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China's construction machinery sector: sales of excavators rose 14% in December, in line with the expected continuation of the upward cycle

Jan 09, 2019

Summary: 

According to preliminary data from the China construction machinery association, sales of excavators at 25 major manufacturers reached 16,027 units in December, up 14% from a year earlier. Among them, domestic sales increased by 12% year-on-year to 14,278 vehicles (89% of total sales), and export volume increased by 38% year-on-year to 1,749 vehicles (11% of total sales). December's 14 per cent growth rate matched November's figure. Full-year 2018 sales rose 45 percent year-on-year to 203,420 units (a record high), in line with our expectations. The association will release December data for other machinery products later this month, and we expect sales growth for other construction machinery to improve as well.


The upcycle continues into 2019. We do not expect the high base in 2018 to affect the growth rate of excavators, and we remain optimistic that the excavator industry will record a 15 percent increase in sales in 2019. We believe that growth will be driven by three factors :(1) the Chinese government will shift towards investment to support economic growth, and infrastructure investment will continue to increase; (2) the growth of natural demand for renewal and replacement will remain stable with less downside risk; (3) in response to the central government's launch of the three-year action plan for winning the battle to defend the blue sky in mid-2018, regional governments including tianjin, chengdu, jinan, Beijing, guangzhou and shenzhen have banned the operation of heavily polluting off-road vehicles (i.e., construction machinery and forklifts). According to China's ministry of ecology and environment, more than 80 percent of China's construction machinery ownership in 2017 belonged to country II or previous models. These construction machines have the opportunity to be subject to further operational restrictions. We believe that strict local government restrictions on older machinery will drive replacement demand.