Coal & Copper Industries Cause Joy Global to Slump
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Analysts have taken a pessimistic stance on Joy Global (NYSE: JOY) in the last three months as the commodities global market has taken a hit. Prices and orders are down globally and the mining industry has been hit hard—right where the company makes most of its profit. No mining; no need for buying mining equipment.
Copper has been hit hard. Experts in the field believe the metal will continue to lose value in the coming quarter. This is not unexpected as copper is a good judge of what the economy is like. The metal is used in so many manufacturing and construction projects that a slowdown just confirms the poor economic reports we have been getting as of late. With the crisis in Europe continuing unabated, manufacturing has shrunk to its lowest in three years and we have heard of the economic forecast adjustments inChina. Since it accounts for 40% of all world copper consumption and it may shrink for the seventh consecutive month, there is no need to think that copper prices will turn around soon. This is Joy’s second largest market base.
Caterpillar (NYSE: CAT) a direct competitor with Joy Global has also felt the pinch. Even though net income increased 29 percent based on growth in the mining industry—it missed analysts' sales expectations because of softness in construction equipment sales in China and Brazil. Sales were down in these two BRIC countries since both of them tightened their economic policies in 2011. Analysts do not like this.
Besides copper, coal is the main culprit to hit both Joy and Caterpillar hard. Output from the industry was down (year to year) the first quarter. Metallurgical coal was down 4% while thermal coal decreased 19.7% quarter to quarter. The global economic turndown was underway and fears rippled through the a slowdown Asian Markets. News of slowing demand coming out of both energy and steel markets in Asia has been the major driving force slowing coal markets across the globe.
Coal companies are scrambling to find a market. Shale gas has lessened America’s dependence on imported oil and has also sent American coal companies into a tailspin. The large decrease in coal consumption has manufacturers looking for new markets to sell to. With cheap natural gas prices and continued pressure from environmental groups, the coal industry is struggling to stay profitable right now. This is digging into revenue growth for Joy Global since coal mining is its largest client base. So there is a very good reason analysts are getting cold feet and sticking to neutral for the company now.
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