Joy Global 4Q13 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Beginning to see some signs of improvement, but commodity price under pressure

“Though macroeconomic indicators are moving in the right direction, commodity prices are still under pressure. We are beginning to see the signs of stabilization. But overall, soft market conditions continue to make customers cautious about spending on new projects.”

Transitioning from just an aftermarket business to a service business

“You probably noticed Jim use the word service instead of aftermarket in his comments on the first quarter financial results. This is purposeful. Service excellence and growth is a core strategy for our business and the name aftermarket doesn’t describe what we do and where we’re going. Given the importance of our service business, we are continuing to invest in service centers globally that will support our installed fleet and provide world-class technical expertise to our customers.”

Seeing coal stabilize for the first time in 2 years

“For the first time in 2 years, we are seeing some incremental positive signs coming from the U.S. coal market. While production fell below 1 billion tonnes in 2013 for the first time in 20 years, U.S. coal production is expected to rebound by 35 million to 45 million tonnes this year. The continued normalization of utility inventories as well as the recent weather-driven spike that pushed natural gas prices above $5 should drive an increase in coal consumption in the U.S.”

Still excess steel capacity

“global steel production is expected to increase over 3% this year, reaching 1.63 billion tonnes, as global demand remains healthy. Excess production capacity of approximately 200 million tonnes exists globally. Strengthening economic activity will support demand, although prices will remain weak.”

Metallurgical coal still out of balance

“Weak steel prices will continue to put pressure on steel making inputs, particularly metallurgical coal. Seaborne met coal demand is expected to grow nearly 5% in 2014. Oversupply conditions persist and supply cuts have not been enough to balance markets. We’ve continued to see spot prices decline below $135 per tonne, and this resulted in the Q1 2014 contract settling at $143 per tonne, the lowest level seen since 2009.”

Chinese restocking cycle has peaked for iron ore

“After ending the year around $135 per tonne, iron ore prices have trended lower in recent weeks, a sign that the Chinese restocking cycle has reached completion”

Some customers stretched out re-builds a little too long

“Part of the effect that we had in our bump in the first quarter, some of the customers got in trouble by stretching the rebuilds too long and we actually had some very strong quick book and turn, anecdotally. ”

More supply coming to market for Met coal. High cost producers under a lot of pressure

“we still believe that there’s pricing pressure on met coal. So that’s got to work itself out. And there’s still the high-cost producers are under a lot of pressure. We also know, because we’re connected to this fleet, we put some significant longwalls into the U.S. and to Australasia — Australia that are driving a different step function in that cost curve and making that met coal more productive. So that’s going to put supply into the pipeline, again, putting more pressure on the high-cost. So again, that matches what you see in the commodity pricing, if that helps with some color.”