COPENHAGEN Danish mining equipment maker FLSmidth & Co (FLS.CO) expects the current decline in demand to continue this year and next, although at a slower pace, as the world's mining companies hold back on spending.
Miners led by BHP Billiton (BHP.AX) and Rio Tinto (RIO.L) are slashing billions of dollars of capital expenditure following lower metals prices and shareholder pressure to boost returns, after a decade of expansion.
This is hurting engineering companies that build and sell huge ore-handling equipment, such as FLSmidth and its Nordic peers Metso (MEO1V.HE), Sandvik (SAND.ST) and Atlas Copco (ATCOa.ST).
Speaking at the Reuters Nordic Investment Summit, FLSmidth Chief Executive Thomas Schulz said he expected the downwards trend in mining capex to continue to the end of 2014.
"We expect a smaller decline next year but still a decline," Schulz said.
Schulz said the downturn in the mining industry, which he describes as a part of a normal 10-year business cycle, started last year and has intensified this year. He said mining capex would bottom out towards the end of 2014 and begin to rise the following year.
The downturn has hit the demand for new mining equipment for both greenfield and existing mines.
However it has not hit FLSmidth's equipment maintenance business which increased its order intake by 21 percent in the second quarter and its revenue by 26 percent.
"The opex - the operational cost-side in the mining industry - is developing quite well based on the fact that the mines are producing 24/7," Schulz said.
Schulz, who took the reins in May, in August announced 1,100 job cuts - about 7 percent of its staff. The company also said it would reduce its 200 locations by about 10 percent and introduce other efficiency measures.
He said that based on the forecasts FLSmidth has for the mining market, he does not see any further job losses.
However he added: "The possibility could come if the orders are not dropping in."
FLSmidth reported a surprise 40 percent drop in second-quarter operating profit in August, as it booked 323 million Danish crowns ($58.6 million)in one-off costs at its division that sells gear for cutting, crushing and transporting metal ores.
The company, which operates mainly outside Denmark in locations including Africa, the United States and Australia, warned it would take 1.35 billion crowns of writedowns and one-off costs by the end of the year.
Mining companies capex chart: tinyurl.com/kb23c3l
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(Editing by Pravin Char)