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Indian Mining And Construction Equipment

Indian Mining And Construction Equipment Background

The Indian mining and construction equipment industry was severely hit by the economic slowdown, weak sentiments across user industries and tight liquidity conditions in 2008-09, resulting in a sharp 15-30% drop in demand across product segments.

The cumulative negative impact across industrial/ infrastructure investments resulted in a sharp decline in Indian mining and construction equipment volumes in Q3, 2008-09. While Government funded infrastructure projects largely remained on track even during this downturn, a number of privately funded projects suffered due to insufficient credit and a sharp deterioration in the investment environment. In the mining industry, the metal mining segment was affected by a sharp fall in commodity prices while coal mining supported demand to some extent. Growth in governmental segments of mining and roads, which are relatively more mechanised and thereby use more of mining and construction equipment, supported growth during the past few quarters.

Falling commodity prices curtailed demand for mining equipment

The mining, irrigation and other infrastructural segments together account for around 45% of the Indian mining and construction equipment industry volumes. With mining activity in India being a key demand driver, the price levels of mined commodities play a major role in driving demand for mining equipment.

For a period of over a year-and-a-half, starting 2007, commodity prices reigned high owing to strong global demand. From Q3 2008-09, with the fall in global liquidity and demand, commodity prices corrected. While the fall in commodity prices, especially for steel, was beneficial for the cost structure of the industry, it also suppressed demand from the metal mining segment, which scaled down activity as prices fell. The Indian mining industry comprises of three key products: coal (around 50% of the volumes mined in the country), iron ore (around 22%) and limestone (20%). The government and public sector undertakings account for more than 90% of the coal mining activity, around 25% of the iron ore mining and negligible limestone mining in India. With ample coal reserves and the ongoing power deficit, coal mining by PSUs has continued to grow at a steady pace, thus providing regular demand for mining equipment.

Threat of imports from low-cost countries like China:

The challenges for the Chinese products in India stem largely from warranty support and availability of spares/ after-sales support. Some Chinese manufacturers have started addressing these concerns through tie-ups with local established OEMs like Escorts Construction Equipment Limited. While the current approach of domestic buyers towards Chinese equipment remains cautious on concerns related to quality and availability of long-term after-sales service, the future trends could be largely determined by the success of local tie-ups in addressing these concerns. Further, the resale value of the Chinese equipment currently remains low, restricting availability of finance. However, the Indian OEMs will continue to face competitive pressures to lower costs, thus requiring higher localization; improving value through greater customization to meet local needs besides strong service and spares support to beat competition.

Limited investments in Research & Development by mining and construction equipment manufacturers in India:

Mining and construction equipment companies have depended on parental support for product development and have made minimal investments on Research and Development (R&D) – largely limited to homologation of the global products for Indian conditions. Further, the need for technology investments specific to the Indian market is relatively low, as the requirements for emission/noise control in Indian off-highway vehicles continues to be basic as compared to the developed markets. The Indian MCE industry is currently BSII compliant, with the next transition expected in April 2011. Indian market participants have started to invest into R&D to match the international quality standards. Deeper understanding of the market and the requirement for application/topography specific products has further raised the need for increased R&D by participants in the Indian market.

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