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Although German economy is running at full speed again, the effects of the economic and financial crisis have not been negotiated by far.
Especially the necessary regulation of the banking sector, and particularly the field investment banking, only was partly achieved. Apart from a few exceptions especially US banks acted as if there had never been a crisis. They continue their business as before. Necessary reforms to avoid a resurgence of the crisis have not been proceeded. Though China, India and South America developed to be primary movers of the global economic growth, this might not be sufficient to bring the desolate financial status of several European countries and the USA into balance. The relatively low capital adequacy of European and U.S. American banks makes the situation even more problematic. Under their own steam they will hardly be able to overcome a resurgence of the crisis.
Although the pressure on the Euro decreased, international financiers still focus on this currency. In addition to that, the financial imbalance between European countries is increasing furthermore. Especially the situation in Greece and Ireland has hardly defused so far. Banks almost agree on the fact that at least Greece will not be able to reduce its immense mountain of debt alone. Due to the fact that the European Central bank more and more buys up European government bonds to increase the volume of money and therewith the inflation in Europe, this situation becomes even more problematic.
The USA could hardly overcome the crisis so far. Especially the continually increasing national debt is causing major problems. The national debt amounts to approximately 90 percent of the gross domestic product – similar to the mean value in Europe – and therewith in a sustainable limit at first sight. While the average annual tax income in Europe amounts to some 40 per cent of the gross domestic product, it only amounts to nearly 20 per cent in the USA. Compared to the tax income, the indebtedness of the USA accordingly is twice as high as of Europe (and amounts to approximately 180 per cent). Due to the fact that necessary tax increases can hardly be realised in the USA, one might assume that the indebtedness will not decrease but will rise furthermore. Economists are already warning that, after the Euro, the US dollar could also come under pressure. The effects of such a loss of confidence for the global financial system and the already weakened Euro would be massive.
German mining equipment manufacturers also were affected by the economic and financial crisis. The increase in turnover by 10 percent for 2009 forecasted during the penultimate annual meeting of the VDMA Mining Equipment Association could not be realised due to serious declines in October and November. However, the industry can be satisfied with the increase by 3 per cent to 3.74 billion Euro reached within the crisis. Contrary to initial misgivings that declining incoming orders would lead to decreasing sales and gaps in employment, German mining equipment manufacturers even increased their turnover by 2 per cent to 3.81 billion Euro in 2010. Thereby declining incoming orders which resulted from the financial crisis in 2009 were more than offset. Until autumn the substantial increase of incoming orders in 2010 led to a level of orders of nearly 10 months. Manufacturers can therefore be confident that sales will at least slightly increase in 2011.
There are voices saying that the global coal industry would be at the beginning of a long-lasting super-cycle led by China and India. During the next five years new power stations with a total output of 390 GW will be operated world-wide which will increase the annual need for coal by 1 billion t. Indonesia offers great potential for the sale of mining equipment. Already in 2005 Indonesia displaced Australia as most important exporter of coal for production of energy. One reason is that transportation costs to China and India are significantly lower.
Domestic business substantially decreased last year. After a good development in 2009 – taking into consideration the financial crisis – with a growth of sales by 7 per cent to approximately 550 million Euro, incoming orders substantially dropped at the end of 2009. This resulted in a decline in sales by 17 per cent to 450 million Euro in 2010. Since the incoming orders considerably increased by 44 per cent in the first three quarters of last year and reached a 37 per cent increase for the full year, a further slight growth is expected for 2011.
Since foreign sales increased at least by 2 percent from 3.13 to 3.19 billion Euro in the crisis year 2009, the decrease of incoming orders caused by the financial crisis in 2009 gave reason to fear a noticeable drop. However, the incoming orders – which increased by 56 per cent in 2010 compared to 2009 - resulted in a rising turnover by 5 per cent to 3.35 billion Euro until the end of the year. The impulse for this growth was mainly released by emerging and developing countries and China. For 2011 a further increase in the lower one-digit percentage range is expected.
In 2010 China was the biggest export market for German mining equipment manufacturers. In spite of the crisis the need for raw materials raised furthermore and an end of the boom is not in sight so far. Exports increased by 38 per cent from 233 million Euro to 322 million Euro in 2010. The USA dominate the Chinese mining equipment market ahead of Germany and Norway. 80 per cent of the energy is produced by coal-fired power stations. In order to improve safety 8.000 small mines with a capacity of 200 million tons shall be closed. However the coal production could be increased in 2010 to approximately 3.1 billion tons. Imported coal mainly comes from Indonesia and Australia. The continued demand for steam coal and coking coal as well as the intensified extraction of non-energetic raw materials will create further impulses for growth. China has almost all metal ores being necessary for the industry, but is not able to meet the indigenous market demand. China strives for becoming independent from foreign raw materials and therefore invests yearly more resources in mining development. According to a gtai (German Trade and Invest) statement investments increase fivefold to some 85 million Euro from 2003 to 2009. While especially the coal and oil sector profited in the past, the share now shifts to the benefit of the iron ore sector. In two projects of the Liaoning province (Shishanling and Datailou) alone approximately 4.5 billion RMB are invested in order to achieve an annual production of 70 million tons. Considering the great demand especially for safety technology rising exports are expected also for 2011.
The Russian market has not yet recovered. After a collapse of exports from 353 million Euro in the boom year 2008 to 275 million Euro in 2009 with a decreasing coal production of 300 million tons the decrease by 4 per cent to 264 million Euro in 2010 is less strong than formerly expected. Although the effects of the crisis are felt almost everywhere in Russia, the liquidity of banks increased. Obtaining credits and foreign currencies has therefore become easier for customers. The Russian coal market is within a wave of consolidation. 20 leading companies stand for 91 per cent of the Russian coal production: SUEK heads the steam coal sector and the Evraz-group leads the coking coal sector. The modernisation of mines both for energy raw materials and non-energetic metallic raw materials is a big step forward. However the demand is still great. According to a gtai statement the Russian Ministry of Economy only expects a slight increase of the total production for 2010. An increase of production to some 320 million tons is expected for this year and the coming year. In Kuzbas the commissioning of six new mines were scheduled in 2010. In addition further processing plants should be built. An increasing trend towards refinement of raw coal is commonly reported which is pushed also by Russian metallurgy companies. Only a few information on the ore market are available. gtai recently reported that large deposits of rare earth especially exist in the Murmansk region and Yakutia but its ore concentrations are equally low and are located in regions with a low developed infrastructure. However a slight increase of turnover is expected for the current year due to a better overall economic situation. Since 2008 China developed to be the biggest competitor in the Russian market and squeezed Germany to the second rank of the biggest importing countries followed by the USA on rank three.
As stated at the beginning of this report the USA could hardly recover from the effects of the crisis. Compared with 2009 exports continued to decrease from 203 million Euro by 29 per cent to 144 million Euro in 2010. This development runs in parallel to the stagnating coal production. In 2009 973 million tons of coal were produced, 671 million tons of it by open pit mining. By decreasing stocks the demand in the power station and steel sector should increase in 2010. Therefore and due to a further money supply growth as well as the economic liquidity a slight revival of the demand for machinery is expected. The turnover should remain at the prior-year level or even increase slightly.
In Australia signals are still set for growth. The bright prospects for the mining sector forecasted for 2010 were negatively impacted by the floods in eastern Australia at the beginning of the year which also considerably affected the coal production. However mining companies are expanding their production under difficult geological conditions. According to gtai they intend to invest 50 billion Australian dollars for the 2010/11 financial year. The further development is characterised by the fact that raw materials extracted at the surface will run short – and this also applies to hard coal. Underground mining will become more significant which will have a positive effect on the German export. In the medium term the conversion from discontinuous to continuous mining will invigorate business of German manufacturers. However exports decreased from 92 million Euro in 2008 to 69 million Euro last year whereas German manufacturers were less affected than their competitors from the USA or Japan. Due to the positive overall trend rising exports are expected.
The consequent market cultivation in South America proved to be fruitful. The effects of the economic crisis are and were not as large as in the western industrialised countries by far. The turnover could be increased from 54 million Euro in 2008 to 74 million Euro in 2009. The expectations to keep this result also in 2010 could not be fulfilled. Exports decreased by 1.9 per cent to 72 million Euro. VDMA activities in Colombia, Peru and Chile had a positive effect on the business development. Also Brazil becomes more and more an interesting market. This also applies to Argentina which is expanding the raw materials extraction like Brazil. Altogether South America develops to become a prosperous sales market. Increasing turnovers are expected for 2011.
India is the world's third largest coal producer. More than half of the power stations are powered by coal. Already now these power stations account for 70 per cent of the power generation. Due to the continued dynamic development the government forecasts that the coal consumption is expected to triple to 2 billion tons over the next 20 years. Currently some 530 million tons are extracted here. German manufacturers aim at exploiting the sales potential related to the rising extraction. Many local circumstances - especially the dominant position of the state-owned company Coal India Ltd and the organisation of the energy sector – make the market cultivation more complex. In addition there are difficulties concerning the admission of foreign technology by the responsible authorities. German exports developed unsatisfactorily. After a strong decrease from the highest level amounting to 96 million Euro in 2008 to 60 million Euro in 2009 the development continues slowly. In 2010 equipment amounting to 57 million Euro was exported to India. Despite all problems especially the coal mining offers great potential. Ore mining plays only a very marginal role so far.
Apart from possible effects of the latent crisis to the western world future prospects of the mining sector are good. The demand for raw materials and consequently also for mining equipment will rise continuously not only in the short term but also in the medium- and long term. The global development towards underground mining will have a positive effect on the business situation of German manufacturers. This also applies to the global trend towards mining in larger depths. German manufacturers will successfully be able to use their technological advance here. This also applies to the sector 'safety technology' which will gain in importance especially in emerging- and developing countries. Particularly South America offers a great market potential. The good contacts to operating mining companies in Chile, Peru and Colombia will lead to a further upturn in sales. Mongolia might also become more important as a sales market. Points have been set for a further development of this market and the extraction of the rich reserves of raw materials. By the support of the German Engineering Federation (VDMA) German manufacturers are working this market since 2007 with first signs of success. The termination of support of German hard coal mining in the year 2018 will not only lead to a further increase of the export rate of currently 88 per cent; company movements and closings cannot be excluded. How significant the effects finally will be depend also on the idea to build a research mine in Germany. In order to secure and to foster the outstanding position of the German mining equipment manufacturers in the global market, some meetings were held last year under the motto "Future Mining" and on the initiative of the German Engineering Federation (VDMA). The aim is a close collaboration between manufacturers, the raw materials industry and German university research institutions. The combination of interests should contribute to strengthen the position of the mining industry in a more and more globalised economy. Two events took place at the RWTH Aachen and at the Technical University Clausthal. The resonance was enormous. The next event is scheduled to take place at the Technical University Bergakademie Freiberg on 14 and 15 July 2011.