Caterpillar may not see the world going into recession but John Deere ” the world’s largest maker of tractors and farm machinery is reported in the Financial Times as saying demand could drop 20% next year in emerging markets as farmers find it harder to access credit for new equipment. True Caterpillar and Deere while building machines with very similar cost structures are not selling into the same markets, Caterpillar like Volvo, JCB and Komatsu are focused on the mining and construction markets whereas DeereÃ‚Â is aÃ‚Â world leader in agricultural equipment.Ã‚Â But like the construction machinery manufacturers the company has been increasingly dependent on exports to emerging markets like Brazil and Russia where the credit crisis has hit most severely.
With companies like Caterpillar and John Deere being such large users of metals like steel castings, forgings and fabrications, a significant drop in demand is felt throughout the economy. Caterpillar’s demand for castings and forgings is nearly some higher single digit percentageÃ‚Â of the US market although it is hard to corroborate such claims. Certainly combined, Caterpillar and Deere are market movers in terms of their metals demand. Demand from the construction market next year is forecast to drop 21% in North America and 10% in Europe according to Off-Highway Research with similarÃ‚Â drops in Japan and South America. Caterpillar is laying off staff in their Brazilian plant asÃ‚Â is Volvo in Europe. Britain’s JCB ranked number three behind Caterpillar and Komatsu and is also cutting staff although the worst of the job cuts have been avoided by aÃ‚Â workers decision to take a pay cut instead. As major consumers like this reduce demand there will inevitably be casualties in the casting and forging supply markets, which will in turn cause supply constraints when the market turns around, as turnaround it will at some point.Ã‚Â
Though the next 12 months will provide opportunities for any consumer of forgings, castings and fabricated parts to significantly reduce costs, (an opportunity some will have to make the most of just to survive) it is also a time to lay the foundation for developing long term supply strategies and relationships that will be embedded when the supply market comes back into balance in 2010.