Atlas Copco, Sandvik Chiefs Signal End to Mining-Equipment Woes – by Niclas Rolander (Bloomberg News – July 18, 2014)

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Upbeat comments from Swedish mining-equipment makers Atlas Copco AB (ATCOA) and Sandvik AB (SAND) may be an early sign of a recovery for a business that’s been in a two-year decline as customers postponed investments amid slumping commodity prices.

“The downward pressure that we have experienced for quite some time is not there in the same way,” Sandvik Chief Executive Officer Olof Faxander said on a conference call with journalists yesterday. “There is stability at the current level, and that is a positive change.”

Faxander’s comments echo those of Ronnie Leten, CEO of Stockholm crosstown rival Atlas Copco, who said on July 16 he’s seen an improvement in demand for mining products late in the second quarter.

After a surge in mining investments, fueled by a decade-long boom in metal prices, BHP Billiton Plc (BLT), Rio Tinto Plc (RIO) and Vale SA (VALE3) are cutting investments, favoring cash handouts to shareholders instead. BHP, the world’s largest mining company, expects spending on new projects and exploration to have been $16.1 billion in fiscal 2014, 25 percent lower than in the previous year, and Rio Tinto last year lowered its capital expenditure by 26 percent to $12.9 billion.

“The fact that both CEOs feel a bit happier talking about it as a little more positive trend is clearly helpful, and it’s probably a bit earlier than I thought,” Alexander Virgo, an analyst at Berenberg in London, said in an interview. “We ought to be somewhere near the trough.”

A 3 percent drop in second-quarter orders marked the slowest annual rate of organic decline in two years for Sandvik’s mining unit.

Virgo said that it is encouraging that a stabilization is finally materializing. Although miners’ production rates have been good for some time, it hasn’t translated into stronger demand for products from Atlas Copco and Sandvik, he said.

While miners are unlikely to ramp up investments in expansions, machinery makers could benefit from growing service and spare parts sales as well as equipment-replacement orders.

Mining industry sales represented 37 percent of Sandvik’s total revenue last year, while Atlas Copco generates about 26 percent of sales from mining customers. Together, the two Swedish companies control more than half of the global market for underground mining equipment. Their competitors include U.S.-based Joy Global Inc. and Caterpillar Inc.

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