Earthmoving equipment is typically classified into two large groups – for construction and infrastructure, and for mining. These industries in India have been in a state of flux as the regulatory environment has seen transformational changes, competition has increased manyfold and greater demand has been constantly anticipated. Investments in both industries have been sluggish in the recent past even though it was expected that major recovery was just round the corner. The economic climb down has impacted the Indian earthmoving equipment industry over the past two to three years. However, the medium-term scenario till 2020 still appears positive. The reasons for this optimism are that road construction is gathering momentum and with competitive coal and mineral auctions beginning to move forward, mining is expected to grow faster.
The earthmoving equipment industry can be further segregated into excavators (compact excavators, dragline excavators, dredgers, front shovels and others), loaders (skip loaders and wheel loaders), backhoe loaders, construction tractors and others (graders, scrapers, track loaders and material handlers). Accounting for nearly two-thirds of the heavy earthmoving equipment segment, India is the second largest market for backhoe loaders in the world. The operating flexibility of these loaders has led to a continuous rise in demand from the construction and infrastructure industry, and the smaller scale of operations in the mining industry favour them due to efficiencies in loading. Recently, there has been a shift from a generic backhoe segment to bigger, specialised equipment such as mini-excavators, though backhoe loaders are still the most in demand.
Focus on construction mechanisation
There is a growing trend in the mechanisation of construction activity in the country with increasing use of earthmoving equipment owing to benefits like improved quality, timeliness, better project financials and greater safety over manual labour and traditional methods. Further, with greater focus on higher road length construction per day, an increase in the use of equipment is inevitable. This has to also be seen along with the evolving nature of market players who have graduated from construction contractors to infrastructure developers and operators. The need for institutional finance has been one of the drivers for such contractors to realign their strategies in terms of efficiency and safety, thus leading to an increased reliance on mechanisation.
There has been increased focus on equipment that requires lower initial investment and has lower costs of operation. There have been tremendous technological advances in earthmoving equipment to reduce wear and tear, raise performance levels, be tailor-made to suit specific requirements and have low downtime.
Indigenisation of technology has been an irreversible trend with manufacturing units being set up in India to meet market demand. Many original equipment manufacturers have invested in their local facilities and planned new investments in start-up facilities as well. Local manufacturing has led to cost efficiencies, reduced imports, improved supply of spares and better inventory management. Coupled with this, construction companies, infrastructure developers and operators have been demanding effective after-sales services, which has helped local manufacturing and enhanced the network of maintenance service providers.
A shortage of human resources in the industry has also impacted equipment design, with greater emphasis being laid on operator safety and comfort. The ergonomics of equipment has been improving with cabin designs targeting greater comfort for operators. Equipment manufacturers, besides making efficient, robust and reliable machines, are also equipping the equipment with high-end user-friendly technology solutions which enable greater operator efficiency.
On the business model side, there has been a discernible trend towards leasing and rentals for earthmoving equipment. Traditionally, the leasing segment of the market has been small but is expected to grow due to flexibility in financing and tax advantages. The “pay-as-use” model is picking up in India as it minimises costly breakdowns and eliminates storage costs.
Emphasis on sustainable yet profitable solutions
The mining industry has faced volatility in commodity prices in recent time with prices of several minerals showing a downward trend. The outlook for the next one or two years does not appear optimistic either. This has led to pressure on margins and a renewed focus on performance improvement and cost efficiencies. These, coupled with the allocation of mineral resources through competitive auction processes that require initial as well as production-linked payments to the government, have the potential to impact the Indian mining industry significantly. Efficiency, productivity and optimisation of resource deployment are back on the table after a prolonged commodity super-cycle that had taken away the focus from these critical issues due to high margins during the earlier days of sustained high prices.
Another trend in mining technology has been towards addressing climate change concerns and hence, reducing carbon footprints. The use of more energy-efficient equipment and reduction in diesel consumption are attempts in the right direction. These developments also align well with the objective of greater profitability. For instance, the availability of fossil fuel additives (for example, FuelSpec Combustion Catalysts from Efficient Fuel Systems of the US) which enhance combustion efficiency and reduce fuel consumption is good from the perspective of emission reduction and cost of extraction. Some of these products also promise to enhance the life of mining equipment.
With the growing demand for mineral ores, the scale of mining operations has been growing too. In coal mining, for instance, large mining projects of more than 10 million tonnes per annum (mtpa) are being planned and some planned projects have capacities of over 30 mtpa. With larger scale of operations, the size of mining equipment being used has also increased. For instance, in Reliance Power Limited’s Sasan coal mining project, the largest dragline of 33 cubic metre bucket and 70 metre boom length has been deployed. The largest capacity shovels are of 42 cubic metre bucket and dumpers are of 240 tonnes. These are still relatively small as compared to the largest sizes available globally, but are far larger than the sizes that were used in India in the past.
Larger equipment results in economies of scale. Lower grade ore has made it necessary to move increasing larger volumes of ore and waste. However, smaller capacity equipment provides flexibility in operations and cost efficiencies due to lower capital costs and fuel consumption. Hence, lower capacity excavators and trucks are also used in mining projects in India. This has been in the face of concerns raised about equipment crowding, safety and balance. But the continued growth in the market share of smaller-sized equipment is testimony to their cost efficiency, which has become critical in view of auctions as an approach to obtaining mining licences that entail substantial upfront and production-linked financial commitments.
The mining equipment industry as well as mining companies need to work together in mine planning processes in order to speed up technological development and find new solutions to develop a continuous mining process.
Given that domestic demand is robust and labour costs are relatively lower than other countries, even in face of the global downward trends in commodity prices, Indian mining companies have been able to sustain themselves. But this has led to immense focus on costs, which are sometimes not well comprehended. A procurement policy that is focused on reduction of capital costs of equipment purchase may lead to higher costs of maintenance and spare parts procurement. Equipment manufacturers have also adapted to such procurement policies by reducing initial delivery costs and recovering more through maintenance services and supplies of spare parts once the equipment is sold.
Mining companies need to evaluate their procurement options and base them on the life cycle cost of equipment, which takes into account availability, productivity, energy and fuel efficiencies, and the costs of maintenance and spare parts.
Future outlook
Automation and intelligent systems are influencing the construction equipment market. These help in reducing maintenance and repair costs by enabling the equipment to self-detect the need for repair. In earthmoving equipment technology, focus is slowly shifting to software, data and analytics. With greater focus on predictive maintenance practices, there is a need for data analysis and communication between machines. These are resulting in less human interaction and reduction in the scope of human errors. Intelligent use of data holds the potential to change the landscape of the earthmoving machinery market in the country.
While the trends towards greater application of continuous mining systems, larger-sized equipment and more energy-efficient systems are sure to continue, automation is likely to drive the most spectacular change in the mining industry in the medium term. Demand for mining’s industrial “Internet of Things”, and new simulation and optimisation software will influence the industry in India and the use of remotely controlled equipment will be the most important development over the next 5-10 years.
Dipesh Dipu, founder and partner, Jenissi Management Consultants
