Barloworld braces for slowing sales to miners
Diversified industrial company Barloworld expects its equipment business to come under pressure in 2024 due to weak commodity prices, which characterised much of 2023, adding to concerns that more jobs in the mining sector might be on the line next year.
“The market for mining equipment is expected to slow down in 2024 due to the slowing in commodity demand and weak commodity prices,” the group said in its annual report.
The World Bank has already said it is expecting the price of coal to fall more than a quarter next year as demand wanes in favour of renewable energy.
The slowdown in the Chinese property and construction sectors is expected to cause iron ore prices to weaken 11% this year and fall further in 2024 and 2025.
Several of SA’s mining majors, particularly platinum group metals producers, have cut back on capital expenditure and are letting go of thousands of workers due to low commodity prices and high operating costs, which have been worsened by SA’s logistics and energy crises.
Barloworld’s equipment business operates in 11 African countries, including the Democratic Republic of Congo, through the Bartrac joint venture which sells, services and rents Caterpillar equipment for surface and underground mining, among other things.
The group’s equipment business in Eurasia reported revenue of R8.2bn in the 2023 financial year, with the Mongolia business contributing R2.8bn.
The mining sector came good for the equipment business in the region in the 2023 financial year.
“The diversity of commodities we are exposed to protects us from the cyclical nature of mining. However, to increase the resilience of our Mongolia operation, we are looking at ways to diversify our customer base. The expansion and exploration in the mining industry present new opportunities.
“Currently, the trucking of coal into China is a bottleneck,” Barloworld said.
Mongolian authorities have made progress with improving the infrastructure around supply into China. A rail line, which is under construction, is expected to improve the current constraints.
“Equipment Mongolia is supplying approximately 20 locomotives for this project, which will be delivered towards the end of 2023,” the group said.
Barloworld, which is the official dealer of Caterpillar equipment, said it is also seeing a change in its mining customers’ operating environment.
E-COMMERCE
Some of the changes include several mining assets changing hands from global owners to regional and local owners.
“As a result, we have had to evolve our business model to the needs of the market, which includes retail customers and medium-sized customers,” the company said.
“We needed to embrace e-commerce and leverage technology to service our customers efficiently and effectively. Today, approximately 80% of our customers trade with us on the e-commerce platform.”
The company’s board in 2022 decided to simplify its portfolio by exiting noncore businesses, leaving it with the capacity to focus its energies on the industrial equipment and consumer industries sectors.
Barloworld reduced its net debt to R668m in the 2023 financial year from the previous R4.6bn.
CEO Dominic Sewela said the group’s focus on emerging markets is bearing fruit.
“The group’s performance is also supported by its geographic focus on emerging markets, enabling it to weather the tough macroeconomic conditions of geopolitical tension and unstable commodity prices,” Sewela said in its annual report.
The group flagged the energy, water and logistics crises as challenges that continue to pose a risk to SA’s economic growth.
It said the outlook for SA going into 2024 remains uncertain, affected by load-shedding, logistical bottlenecks, crime, corruption, high interest rates and a volatile political landscape ahead of the national government elections.
Barloworld, which is worth about R14bn on the JSE, said that while it expects the mining industry to struggle in 2024 it is optimistic about the construction segment, where it expects to record growth.
“However, this growth must still be reflected in our order book since we generally carry stock for this segment. Energy and transportation are key growth areas for us, where we are expanding our rental fleet of generators using gas generators with lower emissions.”