Against the backdrop of hot excavator sales in January, analysts expect February excavator sales growth to exceed market expectations of doubling, potentially reaching 200%-250% growth, and the industry recovery to last at least until next year.

In a report by Haitong Securities analysts She Weichao, Geng Yun, and Shen Weijie, they stated that with excavator sales expected to hit a new high, analyzing the construction sequence of earthwork projects, sales of lifting and shoveling equipment, such as industrial cranes and loaders, will also improve significantly. “The major logic supporting our judgment is still the real start of infrastructure projects and the partial resumption of production by coal and mining enterprises in 2017 that benefited from supply-side reform in 2016.”

Haitong Securities also expects February excavator industry sales growth to exceed the previous market expectation of doubling, optimistically possibly reaching 200%-250% growth, with industry sales expected to break through 10,000 units in a single month:

Starting from 3Q16, excavator industry sales have steadily increased, basically maintaining growth of over 70%, with monthly sales concentrated between 5,000-7,000 units. Entering 2017, excavator sales growth slightly declined, but January sales growth was still as high as 54.2%. Judging from the “busyness” of major manufacturers and dealers during the Spring Festival, February industry sales are expected to hit a new high. We believe that the accelerated start of infrastructure projects and the successful digestion of excess used machines are the demand guarantees for excavator sales possibly hitting a new high.

Tianfeng Securities is more optimistic. In a report by the machinery team Zou Runfang, Zeng Shuai, Cui Yu, and Zhu Ye, they stated that considering future infrastructure may continue to accelerate and leading enterprises' capacity reduction has achieved initial results, the recovery of the construction machinery industry is expected to last at least until 2018:

The main drivers of this round of industry recovery include: the government vigorously promoting infrastructure and PPP project starts, and future infrastructure may continue to accelerate; housing prices rose in 2016, real estate companies expanded land acquisition and gradually entered the construction cycle; leading enterprises' capacity reduction has achieved initial results (visible from the number of employees), and the balance sheet pressure caused by financial leasing and other factors in previous years is gradually being released; equipment from the previous industry sales peak is gradually entering the scrapping and renewal stage; profit recovery of upstream enterprises such as mines drives equipment demand; RMB depreciation brings improved export competitiveness, etc.

We believe the industry recovery can last at least until 2018, and subsequent observations need to be combined with factors such as government investment behavior.

As previously mentioned, data from the China Construction Machinery Association shows that in January 2017, 4,548 excavators were sold, a year-on-year increase of 54%, among which sales of small, medium, and large excavators increased by 57%, 33%, and 107% year-on-year respectively. First Construction Machinery Network said that at the beginning of the year, some manufacturers' excavator models were out of stock, the second-hand machine trading market is currently hot, and it is relatively difficult to pick up second-hand machines, all dimensions showing strong downstream demand at present.

In addition to the significant recovery in sales, the concentration of the construction machinery industry has also improved markedly.

According to Tianfeng Securities, in this round of adjustment, the capacity reduction in the construction machinery industry is basically complete. At the industry peak in 2010, there were more than 100 companies engaged in excavator sales in the market, now reduced to 20-30. Industry concentration continues to increase, with CR4 exceeding 50% and CR8 approaching 75%. Sany Heavy Industry's market share in excavators has increased from 9% to 23%. The number of employees of major listed companies has basically been reduced to about 2/3 of the peak period, and Sany Heavy Industry has reduced to 1/3.

Northeast Securities analysts Chen Yalong, Shen Xinfeng, and Xie Lin concluded that the significant recovery in sales of excavators, bulldozers, and cranes, as well as recent positive factors in the Xinjiang sector, all to some extent show the market's positive expectations for this year's infrastructure, “Belt and Road”, and PPP.