Caterpillar, Inc. expects no significant demand growth for its energy and transportation products for the rest of 2016 as oil prices stay weak, a senior executive said on Thursday.
“Oil prices, drill rig counts and our customers’ fleet utilization rates continue to remain low,” Jim Umpleby, Caterpillar’s energy and transportation group president, told analysts in an industry conference webcast. “Based on these factors we don’t see a significant increase in demand for our products for the remainder of 2016.”
Reuters reports, the world’s largest manufacturer of heavy equipment, is restructuring its businesses as demand has slowed for construction, mining, and energy and transportation products since 2012. It has slashed 13,900 jobs worldwide since mid-2015, and said last month it planned more job cuts.
Caterpillar in July posted a 16 percent drop in total sales to $10.34 billion for the second quarter. Energy and transportation sales fell 20 percent to $3.750 billion as oil prices dropped.
“While sales were down in almost all of our end markets, almost 80 percent of the decline was in oil and gas and transportation,” Umpleby said.
Brent crude futures LCOc1, the global oil price benchmark, traded at an average of $45 a barrel during the second quarter, down from an average $62 a barrel a year earlier and $107.23 in the second quarter in 2012.
The most significant impact of the oil price decline is on the sale of reciprocating engines used for gas gathering, drilling, well servicing and production, Umpleby said.
“If we look at the percentage drop, it is so significant, that there isn’t that much room to fall, frankly,” he said, referring to the engine sales.
Demand for energy and transportation products is not expected to recover this year, Umpleby said. He added that recovery would only come when oil prices rise and stabilize and customers work through a backlog of equipment.
In China, Caterpillar expects industry sales of excavators to be “about flat, maybe up a percent to 2 percent,” Amy Campbell, Caterpillar’s investor relations director, said in the webcast.
“Total excavator sales in China are off maybe 80 percent from the peak but appeared to have maybe at least leveled out in 2016 versus 2015,” Campbell said.
(Reporting by Meredith Davis in Chicago, additional reporting by Devika Krishna Kumar; Editing by Tom Brown)
