Caterpillar: China Construction Market to Grow at 'Fairly Significant' Rates

Caterpillar Inc (NYSE:CAT), the world's largest heavy machinery maker, has forecast China's construction equipment market to grow 10 percent in 2012 and the yuan to strengthen versus the U.S. dollar.

China, the U.S. company's largest market, would continue to grow at a "fairly significant" rate for the foreseeable future, said Group President Richard Lavin ahead of the Asian Financial Forum 2012 to be held in Hong Kong on Jan. 16-17.

"As far as our future in China is concerned, we are upbeat and bullish," Lavin told the Hong Kong Trade Development Council (TDC), organiser of the Asian Financial Forum, in an interview in Illinois.

Industry growth for construction equipment was expected to rise by about 10 percent in 2012 from 2011, he said.

In China, Caterpillar is one of several heavy machinery makers looking to grow rapidly, with investments in a spate of projects, from residential to infrastructure development.

China's construction machinery market sales totalled 435 billion yuan in 2010 and were estimated to rise about 15 percent in 2011, said Jefferies analyst Julian Bu.

However, China's fixed-asset investment is expected to slow in 2012 which could affect construction machinery sales growth, he said.

"We expect sales could fall about 15 percent and back to 2010 levels," Bu said.

Lavin warned in November that there would be overcapacity in China in 2012 and 2013 and that the company expected to see price pressure there.

Caterpillar expects China's gross domestic product to maintain an 8.5 percent to 9 percent growth rate in 2012 and industry growth was seen in line with GDP growth.

"So the infrastructure market if you will, the construction market we think will be very good," Lavin said.

Caterpillar's forecast was in line with the Chinese Academy of Social Sciences, China's think tank, which forecast GDP to rise 8.9 percent in 2012 against an estimated 9.2 percent gain in 2011.

The U.S. giant also sees opportunities in China's mining industry. It made an offer in November to buy ERA Mining Machinery Ltd for up to $885 million to strengthen its mining business.

Lavin also said he expected the Chinese yuan to continue to strengthen against the dollar and other global currencies, without giving a precise forecast.

Caterpillar would continue to explore China's offshore yuan market in Hong Kong, Lavin said. Caterpillar raised about $500 million via two issues of yuan-denominated bonds, or dim-sum bonds, in Hong Kong last year.