On Wednesday, Caterpillar (CAT)–one of the biggest manufacturers of construction and mining equipment–posted lower-than-expected quarterly results and cut its full year forecast. The bellwether cited weak demand from its mining customers, its most profitable product category, as the primary source of Caterpillar’s sour quarter. In 2014, Caterpillar estimates revenue will be essentially flat to +/-5% compared to 2013. For the year, the company now expects revenues to come in around $55 billion versus the previously forecasted $58 billion figure [for more commodity news and analysis subscribe to our free newsletter].
Caterpillar is not the only company that has taken a hit from the global decline in metals demand. For mining and exploration companies, 2013 has been somewhat of a brutal year. Metal miners in particular have been hit significantly this year as falling metal prices, weaker demand, and rising operational costs continue to plague the industry.
A Bleak Outlook For Caterpillar
Caterpillar Chairman and CEO Doug Oberhelman stated “It has been a painful year and has required wide ranging and substantial actions across the company. There are encouraging signs, but there is also a good deal of uncertainty worldwide as we look ahead to 2014.”
Sales and revenues for the company came in nearly $11 billion lower than last year – a 17% decline, of which 75% of the drop is attributed to its Resource Industries division, which is principally mining [see How To Lose Money Investing In Commodities].
Caterpillar also stated that it had temporarily shuttered some of its plants, furloughed thousands employees, and reduced its workforce by 3,000 in the third quarter alone. Also feeling the pinch, major mining companies like BHP Billiton (BHP) and Rio Tinto (RIO) have both cut billions of dollars of capital expenditure just this year.
Bright Spots
Despite Caterpillar’s bleak report and outlook, there have been some relatively positive results in the mining industry this year. BHP Billiton recently reported that it has raised its iron ore production forecast for 2014 to 212 million tonnes after operations in Western Australia hit record output in July-September [see India Could Help Gold Rebound].
Freeport-McMoRan Copper & Gold (FCX) also managed to post better-than-expected results, beating third quarter estimates. And though its oil and gas segment were the main drivers of revenue growth for the quarter, the company did see rising sales of copper and gold, despite lower prices.
Outside of the metals space, there have been some bright spots in the mining world, particularly in the raw materials that not many investors pay attention to, such as diamonds and industrial minerals. Hi-Crush Partners (HCLP), a major producer of monocrystaline sand, a mineral that is used to enhance the recovery rates of hydrocarbons from oil and natural gas wells, has gained more than 100% year-to-date. Mountain Province Diamonds (MDM), has also posted solid performances, rising more than 20% in 2013 [see a Deeper Look At the World of Diamonds].
But with earnings season still in progress, investors should continue to keep a close eye on other major mining companies results and outlooks, as these will give potential buyers a better feel for the mining industry’s future.
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Disclosure: No positions at time of writing.
[...] corporate earnings have helped to keep optimism levels elevated, but a number of bellwethers have expressed global growth concerns by revising their outlooks lower, making for a very mixed picture [for more commodity futures news [...]