A return to growth?

Discussing Manitowoc’s fourth quarter results last month, chief financial officer Carl Laurino noted an uptake in orders in the quarter, boosted by ‘a ramp up in demand as customers finalised orders prior to the end of the year’. His colleague Eric Etchart, president and general manager, Manitowoc Cranes, also noted signs of a demand recovery. Shipments are increasing from the company’s Crane Care aftersales and service business, suggesting, Etchart says, ‘that more cranes are going back into service’. At the same time, Etchart says, “We are also seeing deals beginning to restock the inventories in the US and portions of Europe as their customers prepare for an uptick in new project startups later in 2011.”

Frank Bardonaro, managing director, Americas, Terex Cranes, sees similar trends: “I moved to Terex the week after the Autumn 2010 SC&RA workshop. It was good timing: during the first nine months of last year, for general contractors and rental companies, and for crane manufacturers, the market was down. It got a bit more momentum after the SC&RA meeting, and really gained momentum in the fourth quarter. We even saw ATs and crawler crane deliveries to industry leaders like Bay Crane at the end of 2010.

“In my new position, I’m out in the trenches with the general contractors, the distributors and the rental firms, and it’s picking up; steel fabricators too, they’re all seeing increased bidding and activity.

“We’ve seen a lot more quoting and a lot more activity. We’re also shipping a lot of product to emerging markets, such as Brazil and Africa.

“Overall, 2010 was a sluggish year for both the manufacturers and the end users. We thought that 2011 would be flat, but based on the first quarter, it will be strong, with 2012 even bigger.”

Whether the signs Bardonaro and Etchart see hold up as the year progresses will be a vital question for crane builders. Cranes Today spoke to two market analysts, Morgan Stanley Research’s executive director for machinery, Robert Wertheimer, and HIS Global Insight’s director for construction services, Scott Hazelton.

Wertheimer says, “The recovery in crane orders in the fourth quarter surprised us. It came for very late in the quarter. A lot of investors had expected it in summer 2011. Hopefully it will be the start of a long recovery. It won’t be back to the peak for a little while, but I expect a gradual recovery.

Hazelton also expresses some caution: “In 2010, construction was down. In 2011, it will get a little worse before it gets better.

“In the US, a lot of what has been bought has been access equipment. Access has fairly heavy penetration in rental fleets, and only a three to five year lifespan. That equipment is getting old, that’s why it is being bought.

“New construction activity has bottomed. For residential, there is a while to go. Retail is picking up; healthcare, schools, are picking up. In broad terms, the bottom is here.

“At contractors, there are issues of capital: do you want to spend half a million dollars on a piece of new equipment? Most crane sales are going to rental, we think.

“For cranes, the equipment last longer. Cranes are at the high end of the age spectrum [for construction equipment]. I suspect a lot of dirt equipment left America. A lot of the dirt fleet plainly isn’t here anymore. It is very expensive to move cranes though, so they are still here, and sales will only slowly pick up on the cranes side.”

Demand for cranes isn’t driven by a single end user sector. Over recent years, for example, manufacturers have noted higher demand for bigger cranes as longer term projects in the oil and gas sector have kept going while the rest of the economy declined.

Residential housing was the sector that drove the market to a euphoric peak in 2007 and 2008, and plunged it into the abyss later. In the US crane industry, it drives demand for smaller boom trucks and rough terrains, along with tower cranes. So far, no one sees any hope of a recovery in residential construction any time soon.

Hazelton says, “There are still problems with foreclosures and sale prices. In 2012, we could get maybe 40%– 50% growth, from 580,000 new homes to 850,000. The US used to build 1.5m new homes a year. We had 586,000 housing starts in 2010, we’ll have 680,000 in 2011 and 1.1m in 2012.

“Housing comes from household formation, second homes, and replacement. The US built 1.8m homes in 2008. We’re looking at half that next year, being a good year.

“There are distinct regional differences. Massachusetts is trending up now, but Phoenix, Las Vegas, and Miami have still got some time to come on the downward side. Those overbuilt markets have still got some time to go.”

Bardonaro broadly agrees: “I don’t see residential housing growing. I don’t anticipate any upturn there. There are too many houses and condominiums out there. But, that’s not our primary sector for cranes. The residential sector is mostly a small boom truck market and we have shifted to the larger 45-60tclass. This is still a growing market and offers versatility for many of our customers from cellular to oil sands or steel erection. It is a very cost effective and versatile range. We’ll be unveiling two new boom trucks at ConExpo, a 45t and a 60t, which is perfect for both taxi fleets and specialist contractors. The new 60t boom truck is set up with a lot of reach, making it ideal for those cell tower jobs or sign companies as well as many industrial operations.

“Growth has been led by the industrial sector. There’s a lot of work in the petrochemicals and refineries. While that is leading, even sectors like steel erection are also going up.”

Hazelton doesn’t see industry as a whole improving much, but says there are still some good signs for crane manufacturers and users: “Industry is good, but not great. Until recently, the dollar was low, US goods were competitive on the world stage, and the Asian recovery promoted demand.

“When manufacturing does recover, it will still be down in terms of general construction. Food, wood products, will remain down. However, chemicals, plastics, automotive, the manufacturing guys that require cranes, are getting better. If oil stays where it is, if prices remain high, those sectors will get better yet.

“In the US, there was a lot of spending on refineries in 2009. That was down some in 2010, but will recover some in 2011. In 2009, everything else in manufacturing was down, but energy increased so much, by around 40%, that total manufacturing activity was up 10%.”

For a couple of years, the energy sector drove demand for some very big cranes. Over the next year or two, Hazelton sees it helping sales of medium sized crawlers and all terrains: “There was a peak in power plant construction in 2009. It tends to cycle, and may come back. A lot of new gas power plants were built in 2007–2009 for peak load. The US isn’t building new power plants now, but is building wind farms. Some states, like California, have renewable requirements [that are pushing that]. Coal plants don’t fit clean air legislation, but you can put on scrubbers and make them compliant. You may not have the heavy lifts for new power plants, but you do have work for all terrains doing jobs like that.”

Waiting for residential
When the general economy does pick up in a year or two, smaller cranes and towers should see demand increase. Hazelton says, “ Once housing ticks up next year, retail should get a three or four year run of growth. Retail construction was back 15% this year, and keeps growing. Offices will see the same runs, but will start later: 15% a year, starting in 2013.

“Office building is linked to unemployment. Unemployment is 9.4%; it’s heading towards 7.4%, maybe in 2013. Some of the early improvement was people falling out of the job market, but now, looking forward, the unemployment rate will keep on dropping. More and more of the lift will come from net new jobs. As jobs pick up, people will come back into the job market.”

That eventual rise in jobs and people looking for new homes should bring life backs to parts of the crane industry that have been suffering for a long time. The first glimmers of light are shining on the tower crane sector, Bardonaro says: “We just built our first new tower cranes in Wilmington that weren’t already in stock. We just sold 14 new tower cranes last week. Maxim bought five new SK575s, and erected the first one this week [the first week of March]. That’s a huge, huge, sign where the market is going: tower cranes have been nothing but scrap for the last few years. All the cranes that Maxim have purchased are for commercial projects they already have contracts for. It’s a nice indicator the economy is sustaining activity. Anywhere the tower cranes are going means there has already been some nice excavation and foundation work, all of the things we need to help keep the economy and jobs coming back in the country.“

For now though, sales are likely to be led by rental companies looking to restock after keeping a tight hold on spending through the difficult market of recent years.

Morgan Stanley’s Wertheimer says, “For construction equipment broadly, 2010 started weak, but is now picking up. There are issues of tight supply. There have been a lot of exports from our fleets to other markets. For cranes, it’s a little bit different. The life of a crane is longer: it doesn’t wear out, and it’s not as mobile for exports. There have been some swings from destocking to restocking. I expect the market to slowly improve into 2012.”

Bardonaro is seeing that swing up close. He says, “The market has been purged. The strongest have survived; they now recognise that it is time to be ahead of the curve. Those owners and operators who have watched the market bottom, are now buying. The biggest fleets, the strongest regional guys, are now buying.

Fleet replenishment is a huge thing now. Sterett Crane & Rigging in Owensboro, Kentucky, have just remixed their whole fleet. We spent a lot of time looking at where they want to be in the next 5-10 years. They’ve bought 30 new rough terrains, from 30USt to 130USt capacity. All of the cranes they’ve ordered are going out to jobs, working across the Mid-West and further. This is the time when the visionary leaders are positioning their companies for long term success and buying before everyone else, not after.

“We are about to close another complete fleet re-mix that should be completed by or at Conexpo. This is for a group of project and larger AT cranes that will position the customer at a strategic advantage over some older and less reliable fleets in their region. This seems to be the trend, focusing on RTs and ATs. The crawler market is still very slow.

When the current trend for replenishment does turn into sustained growth, it won’t just be domestic US crane owners who try to grab a slice of the sales. Wertheimer says, “One interesting risk is the question of whether, as the market recovers, the Chinese will have time to be a real presence. At Bauma Sany and others were selling to European customers. There’s been a nice turn into a slow recovery. The focus now will be on if the orders we saw at the end of the year will continue, and the effect of Chinese competition.”