Explosive growth

Mining is by far South America’s most important sector for the crane industry. Manufacturers and local dealers agree it represents 80% of both sales and rental deals. But, as the sector relies heavily on commodity export conditions, the market experienced a slight decline during the 2008-2009 global economic downturn. Since late 2010, however, demand for cranes increased, partly due to an influx of domestic and private investment, but also due to signs of recovery in key copper importers like China.

“We have been waiting for a rebound in the market,” says Juan de León, Link-Belt Chile managing director. “Conditions were very tough for the copper trade, as well as volatility in the dollar exchange rate. We now see many companies and public entities resuming the projects that were halted during the crisis, announcing new investment, and buying cranes again”

Chile and Peru — two of the world’s leading copper and silver producers — are experiencing an explosive growth in their economies. While Chile is forecasted to grow at an average of 6% this year, the Peruvian GDP is likely to see a 7% expansion. Investors have seen value in the resilience these countries have shown in coping with the crisis, and therefore have triggered a massive portfolio of projects in mining and all key crane-related sectors. For commodity-driven markets like these bordering states, an increase in copper, gold and silver prices has made mining these minerals a lucrative business. World class companies like BHP Billiton, Rio Tinto, Xstrata, and Barrick have secured a multimillion-valued scheme of exploration and production expansion projects for the coming years. Anglo American alone said its exploration spending for 2011 is about $100m. A significant amount of construction equipment is going to be needed.

The mining industry plays such a big role in the crane market that price variation with these commodities impacts crane sales directly. “Our sales have a positive linear correlation with the copper price,” says German Talavera, Chilean manager for the Italian crane manufacturer Fassi. “When copper was trading at $2 per pound, I sold 200 new units. Now, since copper is on $4 per pound, my guess is I would end the year with at least 400 units sold.”

Crane manufacturers and local dealers rubbed hands when Peru confirmed 41 projects for $41.5bn over a five-year period. Demand for crawler cranes and rough terrain cranes is predicted to rise as six projects begin construction this year, compassing expansion and construction in new mines at Tacna, Lima and Cuzco. Increased demand is also expected to occur in 2014, when construction for Las Bambas copper mine is due to begin. Owned by Xtrata, the project cost $4.2bn and it is located in southern-central Peru.

The outlook for the crane market in the Chilean mining sector relies on a $32.5bn investment, of which $22.2bn is private capital alone. Chile’s mining hotspot is the greater northern region; Barrick’s Pascua Lama and BHP Billiton’s Escondida are among its highlights.

Market Opportunities
On the Eastern slopes of the Andes, the crane industry enjoys a healthy demand triggered by Argentina’s presidential election. “This is a political year and there are many construction projects being built at a very fast pace for that reason,” says Juan de Leon. However, according to Angel Lopez, manager at Tecmaco Integral — an Argentine rental company — sustained demand for cranes is mainly coming from the industrial and energy sectors. As Argentina is committed to achieving 8% of its energy generation from renewable sources by 2019, prospects fuelled by construction of wind power plants are likely to increase demand for cranes. Local dealers predict rental deals for mobile cranes will rise in the coming years, as they are often used to assemble wind turbines.

Crane distributors believe besides Argentina, Chile is also following trends for renewable energy sources seen in Europe. “Wind farm projects offer a great opportunity for the crane sector. We are negotiating with Vestas to become the support machinery supplier for South America,” says Trex executive Gustavo Carter. His company distributes Terex cranes in Chile.

A study conducted by the Argentine Renewable Energy Chamber (CADER) backed crane dealers’ expectations. The research determined this is because the country has 1.2 million sq km — an area twice the size of France — suitable for wind power generation. Experts measured annual wind speed at 50m above ground level and found a range of 6 m/s to 12 m/s.

Further to CADER findings, President Cristina Fernandez launched in 2009 an electricity tender program known as GENRE, which set a contract policy for 1GW of renewable energy through the government entity ENARSA. The program secured 500 MW worth of contracts based on wind sources.

Areas suitable for wind farm projects identified by CADER were the provinces of Cordoba, part of San Luis, La Pampa, San Juan, La Rioja, Santa Cruz, and Neuquen. The study also found that south western regions of Argentina’s capital yield an average generation capacity of 35%. However, Argentina’s wind generation is dominated by the Chubut area, which holds 11 out of 32 projects approved in the GENRE tender process. The Loma Blanca wind farm is one of Chubut’s main projects. Awarded to Spanish firm Isolux, it aims to provide 200MW at a cost of $5m.

The Chilean way
Chile is a remarkable example. The ribbon-like country managed to stay afloat amid the global financial crisis and at the same time faced a devastating 8.8 magnitude earthquake.

Within less than a year and a half from February 2010, the nation is back on track with a historic GDP expansion of 9.8% over the first quarter of the year. The Chilean Central Bank forecasted 2011 will end with 6.2% economic growth.

We shouldn’t be surprised by such achievements. The world has already witnessed ‘the Chilean way’ in action last year, when rescuers tapped into the country’s unique strength to overcome problems and lift 33 miners trapped inside the San José mine in Copiapó, showcasing cranes that played a key role in the happy ending.

Doing things “a la chilena” is not only based on faith. Sound public finance management combined with a large network of free trade agreements and a rather stable political environment grounds Chile’s attractiveness.

These are also the underlying dynamics supporting the Chilean crane market.

Trends and threats
Chilean crane dealers say trends in rough terrain, all terrain and crawler crane demand are based on development in the mining and construction sectors. “Reasons to decide on one crane over another vary depending on the type of project and the equipment performance,” says Link-Belt Chile manager Juan de León.

Projects in these two industries are located on either high ground or deep underground, which explains demand for heavy-duty cranes. Raul Burger, owner of rental company Burger Cranes, says: “I have a contract with Barrick working on Pascua Lama at 5,000m over sea level. We are working with 400t to 600t crawler cranes, but also with 120t and 300t hydraulic cranes.”

The rough terrain 60–65t model has great popularity, but demand in Chile goes all the way to the 130t RT cranes, too. In the all-terrain arena, trends go even heavier. “I have seen great interest in AT cranes between 80t and 120t due to versatility and because these cranes deal well with counterbalance at a fast pace,” says Burger.

A study conducted by Trex last year, looked at the sector’s latest imports and found an increased demand for all terrain cranes, in particular for 20t ATs. “We think all-terrain cranes have greater demand due to their ease of movement, but also because they match Chilean transport regulation, which is up to 12t per axle,” explains Trex executive Gustavo Carter.

Transport regulations in South America are in line with city roads and highway standards. Some crane dealers say these rules hinder further development in the crane market.

Fassi Chile manager German Talavera explains: “The Chilean and Peruvian transport regulation is set at 7t on the front axle and 11t at the rear. We have to work with the standard 4 x 2 truck-crane of 12t, but we are challenged to mount heavier cranes to cope with demand in mining and construction trends. We are yet to see greater development in road infrastructure.”

The legal framework is also responsible for trends in sales and rental deals. “The mining industry standard requires the use of new equipment,” says Juan de León. “That explains the high rate of sales we have seen in recent years.”

In southern Chile — where construction projects are flourishing — the tendency is to rely on second-hand equipment. Trex executive Gustavo Carter explains: “The residential, commercial and industrial construction sectors represent about 25% of the crane market. However, projects in these sectors generally deal with low budget and therefore companies are happy to work with refurbished units. On the other hand, many contractors have started to buy their own crane fleet.”

Construction boost
Sad but true, the earthquake in February 2010 triggered an opportunity for tower crane dealers to contribute to the country’s reconstruction. President Piñera announced a 4-year period government plan for $5.6bn investment on residential and infrastructure alone.

However, the reconstruction program only slightly increased demand for tower cranes as mobile cranes were used instead.

Horst Nickel Hecht, share owner and manager director of rental and consultancy company Transvertal, explains: “The repair and reconstruction of infrastructure — bridges, roads, hospitals — was seen as a short-term solution and as such was dealt with using rubber-wheeled crane vehicles, and demand for this crane type increased right after the earthquake.”

With the tender processes launched to tackle long-term needs, the market has seen a fairly high demand for tower cranes. “Nowadays, demand for tower cranes is on the rise due to proper market conditions rather than the earthquake aftermath,” says Nickel.

Projects in Chile’s metropolitan area and in southern regions are the main source for tower cranes rental deals. Host Nickel says most projects require cranes ranging from 5t to 20t. “The trend in Chile is to build skyscrapers and therefore there is an increased demand for tower cranes capable of reaching an average of 100m in height. That also means that work flow has more downtime in lifting and lowering materials. Consequently, clients tend to use cranes that can provide higher speed and more capacity.”

Demand for high-tech cranes is another trend in the Chilean market. Liebherr manager for South America, Rainer Bleck, says: “Companies look for cranes that provide both performance and safer conditions for crane operators and workers on site. These include computer control, audio visual warnings and other solutions to prevent falls from height during operation or maintenance.”

In terms of safety, the Chilean crane market mirrors European standards. “Chile has incorporated even higher regulation and that means that you can import cranes from Europe and put them to work right away”, says German Talavera.

Clearly, the crane industry in Chile relies on the robust Chilean economy, which is likely to continue along the healthy path shown since 2010.

Looking at prospects for 2011, Javier Hurtado, research manager at the Chilean Chamber of Construction, says investment in all crane-related sectors will exceed 2010’s growth. “Investment in mining will reach $2.7bn this year, and the energy sector has a portfolio of $1bn. The overall estimate for the construction sector is $25.8bn, which represents an increase of 11.3% since last year.”

Speaking at a conference in Honduras, the world’s richest man, Carlos Slim, predicted Chile will become the first developed country in Latin America, basing his forecast on the booming mining industry.

Given the Mexican communications mogul’s business experience, the crane market in Chile — and South America as a whole — is right to expect greater success in the future.