The mid-term outlook for the construction and mining industry up to 2030 is positive. Inflation-adjusted growth is projected at a compound annual growth rate (CAGR) of 4 and 1%, respectively. There are many drivers of this positive development.
Lower interest rates enabled by cooling inflation promise to impact commercial and residential construction positively, the latter supporting sales of compact construction equipment such as in the U.S.
Government spending is a significant factor in the development of the construction industry. This is driven by the regionalization of critical supply chains and considerable industry policy considerations. For example, In the U.S., it is happening via the Jobs Act, Chips Act and Inflation Reduction Act. In the EU, it is happening through the new Green Deal, are re-investing in infrastructure. Other nations, such as China, via the One Belt, One Road initiative, are leveraging infrastructure investments to ensure exports for their domestic industries while increasing global leverage. Countries like India, via the National Infrastructure Pipeline, also are investing in catching up with demand while positioning the country as a future manufacturing alternative to China.
India’s investments are an excellent example of the rise of the Global South. Many emerging countries need infrastructure investments to build a more robust basis for economic expansion and job creation. However, this increase in demand is a mixed bag for many Western original equipment manufacturers (OEMs). Western companies face competent Chinese competition due to cost sensitivity and differentiated customer requirements in Latin America, Africa and Southeast Asia. Chinese companies, facing economic hardship at home, are increasing their market presence in these geographies. Given significant trade relationships between many emerging markets and China, they often enjoy a “place of production” benefit.
Combined with aggressive pricing, an increased focus on aftermarket and market-adequate products augurs well for their future. Western players need to revisit their globalization strategies for emerging markets.
However, the strategic readjustment must also include home markets, as Chinese competition that builds scale in emerging markets can be a formidable foe at home. This is likely to be the case in Europe, where tariff non-tariff barriers towards Chinese products promise to be less stringent than in the US.
Industry trends to consider for the future
Electrification in construction equipment will not lead to significant penetration by 2030. We expect low to mid-single-digit penetration rates by 2030, driven by cities that require zero-emission vehicle (ZEV) -based construction projects within city limits. For ZEV penetration to be more prevalent in construction equipment, the solution’s versatility has to evolve in line with battery performance and cost.
We do expect a significant focus on autonomous solutions to optimize worksite performance. Rather than a regulatory push, as is the case for electrification, these solutions often experience customer pull as they improve efficiency and reduce labor dependency at construction sites. A case in point is collision awareness and avoidance systems.
Another significant trend is the increased use and intensity of connected services. In particular, a better understanding of machine problems and a proactive, maybe even predictive maintenance approach improve fleet uptime while increasing parts sales for original equipment manufacturers. Connectivity also opens the door for fixed-rate maintenance contracts that enable the exploration of new business models for OEMs and fleets.
While construction equipment also finds significant applications in agriculture, the overall trends are different. The agriculture market will likely be subdued for the next few years. The COVID-19 pandemic and Ukraine war-induced commodity boom has led to a robust market in which farmers bought what they needed and wanted. Most farmers are now careful regarding purchases given a more challenging market environment and are postponing purchases as long as possible.
The main driver for growth in the mining business is a combination of global GDP growth and declining ore grades, which require more equipment to move more material of lesser value. Regional trends vary quite a bit. Globally, a decline in coal at about 1% will be offset by around 2% growth in metals and minerals and is primarily focused on battery materials, copper and iron ore.
Dematerialization reduced material demand globally, albeit by less than 1%. The increasing prevalence of recycling, especially in steel (iron), aluminum, copper and battery materials, reduces the demand for new materials mined.
Autonomy and autonomous hauling solutions are well established in the mining industry and will continue to drive work site productivity gains by 2030. These work site productivity gains of 5 to 10% reduce the number of equipment needed, while electrification, e.g., of 240 t haulage trucks, will require more trucks to handle the same load as frequent charging reduces uptime by 15 to 20% according to our total cost of ownership (TCO) models. However, as the overall impact of electrification remains low till 2030 with less than 2% penetration, the overall effect of electrification on equipment volumes is expected to remain moderate.
Higher growth in India, Indonesia, China and the Middle East will dominate the next several years. Africa also will continue to play a role, but similarly to the previous discussion on construction equipment, Western players will face competent Chinese competition in these emerging markets.
Three considerations for Western OEMs
Given the industry's moderate growth prospects and increasing global Chinese competition, Western OEMs and suppliers should consider:
- Companies should watch their costs while taking advantage of global growth opportunities and enable frugal growth.
- Prepare for a strengthening Chinese competition by:
- Understanding Chinese cost structures, strategies and ambitions
- Understanding customer needs in emerging markets
- Developing product and service offerings for these use cases
- Investing in service solutions to bind customers beyond the pure performance of their product
- Monitor Chinese technological progress and customer value solutions
- Continue to invest in worksite optimization solutions standalone and with partners.
The Chinese challenge is similar to the entry of the Japanese and Korean players on the global stage. Yet, China’s scale and installed capacity dwarf anything the industry has seen. While it is not too late to prepare, Western OEMs and suppliers have no time to lose.
Dr. Wilfried Aulbur is senior partner and global head and Giovanni Schelfi is a partner at Roland Berger LP.
