipment was recorded at Rp 29.3 trillion (US$2.08 billion) in 2018, up 22 percent year on year (yoy).
From January to November 2018, United Tractor’s (UNTR) Komatsu heavy equipment brand had sales increase by 30 percent yoy, totalling 4,502 units. This sales figure exceeded UNTR’s 2018 target of 4,500 units. This increase was driven by heavy equipment sales in the agricultural sector, which increased by 38.8 percent yoy, slightly more than in the mining sector, which increased by 38.7 percent yoy.
Meanwhile, the construction sector grew by 17.1 percent yoy and the forestry sector was up by 5.8 percent yoy. In addition, as of the first nine months of 2018, UNTR’s Komatsu still had the largest market share of 35 percent in the national heavy equipment market, followed by Caterpillar with 17 percent, Hitachi with 16 percent, Kobelco with 15 percent and several others with 16 percent combined.
The price of coal, which is to correct in 2019, is still one of the challenges for heavy equipment sellers. Historically, coal demand in the first quarter has been low because the winter coal demand has already been met. Also, the Chinese government still limits coal imports because of an abundance of coal in China.
However, anticipation from the sellers has begun. For example, UNTR has been lowering Komatsu’s sales projections, considering that the mining sector’s activities have begun to stabilize. The reduction in the target was driven by low-calorie coal producers that held back production; consequently the price declined.
This seller has cut its sales target for heavy equipment in 2019 from 4,900 to 4,000 units. However, UNTR has other ways to anticipate this, as it has diversified its other mining businesses. Last year, it acquired the Martabe gold mine in North Sumatra. Through its subsidiary, PT Danusa Tambang Nusantara, it is now focusing on continuing operations and optimizing gold production for this year. UNTR targets gold production of 350,000 ounces from Martabe. Incidentally, the price of gold on Feb. 14 was $1,312.60 per ounce.
In 2019, the demand for heavy equipment is expected to stagnate. Apart from the price of coal, which tends to be prone to fluctuations, the urgency of heavy equipment users to extensively replace or rejuvenate heavy equipment was also one reason for the aggressive demand for heavy equipment last year, especially by the mining industry. In the construction industry, the Committee for Acceleration of Priority Infrastructure Delivery aims to complete 30 National Strategic Projects worth Rp 276.4 trillion by the third quarter of 2019 at the latest. Therefore, demand from the construction sector is still expected to grow.
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The writer is an industry analyst at PT Bank Mandiri.
