Machinery / Industrial Parts & Tools

How long will the industry cycle last, and when the construction machinery market will narrow and return to positive, it is always the "Sword of Damos" hanging over people's heads.

Recently, with the narrowing of the year-on-year decline in market sales, the recovery of infrastructure construction, the effective control of the epidemic, and the decline of raw materials, after the adjustment in the first half of the year, the construction machinery industry began to gradually walk out of the trough. Many industry insiders assert that the growth rate of excavator sales may end the 14-month decline in a row, and the year-on-year growth rate will turn positive!

Is this really the case?

We take a peek at the start-up situation of upstream and downstream, market performance, and terminal demand.

1. The industry is booming, and the downstream operating rate is released

Starting from the first week of July, the national construction data has improved, and the industry turning point in the second half of the year may be forming.

As a weather vane reflecting economic changes such as infrastructure construction and observation of fixed asset investment. According to the latest data from the "CCTV Financial Excavator Index", the average monthly operating rate of construction machinery in the first half of 2022 was 60.37%, and in the second quarter it was 66.77%, significantly higher than the 53.98% in the first quarter. The operating rate of various types of construction machinery remained high, indicating that my country's infrastructure investment has accelerated.

According to the construction industry PMI index, the domestic PMI was 50.2% in June, up 0.6% from the previous month, returning to the expansion range after three consecutive months of contraction. The construction industry activity is expected to increase by 5.2pcts month-on-month, and the construction industry has expanded significantly; at the same time, the construction industry new orders index is 50.8%, up 4.4pcts month-on-month. Thanks to the accelerated implementation of policies related to stabilizing growth, the prosperity level of the construction industry has been significantly improved.

In terms of the operating hours of excavators, the operating hours of Komatsu excavators in China in June was 95.2 hours, a year-on-year decrease of 13.1%, although the start of construction in the first half of the year hit a new low for the same month in the past year. However, in terms of growth rate, in the past three months, it has rebounded at a rate of about 5% per month. According to the current trend, the number of working hours in the second half of the year may continue to rebound.

A research report pointed out that since June, as the epidemic situation in many places has been controlled and the closed management policy has been released, the poor transportation of raw materials in the construction industry has been alleviated, and the construction progress has improved. Secondly, from accelerating the issuance and use of 3.45 trillion yuan of special bonds, increasing the policy credit line of 800 billion yuan, to the National Development and Reform Commission's proposal to ensure the implementation of 102 major projects in the "14th Five-Year Plan", a series of supporting measures will be intensively implemented, and infrastructure projects will be implemented intensively. Demand for construction starts is expected to grow positively.

With the support of stable growth policies and major project financing, with the accelerated progress of projects delayed in the early stage, infrastructure and real estate are the main application fields of excavators. The optimistic development of the two industries will effectively drive the increase in demand for excavator products.

2. The market performance is improving, boosting industry confidence

The year-on-year growth rate of monthly sales of construction machinery represented by excavators is expected to return to positive in the second half of this year, or at least the decline will be significantly narrowed.

Although the monthly sales of excavators have dropped for six consecutive months this year, the decline has been narrowing in the last two months. According to the statistics of the association, in June 2022, 20,761 excavators of various types were sold, a year-on-year decrease of 10.1%. Among them, 11,027 units were sold in China, a year-on-year decrease of 35%; from January to June 2022, a total of 143,094 excavators were sold, a year-on-year decrease of 36.1%. Among them, there were 91,124 domestic units, a year-on-year decrease of 52.9%.

CME estimates that the sales volume of excavators (including exports) in July 2022 will grow by about 8% year-on-year, and there is a high probability that it will turn positive!

The gradual recovery of the market performance has also made the production line that was deserted in the past "active" again.

During the survey, some companies said that the backlogged inventory has gradually improved, and some customers have begun to pick up the goods one after another!

It is understood that in the first half of this year, the construction machinery industry encountered delays in the start of construction during the peak season, and many customers placed orders in advance and delayed delivery. "In the first half of this year, we did have many customers who paid deposits but postponed delivery because the construction site had not started. At present, as the construction sites started one after another, these customers began to pick up the goods one after another." A person from a leading construction machinery company said.

In addition, leading companies have launched repurchase plans, demonstrating their confidence in the long-term development of the industry. On the evening of July 20, Zoomlion released a self-owned fund repurchase plan with a total amount of no more than 3,987,537,425 yuan, and the price of the repurchased shares did not exceed 9.19 yuan per share. This reflects the firm's firm confidence in long-term intrinsic value.

3. The industry is picking up, and the switch between capital and National IV is the key

Through downstream construction and terminal market data, the industry is expected to show a recovery or even a positive trend in the second half of the year, but the two key factors restricting the industry's prosperity cannot be ignored.

1. Infrastructure funds are in place

Although the Ministry of Finance issued a special bond quota for project construction in advance at the beginning of the year, due to constraints such as the heavy task of stabilizing the economy this year, the pressure on fiscal revenue and expenditure, and the impact of the epidemic, the funds were slow to arrive, and the previous infrastructure investment has always been "tepid." fire". Therefore, in the second half of the year, infrastructure investment is an important means of counter-cyclical adjustment, and whether infrastructure funds are fully available has become the key.

2. Extension of the application for the National IV switch

At the press conference of the China Construction Machinery Industry Association held on July 22, the China Construction Machinery Industry Association released a piece of news that it is applying to the Atmospheric Environment Department of the Ministry of Ecology and Environment to make the construction machinery industry "National Four". The implementation time has been postponed to April 1, 2023.

The original non-road National IV emission standards will be officially implemented at the end of 2022. At that time, construction machinery and equipment that do not meet the emission standards will face elimination. The update and iteration of equipment will undoubtedly open up new growth points in the market. And if it is delayed, this will lead to the delay in the demand for new purchases. Originally, through the national fourth switch, the opening of new points in the market with new equipment will have to be delayed. At that time, if the capital for infrastructure construction is still not in place in the second half of the year, the inventory pressure will not be digested, which will further aggravate the survival pressure and competition situation of enterprises.

Regarding the trend in the second half of the year, most people in the industry generally hold an attitude of "strong and optimistic"!