Thursday, March 21, 2013

Caterpillar Sales Slowdown and Suntech Bankruptcy

News about Caterpillar's sales slowdown and Suntech's recent bankruptcy caught my attention.

Caterpillar Inc. said Wednesday that global sales of its heavy equipment fell 13 percent for the three-month rolling period that ended in February, hurt by a steep drop in Asia Pacific demand. 

That followed a 4 percent decrease for the three months that ended in January and a 1 percent slide for the three months that ended in December, the company said in a Securities and Exchange Commission filing. 

Asia Pacific sales dropped 26 percent in the recent period, while North American sales fell 12 percent. The only region to post an increase was Latin America, where sales rose 3 percent.
 I don't know if there are seasonal factors involved in the recent 3-month drop-off, but a slowdown in heavy equipment sales has been part of Caterpillar's recent past forecast.  Caterpillar's business is tied into the mining and construction sectors.  

A slowdown in Caterpillar's sales would be tied to a slowdown in the mining sector where companies such as Vale, the largest producer of iron ore, have seen their stock price beaten down over the past 2 years.  The decline in iron ore demand (and other commodities) may be a result of recession in China, where overinvestment has reached a point to where loans can no longer be rolled-over.

Further evidence of a possible Chinese recession comes from solar panel manufacturer Suntech's bankruptcy - who some investors and creditors may have felt had the unanimous backing (subsidy) of the Chinese government.

Suntech Power Holdings Co., the world’s largest solar-panel maker in 2010 and 2011, will declare “bankruptcy reorganization” today, China’s official Xinhua News Agency reported. 
The company, based in Wuxi, China, said on March 18 it defaulted on $541 million of convertible bonds, prompting speculation on its future. Earlier, Suntech said it was talking with local government agencies in the region about financial support and also negotiated a two-month forbearance with 63 percent of its bondholders.
Electricity consumption is a widely followed indicator of Chinese economic growth.  China's manufacturing-heavy (and export-driven) economy relies heavily on electricity consumption, and slowing growth in electricity consumption may be the result, and leading indicator, of factory shutdowns and reduced production.
China’s power consumption fell 12.5 percent from a year earlier in February as factories shut or slowed operations during the Lunar New Year holiday. 
Electricity demand declined to 337.4 billion kilowatt hours last month, the National Energy Administration said on its website today. Power use in the first two months increased 5.5 percent from the same period in 2012 to 789.2 billion kilowatt hours.

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