The U.S. mining industry has suffered greatly during the commodities slump, yet used mining equipment dealers from the U.S., Chile and Australia have been thriving and are aggressively stockpiling unused mining equipment.
The question is, why?
The fall in crude oil prices from $100 a barrel (mid 2014 price) to this year’s sub $40 levels resulted in the U.S. mining industry losing more money in 2015 than it earned over the past several years, post-2009. U.S. mining corporations with assets of $50 million or more had a cumulative post-tax loss of $227 million in 2015.
Big players within the industry were suddenly swimming in a pool of losses in just a matter of a year, but for small and medium sized players it became a question of survival. Falling metal prices forced many big players to cut back on their production and mining activities, while the small and medium players were forced to literally stall their production.
In such a scenario, idle equipment becomes a burden for the companies as they have to bear the maintenance and rental costs. The result is a glut of equipment in these mines as many companies are forced to sell their equipment to recover losses.
That’s where used equipment dealers come in. Taking advantage of this situation, used equipment dealers are buying these idle machines at highly discounted prices making the bet that global demand will eventually recover. Healthier mining players are also in the mix, replacing their rented equipment with these used ones,
Economically, it’s sound policy. Some machines are being sold at more than a 20% discount. Case in point: a used 20-ton Komatsu Ltd. bulldozer that sold for nearly $130,000 a few years ago, now sold for less than $100,000.
Mining equipment is becoming a competitive environment with companies from other industries snapping-up equipment – logging, construction and farming companies are purchasing oil drilling equipment at the lower price. The result is used equipment dealers stockpiling equipment to get a competitive edge.
Bottom Line for Investors
If the U.S. mining industry continues to suffer like this, it would provide further opportunity to used equipment dealers to keep bargain shopping.
On one hand, the cheaply bought used equipment could offer potential profit for re-sellers. On the other, it could limit the sales upside of equipment manufacturers in mining and other industries. Since buyers have a second-hand market, and the pace of the rebound in commodities is still uncertain, manufacturers could feel the pinch in the short-term.
Disclosure