A GENTLE SALES SLOWDOWN

Global construction equipment sales have been weaker than expected, but the slowdown has generally been gentle, and some markets have seen growth, reports the team at Off-Highway Research

Excavators account for over 50% of all construction equipment sold worldwide

PHOTO: ADOBE STOCK

Global construction equipment sales hit a record high in 2021 of almost 1.3 million machines sold. That record volume was driven by the stimulus measures put in place to combat the economic effects of the pandemic. Indeed, it is generally agreed that sales could have been higher were it not for the supply chain constraints and shipping bottlenecks. China was at the forefront of growth in 2021.

The drivers of the previous two years led to a contrasting picture in 2022. In almost all countries of the world apart from China, demand remained red-hot. Sales in the world, excluding China, grew 7% in 2022, following on from a 19% increase in 2021.

In contrast, the Chinese market had a miserable year in 2022. Having boomed due to stimulus spending in 2020 and 2021, sales tumbled 39% in 2022 due to the re-imposition of lockdowns in numerous major cities, along with debt defaults and problems in the real estate market.

At the start of the year, it was expected that the global equipment market would decline 7% in 2023 due to continued weakness in China, combined with a gentler slowdown in other major markets.

Tough times in China

The previous expectation for China was that sales would fall 18% in 2023. A steep drop, but milder than the 39% collapse of 2022. However, the forecast now is for another 40% drop in 2023.

The stimulus spending that was put in place in China in April 2020 burned brightly and briefly for 12- 18 months. Equipment sales fell off in the second half of 2021, but the first half of the year had been so strong that the market was up as a whole that year. In 2022, not only was equipment demand on the wane, but the country continued to be dogged by major lockdowns and issues with the real estate sector. Although there is strong public investment in China the market is still suffering from weak demand, and weak customer buying confidence. The excess of machines available from the boom in 2020 and 2021 is also something of a barrier to new sales.

There’s no doubt that North America was the pick of the major markets

GLOBAL SALES OF CONSTRUCTIONN EQUIPMENT BY TYPE, 2022 (UNITS)

■ Crawler excavators

■ Mini excavators

■ Wheeled loaders

■ Compact tracked loaders

■ Backhoe loaders

■ Telescopic handlers

■ Skid-steer loaders

■ Crawler dozers

■ Wheeled excavators

■ Motor graders

■ Articulated dump trucks

■ Other

Source: f-Hig Off-Highway Research

Source: Off-Highway Research

As with the stimulus of 2020-21, the public spending that is designed to kick-start the market is being funded by provincial government bond issues. Many of these local governments have strained finances, and the reality on the ground is that payments to contractors are delayed and projects are falling behind.

Over in Europe, construction equipment sales rose 4% in 2022, taking sales close to the previous record set in 2007, and the market is expected to stabilise at a high level. Although single-digit percentage annual declines in sales are expected for the next three years, the market is forecast to remain above 200,000 units over the medium term.

A slowdown in housebuilding due to rising interest rates represents a genuine threat to compact equipment sales. However, Europe’s infrastructure markets are strong, which should stimulate sales of larger earthmoving equipment.

Strongest performing market

There’s no doubt that North America was the pick of the major markets in 2022, with an 8% increase in sales to take demand to a record high of almost 310,000 machines sold.

Although interest rate rises are having a cooling effect on the booming residential market, which drove compact equipment sales in the last two to three years, the shortfall of housing means this sector is still strong.

Sales might see a modest fall in 2023, but the market will still enjoy the second highest volumes ever seen. An important point is that although equipment volumes might be down, construction in the region is pivoting towards infrastructure, which will drive sales of heavier (higher value) equipment. So, while the overall number of machines sold might drop, revenues in the segment will rise.

Great potential

The most recent high in the Indian construction equipment industry was in 2018. The market was disrupted in 2019 by the general election, which always causes a downturn in sales, and the market sank further in 2020 due to the pandemic and only recovered modestly in 2021 as further Covid variants impacted the country. This continued into 2022 to some extent, but more significant was the impact of inflation and, as a result, the market only achieved a modest 2% rise in sales last year.

This year should be better; broad-based growth is expected to resume, with the market forecast to rise 10%. This will be driven by a range of infrastructure investment plans. With a general election in 2024, this year’s budget has a strong emphasis on investment as Modi seeks a third term in office.

Equipment sales in Japan fell 4% last year following a strong post-pandemic surge in 2021. As such, the decline is seen as more of a return to normal sales volumes, rather than a cyclical downturn. Indeed, the Japanese market tends to be relatively stable, and generally only experiences single-digit percentage changes. Having said that, sales in Japan have been constrained due to component shortages and long lead times. Some of that pent-up demand is expected to spill over into 2023, helping the market to a 2% rise in sales.

Looking ahead

Off-Highway Research predicts a 7% decline in global sales in 2023, a slightly steeper downturn than envisaged a year previously, due to the weakness of the Chinese market. Stripping China out of the equation, the remaining countries of the world will only see a 5% downturn overall.

It is worth noting that the 2022-2025 downturn can be classified as a soft landing. Only single-digit year-on-year falls in equipment sales are expected, and the volume of machines sold throughout the forecast period should stay above one million units per year. Prior to the current up-swing, such a volume was only achieved twice before. The year 2023 is likely to be the sixth consecutive year of annual sales in excess of one million units and, despite a decline, the volume of sales will still be extremely good in 2024. IC

OFF-HIGHWAY RESEARCH is a management consultancy specialising in the research and analysis of international construction, and agricultural equipment markets. It is the largest of its kind in the world.

The company offers international research expertise to the construction, earthmoving, mining, industrial and agricultural equipment industries.

This specialist capability, offered by offices in the UK, China, India, the US and Japan is available through a combination of subscription services and private client research.