Seeking Alpha

Chinese quality said to be catching up to big U.S. equipment makers

  • Bad news for U.S. makers of construction and mining equipment: China is closing the quality gap.
  • Rio Tinto (RIO) CEO Sam Walsh said earlier this week that his company has been increasing purchases of heavy equipment and other items from China, and has found the quality impressive.
  • Among RIO's purchases were heavy-duty trucks, equipment for loading ships and rail cars that carry ore; "the quality actually was much higher" vs. the traditional supplier, Walsh said. "Instead of spot welds, for example, on the sheet metal they were actually continuous welds."
  • At the best Chinese equipment makers, “it’s incredible the speed at which they are coming up the quality curve," a J.P. Morgan analyst say, spelling tougher competition for a host of Western equipment makers, including Caterpillar (CAT) and Joy Global (JOY).
Comments (20)
  • TruffelPig
    , contributor
    Comments (4085) | Send Message
     
    Why don't you wait a year and repost this then. I do not believe it, mostly the quality is not up to standard in my opinion. In particular tools are still terrible.

     

    One can not judge quality by looking at it. One must use it and measure how many time stuff fails. Numbers please!
    13 Dec 2013, 07:10 PM Reply Like
  • bluewings
    , contributor
    Comments (19) | Send Message
     
    True and false. Western wholesaler stocks both locally made and Chinese made tools. In order to sell the higher priced locally made tools, the wholesalers deliberately choose an inferior Chinese edition, but charge much cheaper for it. There are of course quality Chinese made tools, but that will compete against the locally made ones, so they are omitted from the supply chain. The same applies to all foreign tools, not just Chinese, except maybe one or two European countries. Germany comes to mind. Germany has strict quality control, and stands by it. It is a mindset for Germany. Meanwhile, many Chineses companies just want to make a quick buck, but that doesn't mean they can't make quality tools.
    13 Dec 2013, 09:22 PM Reply Like
  • TruffelPig
    , contributor
    Comments (4085) | Send Message
     
    I have thus far not found any good tools made in China. Nothing. So I can not judge whether it is correct what you say. I rather buy German tools.
    14 Dec 2013, 07:01 AM Reply Like
  • Robert Duval
    , contributor
    Comments (4073) | Send Message
     
    Believe it. People said the same thing about Japanese cars, then they improved. Then they passed US quality.

     

    This is a major issue for cat and joy.
    13 Dec 2013, 07:16 PM Reply Like
  • bluewings
    , contributor
    Comments (19) | Send Message
     
    JOY and CAT already own Chinese manufacturers, and have engineering and production teams in China. There is no restriction in regards to market access to Chinese talent and market.

     

    Companies are global these days, and pick the very best in everywhere. The car companies, like the Japanese, are one of those early adopters of this paradigm shift. There are no major issues for global companies. But there are issues for the ordinary folks, because they are literally competing for jobs among themselves in a global scale. If one is not up to standard, then one will easily fall out from the economic system.
    13 Dec 2013, 09:29 PM Reply Like
  • robin steel
    , contributor
    Comments (57) | Send Message
     
    CHINA HAS A LOT OF ENGINEERS WHO CAN COPY ABOUT EVERYTHING THAT THEY CAN OBTAIN BY BUYING AN EXAMPLE AND REVERSE ENGINEERING IT. THEY HAVE COME A LONG WAY SINCE THEY TRIED TO COPY A BOEING 737...AND IT WOULDN'T GET OFF THE GROUND...I IMAGINE THAT THEY HAVE DISCOVERED MOST METALLURGY SECRETS THAT MAKE MINING MACHINERY WEAR RESISTANT, AND I KNOW THAT THE CONTAINER CRANES AT THE PORT OF OAKLAND HAVE BEEN RUNNING FOR MANY YEARS WITHOUT TOO MANY PROBLEMS THEY ARE THE WORLD'S BIGGEST AND GAME UNDER THE GOLDEN GATE BRIDGE WITH A FEW FEET TO SPARE, LYING ON THEIR SIDES....SO I THINK THAT THEY CAN MAKE EQUIPMENT THAT IS EQUAL TO ANY, IF THEY HAVE A CUSTOMER THAT CAN SUPPLY COHERENT REQUIREMENTS FOR THE MACHINERY.
    13 Dec 2013, 07:25 PM Reply Like
  • bluewings
    , contributor
    Comments (19) | Send Message
     
    Copy is a buzz word these days used by sheeples because they totally believe what the mainstream media (aka government) want them to believe. Anyone who has worked in industries will know that there is a handbook / standards / guidelines of just about everything. You just need to buy the publication, then you can start running your manufacturing business in the quickest time possible. The Chinese have the high intelligence but ridiculously low wages, a good recipe for business owners and shareholders.
    13 Dec 2013, 09:37 PM Reply Like
  • Coalfan
    , contributor
    Comments (44) | Send Message
     
    You show your lack of class by using Cap Locks
    14 Dec 2013, 03:51 AM Reply Like
  • drjorde
    , contributor
    Comments (151) | Send Message
     
    All caps?
    14 Dec 2013, 11:14 AM Reply Like
  • Deja Vu
    , contributor
    Comments (1277) | Send Message
     
    The reason for the quality is that they don't have unions in China. Incompetent workers can be fired. Labor can't put a stop to efficient manufacturing practices.

     

    If I had to choose between a UAW/Teamsters labor made machine and a Chinese machine, I'd go for the Chinese any day.
    13 Dec 2013, 08:51 PM Reply Like
  • bluewings
    , contributor
    Comments (19) | Send Message
     
    I look at the 'market currents', then I look at the comments. They just pretty much sum up the conclusion that most American people are indeed on a permanent decline unless they do something about it. Note that I didn't say America, just her people. American businesses and those who head the country are still very well informed and raking in the moolah.

     

    First, the market currents itself is pernicious, as with a lot of propagandistic and hidden agenda ridden information being spouted in mainstream media. Why is this 'Bad news for U.S. makers of construction and mining equipment'? Did whoever wrote the summary actually read the artcle. Both JOY and CAT has engineering and production teams in China, and actually own Chinese manufacturers. This is mentioned in the article but not mentioned in the market currents. It appears to me someone is trying to incite selling pressure on the so called US manufacturers who already own Chinese manufacturers.

     

    Next, the comments. I'll reply one by one. It's for the good of whoever stumbles upon this page.
    13 Dec 2013, 09:14 PM Reply Like
  • nemonemo
    , contributor
    Comments (322) | Send Message
     
    Lets face it. Most of engineers in US are Indians and Chinese. So, it does not surprise me.
    13 Dec 2013, 11:45 PM Reply Like
  • Detail Investor
    , contributor
    Comments (173) | Send Message
     
    ^ all the well educated engineers are either in the States or trying to go there. At least thats what I observe in China.
    14 Dec 2013, 01:53 AM Reply Like
  • drjorde
    , contributor
    Comments (151) | Send Message
     
    The main thing about CAT is; you can get replacement parts for a 50 year old CAT product. Caterpillar has been around since 1925 and is going to be around long after most of us are gone.

     

    Smart companies and informed buyers will take this into consideration. One of the first posters made a comment about waiting a year to see. Good point, however I don't think it will take that long for inferior equipment to rear its ugly head.

     

    We shall see. China is a big country and CAT has facilities and partnerships there.

     

    I remain long on CAT.
    14 Dec 2013, 11:13 AM Reply Like
  • Hayden Cole
    , contributor
    Comments (94) | Send Message
     
    Note RIO's comment that they are INCREASING purchases. Likely they have been looking at and trialing capital equipment from China for a long time. For the CEO to mention it an investor conference we are presumably not talking about insignificant quantities.

     

    Major miners certainly do not take on equipment suppliers without meaningful due diligence, especially when you are talking about safety/production critical equipment like this. Do you seriously think they have not done their homework?
    14 Dec 2013, 09:11 PM Reply Like
  • Robert Duval
    , contributor
    Comments (4073) | Send Message
     
    I am short Joy. Besides the demand issues from lower capex from the minors, quality Chinese competition puts pressure on margins.
    14 Dec 2013, 11:39 AM Reply Like
  • suzuka312
    , contributor
    Comments (42) | Send Message
     
    XCMG is basically rip off of caterpillar designs.
    14 Dec 2013, 04:42 PM Reply Like
  • Buysider2
    , contributor
    Comments (191) | Send Message
     
    In 2009, Rio Tinto turned down a $20 billion investment deal with a Chinese aluminum supplier and suffered a further black eye in a case involving bribery and espionage in China. Reportedly, Rio has been trying to rebuild its long-standing relationships with Chinese officials ever since (see: http://bit.ly/ISdaLo).

     

    It appears that part of that effort is to be as complimentary as possible to China’s business community, including Rio’s suppliers. Rio has been stressing its reliance on Chinese goods and services since 2011, so Rio’s most recent comments on Chinese equipment are nothing new (see two China Daily articles - “Rio Tinto boosts purchases in China,” dated May 31, 2011 (http://bit.ly/ISd7PI) and “Rio Tinto tools up in China,” dated June 1, 2012 (http://bit.ly/ISdaLp)).

     

    Here’s a quote from the May 31 article linked to above:

     

    “The company's [Rio Tinto] relations with China hit a rough patch after it walked away from a $19.5 billion investment deal with Aluminum Corp of China (Chinalco) in June 2009. Ties further soured when four of Rio Tinto's former employees in China were convicted of taking bribes and stealing Chinese commercial secrets.

     

    The company started mending fences in March 2010 when Chief Executive Officer Tom Albanese visited Beijing to strengthen its partnership with China.”

     

    Regarding Rio’s competitive position in China, a November 22, 2012 Bloomberg story on Rio’s China business said this: ‘“Competition for Chinese market share is getting more fierce,” said Xu Xiangchun, chief analyst with researcher Mysteel.com, “Having a good relationship with the Chinese government and steelmakers is critical for the miners.”’ (see: http://bloom.bg/ISdb1D)

     

    The quality of China’s construction and mining equipment has been hurt by the purchasing practices of China’s contractors and miners, i.e., the tendency to buy lower priced, lower quality equipment and when an item breaks down, to simply buy a new one, instead of repairing the old one. That practice has tended to discourage Chinese equipment makers from developing higher quality, longer-lasting, but more costly, equipment, because the initial price of such equipment would not have been competitive in the Chinese marketplace.

     

    Moreover, quality, reliability, durability and the lowest cost over the life of the equipment are only part of what sophisticated global miners and contractors want from an equipment supplier. They also want highly skilled, rapid-response support and service from equipment suppliers and dealers, with the ability to minimize expensive downtime by providing repair parts quickly and repairing equipment quickly, particularly in the remote regions where many mines are located. Caterpillar has by far the world’s best aftermarket support and service and by far the world’s largest, best financed, and most highly skilled dealers and field maintenance and service capability.

     

    Not well known is that Caterpillar’s leading field maintenance and repair capability was an important reason many of Caterpillar’s global mining customers urged Cat to acquire mining-equipment supplier Bucyrus. Those companies wanted Caterpillar-style field maintenance for their Bucyrus equipment as well, including draglines, shovels, and other Bucyrus mining products. They had been less than fully satisfied with the support Bucyrus had been providing.

     

    It’s likely to be a good long time, if ever, before Chinese equipment companies and dealers will offer field maintenance and repair capability equivalent to what Caterpillar routinely provides.
    17 Dec 2013, 09:29 AM Reply Like
  • drjorde
    , contributor
    Comments (151) | Send Message
     
    Very informative post Buysider2. The Bucyrus purchase makes a lot more sense to me now. I think that in the long run, buyers will stick with or go back to Caterpillar for all the reasons you and I have pointed out in our posts. I just wish it would turn around a little faster. As a long time CAT stock holder, it would be nice to see some positive motion and a higher Dividend yield. This past year has been depressing.
    18 Dec 2013, 11:02 AM Reply Like
  • robin steel
    , contributor
    Comments (57) | Send Message
     
    like the comments, and apologize for the all caps...(I thought that was an old complaint about on-line etiquette in an argument)

     

    Anyway, it was interesting to see that RIO has to polish it's name over the ACH offer for a share of Kennecott...

     

    I lived in Utah for a long time, and know a little about the chain of events that started in 1985-1986, when the copper miners went on strike.

     

    Anaconda Copper at Carr Fork , on the western slope of the Oqquir Mountains, is directly across the ridge from Kennecott Copper, and both companies locked out the striking miners.

     

    Then they spent about half a billion $ completely modernizing the Anaconda mine into a 'DEEP SHAFT COPPER MINE".....I don't think that there are too many of those, so what was the real target?
    Gold, of course, and they hit it big. So big that Kennecott bought Anaconda and spent about $1.5 bil (when a billion was still a rarely mentioned amount) to redo their smelter (and upped
    production 10x, and cut jobs by 75%). Then Exxon bought Kennecott, and sold it to BP, which
    promptly sold it to a new entity, Rio Tinto...which still owns it.

     

    When the new super mine at Carr Fork was demolished, after operating for about a year, I bought some of the virtually new steel from the three bin crusher;and ended up walking around to see the site. I met an insider that witnessed the whole thing, by the name of Mike Kallas, who had been the "Head Blaster" for Kennecott for 35 years. He was sitting in the core sample warehouse, and overseeing the demolition. When I asked him about the extensive ore samples that were in endless racks as far as I could see, in the Walmart sized building; he described the Carr Fork mine as the "largest known high grade ore body on the planet"; assaying out to “6-7 oz/ton, gold.
    He said that the deposit was 200 yards in diameter, and went “as far as they have drilled”. the record is there in the samples, which were at the site when I saw them.

     

    That mine has been shutdown for over 20 years, and all of the new equipment was demolished, except for the 330’ high concrete Head Frame, and the elevators that go down to -7000’. that is the big hidden secret that makes Kennecott so important to the Big Oil people that rotate through the RIO board...Mr. Skinner was president of BP before he was Chairman of RIO.

     

    There was a big story in the Wall Street Journal a few years ago about a "hostile takeover"of RIO by BHP when ACH (those wise Chinese Billionaires) tried to get a share of the Kennecott Production for $20 Billion; and were turned down. RIO and BHP are the left and right hands of the Oil Barons, who can manipulate the price of copper easily, so the low price was quickly run up to avert the “hostile takeover”, and keep the ownership in the “right hands”.

     

    My question is: What is RIO doing with the gold that is shipped out of the country everyday as “by product” (at the same time that they built the new Carr Fork mine, they spent $1.5 Billion to rework the Kennecott Smelter, which increased output by about 100% cut the work force by 75%, and recovered a lot more “by products”, probably in the range of 500 lbs of gold/day, and who knows how much platinum and other exotics)...just think of how that resource could alter our present Fed operations...if we could get ownership of that lode for the common good...
    20 Dec 2013, 03:36 PM Reply Like
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