Hype & Hope in Asia

Nobody really wants economists to be right and obligingly they almost never are. After all, these were the people who not only couldn’t predict the Asian crisis in mid 1997, but months later, when the Baht dropped to historically low levels and 2,000 Thais a day were losing their jobs, they were still talking about “corrections in the marketplace”.

It is not surprising then that there is scepticism about the latest predictions for Asia. Talk to the economists and the recovery, it seems, is well underway and by the middle of this year the Asian Tigers will again be stalking massive foreign investment. Talk to crane people and you get a more sober response. Crane traders are still doing good business, but while manufacturers and rental companies are more positive they are not opening champagne bottles just yet.

Ian Banks is the regional general manager of Mannesmann Dematic in Asia. If you talk to him about the state of the crane market he has a success story. He claims 100% of the market in Singapore, Hong Kong and Taiwan for new all-terrain cranes. The problem, he jokes, is that market share amounts to little more than one machine a year in each class.

At the moment the economic recovery is limited to the share market, says Banks. Currencies may have stabilised but it won’t be any time soon before this translates to an increase in new crane sales.

“Figures for sales into the whole of Asia are very low. Singapore, Taiwan and Hong Kong are doing fairly well and India is getting better. But we’re not looking like getting back to 97,” says Banks.

Part of the reason for this is that huge civil engineering infrastructure and private sector construction projects in the 1990s resulted in an influx of cranes into Asia. This left an oversupply, and modern fleets, particularly in east Asia. Even without the 1997 crisis, sales would have dropped, says Banks.

Nevertheless, he is optimistic that construction projects held back over for the last few years will get underway and provide a fillip to Asian cranage. By the middle of the year he expects crane rental companies to become busier. This should result in a rise in rental rates, and by the end of the year an increase in sales of new machines might be expected to follow.

Potain opened an office in Singapore in 1997. It was bad timing for the French tower crane manufacturer, but it has persevered and made some headway, says Potain Pte’s managing director, Eric Etchart. For example, nine Potain cranes are on a government housing contract for the Housing Development Board in Singapore. The cranes were supplied through Potain’s dealer Manta Singapore and were all equipped with the Top Tracing anti-collision system. Potain’s tower cranes can also be seen in Hong Kong on such projects as the Island Harbourview project in West Kowloon, where 10 of its towers are being rented by the building contractor from Manta Engineering. And a recent success is the Philippines, where Potain’s first luffing jib tower crane in that country has gone to work on an office block in Manila (main picture).

Despite this, Etchart is cautious about talk of recovery. While the worst is over, it will take a while for the construction industry to recover and the amount of tower cranes lying idle will delay demand for new cranes, he says. Rental rates remain low, giving construction companies little incentive to purchase and rental companies themselves are having difficulty repaying the leases on their acquisitions of 1995 and 1996.

“I am confident about Korea in two to three years and I will bet on Japan, regardless of their disappointing third quarter GNP rate. But overall I do not foresee any outstanding recovery for the tower crane business for three years,” says Etchart.

The middle of the year is the pick in the industry for the start of a recovery. Alan Choo, sales director of American Equipment Services in Singapore, says the economic crisis is far from over. Malaysian elections in May and a new government in Indonesia could still impact on a recovery. “However, we are optimistic that the market conditions will accelerate by mid 2000,” he says.

This view is backed up by crane rental companies such as Tiong Woon Crane & Transport in Singapore. It sold several of its cranes last year. Although demand is picking up, the company’s assistant marketing manager Joseph Lee says that he does not expect the company to be buying much this year – “unless the price is right”.

Tiong Woon’s utilisation rate has lately been around 80%, a significant increase on the 60% the company was reporting a year ago. Lee says rig erection work and petrochemical plants on offshore islands around Singapore are keeping its fleet busy. Elsewhere, political instability in Indonesia does not give him any great hope for the rental market there for Tiong Woon. However, the Philippines is providing opportunity for the RTs and smaller ATs in its fleet. Lee says as demand for cranes increases this year rental rates are likely to rise, despite the strong competition that still exists in the market.

Spending hope

The best hope for the crane industry appears to be increased government spending on housing and infrastructure projects. This has stimulated the construction market in Hong Kong, where demand for cranes is picking up again, following a lull after the completion of Chek Lap Kok airport.

The HK$64bn ($8bn) KCR West Rail project, and mass transit railway (MTR) projects such as the Tseung Kwan extensions, have kept duty cycle cranes busy with piling work. The West Rail project alone involves 20,000 piles and will keep contractors working until 2003. While there was a 30% drop in the value of private sector construction in Hong Kong in the third quarter of 1999, public sector work rose by almost the same amount due to rail projects and a hectic public housing programme.

Martin Keckeis has been managing director of Liebherr Hong Kong since mid-1999. He is upbeat about prospects there. Piling work is creating demand for Liebherr’s duty-cycle crawlers. Liebherr has sold 15 to 20 machines in Hong Kong in the last few months. “The recovery here has been pretty good and the prospects for work are very good for this year,” he says.

Public spending is also aiding the recovery of the construction industry in Korea. The Inchon Airport is being built on an island off the west coast of Korea and is expected to open next January with two runways operating 24 hours a day. By that time contractors will have had their share of its $8bn price tag and had several years of work not only on the airport itself but also the approaching motorways and bridges (see Jacking from below p41). And it will not stop there. The final phase of construction will include two more runways which will not be completed until 2020.

Combined with building refurbishment, the airport project is helping to generate demand for cranes in Korea, where Injee Sung, president of Geo Trading (see below), buys and sells used cranes. For the first time since she started trading in 1998 she estimates that this year she will be importing more cranes than she is exporting. It is a sign of recovery, and while issues such as financial system reforms and industrial overcapacity do present obstacles, she believes the crisis has bottomed out. China’s accession to the World Trade Organisation will provide open market competition and help boost the economies of Korea and other Southeast Asian countries. And while some Japanese manufacturers are worried by the growing strength of the yen, Sung believes it is good news. “The stronger yen has had an historically positive effect on the region’s financial and industrial perspective,” she says.

And for Korean manufacturers there has also been some success in export markets. Last year Samsung Heavy Industries won a $180m contract to supply 21 dockside cranes for US Navy bases around the world. Samsung believes the contract has given it an opening to bid for more large US projects.

The Japanese question

There is still a big question mark over the recovery of the Japanese economy. While crane manufacturers there have increased their export drive, they are still not insulated from the weaknesses of their own economy.

Japan’s GDP has surfaced above 0% growth rate, but even this may not last. Koshi Mizukoshi, president of Kobelco’s parent company Kobe Steel, is worried that it is not sustainable. “With employment in the doldrums, there is strong concern that the economy will once again stall. A major source of anxiety is the growing strength of the Japanese yen.” In the six months to September 1999 demand recovered for Kobelco’s hydraulic excavators. This demand was driven by the rental market on the back of increased public works investment, says Kobelco spokesman Gary Tsuchida. However, the crane market experienced no such recovery. Although the number of cranes in use increased there was no new demand because of low rental rates and the uncertain economy. “Demand fell sharply in comparison to the half-year period the previous year,” he says.

Demand for cranes is not expected to rise much this year, despite more public works projects and stricter emissions standards which would otherwise stimulate demand for new equipment. The introduction of new models, however, may provide some help to sales of crawler cranes and rough-terrains, says Tsuchida.

Capital idea

The availability of cheaper capital to finance large projects might be the saviour for the construction industries in South East Asia. Not long after the Thai currency crisis set off the region’s currency collapse capital dried up for large infrastructure projects as cautious government’s tightened money supplies and the flow of foreign investment stopped. One of the cheapest forms of money for large projects was the bond market. By 1998 bond markets for infrastructure development in Asia effectively ceased and construction projects were cut back, canned or put on hold as capital became too expensive or impossible to get.

However, there is new hope with surging stock markets in the region and more relaxed fiscal policies. Capital has become cheaper and the result is that construction projects are back on the drawing board. Add to this the desire to stimulate the economies through large scale infrastructure projects and you have a construction industry set to pick up. It may take a few years, but the crane industry should follow. That is, if you believe the economists.