Caterpillar Pushes Further Into Chinese Market With Remanufacturing Agreement

Includes: CAT, VOLVY
by: Judith Levy

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Caterpillar, China Are to Promote Remanufacturing

  • Summary: Caterpillar, Inc. (NYSE:CAT), the Illinois-based engine, mining and construction equipment manufacturer, is aggressively pursuing the Chinese market, which it estimates could become as big as $10 billion a year. To that end, it signed an agreement with the Chinese government to assist in the development of a remanufacturing industry, making it the first foreign company licensed to perform such a process in the country. In August, the company opened a plant in Shanghai that will function as its Asian remanufacturing center. At that plant, the company will recycle and refurbish old motors and hydraulic pumps, which will then be sold at a deep discount. Caterpillar group vice president Stu Levenick said the agreement is central to the company's goal of quadrupling its business in China by 2010. "This fits with China's strategy," he adds, since China's explosive growth has left it beset by problems of pollution and depleted resources and in need of industries that will protect its environment. Concerns include regulations that complicate the importing of old engines and parts, the possibility of a backlash in China against foreign relationships, and the threat of a trade-war that could result from tensions over trade and currency issues. Caterpillar's profits have benefited from high demand for commodities in places like China and India, with second-quarter net profits rising 38% over the previous year.
  • Comment on related stocks/ETFs: On September 5, Jeff Miller wrote that the picture continues to improve for Caterpillar, notwithstanding market apprehensions about the stock. Options trader Phil Davis points out that truck maker Man might buy Scania, which should boost Volvo (VOLV) -- a result that could in turn "ignite" Caterpillar.

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