Caterpillar Inc , Komatsu Ltd <6301.T> and other mining industry suppliers put on a brave face at a major industry conference this week, trying to stare down plunging commodity prices and shrinking mining budgets.
Executives chose to look beyond the short-term pain, telling 50,000 attendees at MINExpo, a Las Vegas convention for mining suppliers that takes place every four years, that their industry will survive the rough patch.
"I know there are lots of headlines out there that said mining is dead, not one more ounce of coal will ever be mined, iron ore will never come back, the world is going to stop spinning, it's over," said Doug Oberhelman, Caterpillar's chief executive. "Well, it's not over."
But it was a tough sell.
Caterpillar kicked off the week by slashing its 2015 earnings forecast. Joy Global Inc then warned its mining customers will cut spending next year.
With iron ore prices at three-year lows and coal prices down more than 20 percent this year, MINExpo attendees couldn't ignore the storm clouds.
In China, the government's recently announced stimulus is already being criticized as ineffective. And one of the country's largest steelmakers, Baoshan Iron & Steel Co <600019.SS>, suspended production at a key Shanghai plant on Thursday.
Australia's BHP Billiton , the world's largest miner, decided last month to scuttle a $20 billion mine expansion in its home country.
"Mining is a cyclical business, but I think this latest downturn caught everybody off guard," said David Grzelak, chairman of heavy equipment maker Komatsu America, which spent more than $7 million on its MINExpo display booth. "We haven't had a lot of cancellations, but we've had a lot of customers push out delivery."
Peabody Energy Corp , Alpha Natural Resources and Arch Coal Inc are buying fewer dump trucks to carry their coal, Grzelak said.
None of the mining equipment suppliers would quantify delays or cancellations, but most said only small miners are canceling and bigger miners have opted to freeze purchases for six to nine months.
STOPPING TRAFFIC IN VEGAS
It may seem an odd time for mining suppliers to spend massively on flights, hotels, food and entertainment for hundreds of employees in Las Vegas while their own customers wait out the economic storm.
But because MINExpo takes place only once every four years, it was an investment many big players could not afford to trim. The event turned into as much a corporate pep rally as it was a marketing event.
Caterpillar alone showed off more than 25 pieces of large equipment in its display. It was the largest of the convention's nearly 1,900 exhibitors.
The company, which bought mining equipment supplier Bucyrus International last year, shut down early-morning Las Vegas traffic by bringing in a coal-hauling locomotive on a big rig - with the city's street lights timed so it could move quickly to the site. The convention center's floor was reinforced just so that Caterpillar could put the locomotive on display - and remind attendees, as it did several times, that the big machine is for sale. (Cost? More than $3 million.)
"We really view this MINExpo to be our coming-out party," said Steve Wunning, the Caterpillar executive who oversees the mining business.
LOOKING AT DOUBLE-DIGIT CAPEX CUTS
Wall Street remains bullish on the mining industry for the long run, given the rising global population and infrastructure development in emerging markets. Rough terrain must be traveled, though, unnerving investors.
In the past six months, Caterpillar's stock, among the 30 in the Dow Jones industrial average, is down 19 percent. Over the same period, Joy Global shares are down 24 percent and Komatsu shares are down 37 percent.
"Right now, the mining industry feels a lot like the airline industry in tough times, with customers holding back on buying," said Rachael Bartels, head of Accenture's mining consulting business. "So instead of buying 30 Boeings, folks are going to buy 15 now, and maybe 15 later if things get better. Everybody's being more cautious."
Capital expenditures in the mining sector could slip at least 10 percent by 2014, according to a JPMorgan analysis, denting key equipment suppliers. Most spending in mines goes to trucks, making the downturn bad news for heavy equipment makers.
High gold and silver prices do help some miners, such as Freeport-McMoRan Copper & Gold Inc , and their suppliers. Copper mining in Mongolia, diamond explorations in Botswana and oil sands drilling in Canada are all strong growth areas.
The largest miners, though, focus mostly on iron ore, coal, bauxite and other base metals used to build bridges, tunnels and other infrastructure projects.
Vale , the world's second-largest miner, lost billions last quarter when iron ore prices slipped. The company is investing $19.5 billion in a Brazilian iron ore mine, but has said recently it may pare that back, given the anemic economy.
"Everybody needs to deal with increasing volatility," Accenture's Bartels said. "Miners can't control the price of commodities, but they can control their costs. So they're cutting back."
COPING WITH CHINA
Perhaps most disconcerting at the convention, though, was the problem of China's slowing economy. The country imports much of the iron ore and other materials needed to build skyscrapers, tunnels and bridges.
While China's economy is still growing at steady clip, that growth has slowed to less than 10 percent a year, taking a bite out of imports.
China's government approved 60 infrastructure projects worth more than $150 billion earlier this month, part of a plan to lift its economy out of its worst slowdown in three years.
Baoshan, the Chinese steelmaker that slashed production, said this week it doesn't expect the stimulus to increase demand for steel.
Sales of excavators - a key mining tool - have dropped more than 40 percent across China this year. About 40 percent of China's own iron ore mines have suspended production, Chinese officials said on Thursday.
Caterpillar, which is aiming to overtake Komatsu as the largest heavy equipment supplier in Asia, has been hit hard by China's downtown, and earlier this summer began exporting equipment made at its 16 Chinese plants.
"Lots of companies are waiting to grow," Caterpillar's Oberhelman said. "But I think the big catalyst there is going to be when and how much we see China start to turn."
(Editing by Patricia Kranz and; Jan Paschal)