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Joy Global Inc. Announces Fourth Quarter And Fiscal 2012 Year-End Operating Results

Stocks in this article: JOY

Japan and Europe are moving more power generation to coal fired units to offset the impact of high natural gas prices in the international markets. Coal fired generation is up 26 percent in Japan, and is up 14 percent in Europe despite economic contraction in the Eurozone. Germany has 36 gigawatts of power generating capacity planned, and two-thirds of that will be coal fired.

On the back of slowing demand for steel, mills began reducing their inventories of iron ore and met coal. This lower demand temporarily drove down prices to below $90 per dry metric ton for iron ore and to $140 per tonne for metallurgical coal, both below their marginal cost of production. We believe the destocking phase is completing and the price for both commodities is improving. China produces 40 percent of global iron ore, and is the high cost, swing producer. As a result, iron ore has corrected more quickly than met coal and is trading in the vicinity of $120 per tonne, which is the estimated cost of China production. This pricing level limits China production, but provides healthy margins for the major seaborne producers. Metallurgical coal prices rolled over in the fourth quarter, but are to improve in 2013.

Copper has the strongest fundamentals of the major mined commodities. Despite sluggish global economic conditions, copper concentrate remains in deficit with prices that support continued mine expansion.

Despite the potential for upside, the outlook for the Company’s mining equipment remains weak for now. The Company’s customers have experienced reduced cash flow, and with mine capacity in excess of current demand, only the highest quality, lowest cost mines can justify investment. Although customers are completing the projects they have under construction, they are both cautious and patient on starting new projects. There is a preference for projects that have low execution risk and a relatively quick start of production. These are generally brown field expansions and green field projects that are near existing mines. Even then, the Company’s customers are thorough and methodical in their investment decisions, and this continues to extend the start of new projects.

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