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Is The Mining Industry At A Bottom? No, Says Longbow Research

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Given sluggish steel demand in China, the mining equipment sector won't dig itself out for at least a couple of years, an analyst said Tuesday.

Longbow's Eli Lustgarten cut his 2016 earnings estimates on mining equipment makers Caterpillar Inc. (NYSE: CAT) and Joy Global Inc. (NYSE: JOY), and said 2015 forecasts for each of the companies are also at risk.

Other manufacturers likely to be hurt include Eaton Corp plc (NYSE: ETN) and Parker-Hannifin Corporation (NYSE: PH), which both provide hydraulics gear, and bearing maker Timken Co (NYSE: TKR), according to Lustgarten.

The analyst maintained Hold ratings on both Caterpillar and Joy, cutting his profit forecasts for next year on the two companies by 4.5 percent and 12.7 percent respectively.

In the coal fields, recent Chapter 11 filings by both Patriot Coal Corporation (OTC: PCXCQ) and Xinergy Ltd. (OTC: XRGYQ) help to illustrate difficulties.

Related Link: Goldman Still Bearish On Commodities, Except For Zinc

Arch Coal Inc (NYSE: ACI) recently eliminated its dividend and is "under significant financial pressure," Lustgarten said. Arch last week reportedly hired restructuring advisers to help lower its debt.

The iron mining giants BHP Billiton Limited (NYSE: BHP) and Vale SA (NYSE: VALE) recently announced production cuts but some observers see it as too little too late in a world awash in surplus.

"Many point to Chinese demand as the main driver of commodity prices," Lustgarten said.

But the Chinese construction market has been in the doldrums for at least a year, with government and private sector spending at relatively depressed levels.

"This has led to decreased steel demand, driving global coal and iron ore prices lower," according to Lustgarten.

Latest Ratings for CAT

DateFirmActionFromTo
Jan 2018BerenbergInitiates Coverage OnBuy
Jan 2018JP MorganUpgradesNeutralOverweight
Dec 2017BarclaysInitiates Coverage OnOverweight

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