PREVIEW-Mining equipment makers gather amid economic turmoil

By James B. Kelleher

LAS VEGAS, Sept 22 (Reuters) - As the world's mining equipment makers meet here for their quadrennial trade show this week, they should be in a celebratory mood given the booming business they have done since they last got together.

Instead, a mood of uncertainty prevails at MINExpo, with one question hanging over the event like fog: how much of a toll will the global financial crisis take on their sales?

There are signs that the global credit crisis and historic changes on Wall Street are affecting the industry's sales financing model, which relies on securitization of customer loans.

On Saturday, Sergio Marchionne, chief executive of Italian industrial company Fiat (FIA.MI), said the credit crisis had brought the financing business at Fiat's construction and farm equipment units to "an absolute standstill." He predicted there would be a "phenomenal repricing of risk" that would not spare anyone in the equipment industry.

There is also concern about the effect tighter credit may have on global economic growth and demand for industrial metals and energy products.

The four years since the manufacturers last met have been wildly profitable. With prices of copper, nickel, iron ore and other metals rising with consumption and infrastructure investment in developing countries, mining companies worldwide stepped up orders for such equipment as gigantic shovels, drills and excavators.

Two-year waits for some equipment became common as companies like Caterpillar Inc (CAT.N) and Komatsu Ltd (6301.T) dealt with the spike in demand and a shortage of some supplies, like huge tires and large metal castings.

Even as the credit crisis widened over the last 18 months and the U.S. economy slowed, commodity prices stayed high because of demand from fast-growing markets like China, India, Brazil and Russia.

Demand from investors, attracted by diversification and attractive returns from metals, also supported prices.

Orders for large mining equipment held up too, so much so that Caterpillar, the world's largest maker of construction and mining equipment, said in June it was expanding capacity in the United States, China and India.

But in August, prices of commodities, led by oil, began to slip, and recently markets have swooned as investors scrambling for cash dumped commodities.

Monday's rebound in commodities was tied to an oil futures expiration and a sinking U.S. dollar after weekend debates about a bailout for the financial sector.

WHERE TO?

"Is this a correction or the end of the bull market?" Nicholas Brooks, head of research and investment strategy at ETF Securities, asked last week. "This is the key question."

It is also the key question at companies like Bucyrus International (BUCY.O), Joy Global (JOYG.O) and Terex (TEX.N), which make draglines and mining trucks, some the size of small office buildings, on display at the show.

In July, Jim Owens, Caterpillar's chief executive, said commodity prices could fall "significantly ... I'm talking 30 percent-ish and still be at levels that would be attractive to drive investment in the mining and oil and gas industries because there has been such a prolonged period of underinvestment."

Speaking in Beijing a month later, Owens said: "Caterpillar has so many orders for heavy mining and power generation equipment that it is sold out of most items through 2010."

But even if that business holds up, a potential trouble area for the companies is the coal industry, which was until recently a bright spot for equipment manufacturers.

The big story has been China, which used to be a coal exporter but is now an importer as it builds about two new coal-fired power plants a month.

Analysts believed China's planned power generation expansion alone would increase global coal demand by nearly 4 percent per year through 2011. That doubled the Central Appalachian spot coal price in the last year and caused U.S. coal exports to rise 42 percent in the first quarter, along with production increases in the United States and Canada.

But as private companies have scrambled to get into the Chinese utility market, margins have contracted. In a recent note, JP Morgan's Ann Duignan estimated that 80 percent of the country's power producing industry was losing money, suggesting companies may have overestimated demand. (Reporting by James Kelleher, Editing by Peter Bohan)