Is Domestic Excavate Sales Structure Subverting with Exports Accounting for 50% of Total Sales?

SHANGHAI, Aug 26 (SMM) - According to statistics from the China Construction Machinery Association, the sales of excavators of all kinds stood at 17,939 units in July, a year-on-year increase of 3.4%. Domestic sales stood at 9,250 units, a year-on-year decrease of 24.9%, and exports stood at 8,689 units, a year-on-year increase of 72.8%.

As is shown in the figure below, the proportion of excavator exports in total sales has increased from 13.73% in January 2019 to 48.44% in July 2022, with exports accounting for nearly 50%! The proportion added nearly 35 percentage points in just two years to a record high. Correspondingly, the proportion of excavators sold domestically dropped sharply from 86.27% in 2019 to 51.56%, which indicates that the sales structure in China has experienced huge changes.

Also according to statistics from the China Construction Machinery Association, the 26 major manufacturers sold 161,033 units of excavators from January to July, a year-on-year drop of 33.2%. Domestic sales stood at 100,374 units, a year-on-year decrease of 51.3%, and exports stood at 60,659 units, a year-on-year increase of 72.3%.

In July, the sales volume of excavators in China added 3.4% year-on-year, the first positive growth YoY since May last year. Except for driving forces like the acceleration of the issuance of special bonds and the expedited infrastructure investment, the growth is mainly attributable to strong export orders. According to SMM, the main reasons for the continuous increase in the export volume and a sharp advance in the proportion in recent years include:

1. Domestic brands have enhanced their presence in overseas regions such as North America and Southeast Asia, which accommodates strong demand for excavators;

2. Domestic enterprises have seized the opportunity to actively set foot on the export business and increase investment in research and development of related products. In developed economies such as Europe and the United States, Chinese construction machinery brands are with strong competitiveness and continuously improving cost performance;

3. The competitive advantage of construction machinery exports have improved driven by the devaluation of the RMB;

4. Overseas construction machinery manufacturers are restricted by the disrupted supply chain owing to the pandemic, resulting in a mismatch between supply and demand.

Looking ahead, SMM believes that both the penetration rate and presence of domestic brands is increasing overseas. It is expected that the export volume of Chinese excavators will continue to increase in the future. While the growth rate may gradually slow down, the proportion of exports may still have some room for improvement.

In terms of domestic demand, "it is expected that the construction machinery industry will stabilise and rebound in the next few months of this year, and the economic operation of the industry will gradually improve; and the main indicators of the entire industry will show a V-shaped trend throughout the year." Su Zimeng, President of China Construction Machinery Industry Association, said at the 19th China Construction Machinery Development High-level Forum held on August 23.

Specifically speaking, in July, the sales volume of small excavators in China was 5,944 units, down 12.51% month-on-month, and the decline speed narrowed 1.98 percentage points compared with that in June; medium-sized excavators 2,066 units, down 18.50% month-on-month, and an increase of 14.56 percentage points; and large excavators 1,240 units, down 26.97 month-on-month, and an increase of 33.43 percentage points.

It can be found that, except for small excavators which saw slowing MoM decline, the MoM sales decline of medium-sized and large excavators accelerated compared with that last month. SMM believes that small excavators are highly related to rural infrastructure construction, and they are mainly used in infrastructure construction projects with small investment such as rural construction and house renovation. On the other hand, medium-sized and large excavators are mainly used in large-scale projects such as real estate and mining. Compared with micro as well as medium-sized and large excavators, small excavators have more extensive applications and are less significantly affected by the pandemic. Driven by solid support for infrastructure in China and the continuous development of rural infrastructure investment, and with the help of new infrastructure projects such as new energy charging piles and 5G base station construction, the demand for small excavators has recovered significantly more quickly than other types of excavators.

China's Komatsu excavator operating hours reached a year-to-date high in May this year, it dropped rapidly in June, and recovered to the 100-hour level in July. In the future, considering that the infrastructure industry still carries strong development expectations, SMM believes that the Komatsu excavator operating hours in China is still expected to continue to increase on the basis of July. At that time, the demand for excavators will further increase, and boost the overall demand for steel in the construction machinery industry to some extent.