With sales data continuing to rise, the market has once again placed high hopes on the recovery of the construction machinery industry. However, industry insiders believe that excavator sales data cannot fully reflect the current market situation; coupled with the excessive stock of equipment in the industry and the still low effective utilization time of equipment, demand for new products is hardly strong, and the overall recovery prospects of the industry are not clear.

Excavator Sales Data Continues to Warm Up

Since April this year, when the year-on-year decline was reversed, domestic excavator sales have maintained continuous year-on-year growth. After October's unexpected 25.8% increase, the year-on-year growth of domestic excavator sales in November further rose to 27%. Total excavator sales from January to November this year amounted to 106,000 units, a year-on-year decline of 5%, with the decline further narrowing.

It is worth noting that in March 2011, domestic excavator sales hit a historical high of 43,063 units, a year-on-year increase of 42.92%. Subsequently, the year-on-year growth rate declined all the way; the 27% year-on-year growth in November this year is a new high since March 2011.

Excavators remain the mainstay of the construction machinery market; among them, Sany Heavy Industry sold 1,046 units, a year-on-year increase of 39%, ranking first.

In an email reply to the editor, Sany Heavy Industry stated that since the second half of last year, the excavator market has undergone a short-term adjustment. The current sales data indicate that the industry is gradually emerging from the trough and entering a period of steady recovery. "Although future growth in the excavator market will not be as huge as before, stable growth is long-term and sustainable, and can be expected."

The continuous growth of excavator sales has also driven the recovery of related enterprises' performance. Hengli Hydraulic, which produces hydraulic cylinders specifically for excavators, saw its operating revenue and net profit decline by 7.79% and 15.29% year-on-year in 2012; by the first half of 2013, its revenue grew by 19.22%, and the year-on-year decline in net profit narrowed from 19.36% in the first quarter to 7.63%. Driven by improved fundamentals, Hengli Hydraulic's stock price began to rise gradually after hitting a low point at the end of July; especially since mid-October, its stock price has accumulated a gain of nearly 30%.

Hidden Concerns Behind Brilliant Data

Judging from excavator sales data, the construction machinery industry seems to be seeing the light. However, an employee of a construction machinery company said that this year's situation can only be described as mixed, and the surface sales data cannot fully reflect the true situation of the industry.

He stated that the biggest risk in the excavator industry currently lies in the credit sales model. For high-value medium and large excavators, possibly more than half are sold through credit—customers pay a down payment first and then repay monthly. Although this model helps manufacturers expand sales channels, once the downstream engineering projects have insufficient开工率 (utilization rate), many customers will not be able to secure engineering projects, resulting in an inability to repay. In such cases, dealers can only tow the machinery back, forming second-hand machine sales. The towing costs plus the discount on second-hand machines result in significant losses. Therefore, the better the sales data looks, from another perspective, the greater the risks faced by enterprises and the industry may be.

At the same time, the above-mentioned person also said that with credit sales accounting for a large proportion of medium and large excavators, some enterprises consciously try to avoid such risks by increasing the production and sales proportion of small excavators. But in this way, although sales data seem to have improved, the revenue scale has not actually grown significantly.

Some brokerage analysts believe that in the first three quarters of 2013, the investment growth rates for national real estate investment, railway infrastructure, highway investment, and water conservancy construction were 19.70%, 12.50%, 10.13%, and 28.25%, respectively, all higher than last year's overall level, but all showed varying degrees of slowdown compared with the first half of the year. Therefore, from the perspective of downstream sectors of the construction machinery industry, the medium-term growth momentum may slow down, affecting the industry's recovery strength.

The aforementioned employee of a construction machinery company, who declined to be named, also believes that the construction machinery market may show some signs of improvement next year, but explosive growth is unlikely; growth may only be in single digits. Although a series of constructions are underway, due to the very large social保有量 (ownership) of construction machinery sold in previous years, how much new demand for equipment will there be under such circumstances? "So, looking only at sales data may not be the same as the actual industry situation; a comprehensive analysis from overall revenue, accounts receivable, and other aspects is needed to see clearly. This situation exists not only in excavators but also in concrete equipment, cranes, and other industries," the person added.