No sign of recovery in commodity prices in sight, as analysts predict yet more oil rout in coming weeks
Weeks ago, Caterpillar Inc. (CAT) should have seriously considered selling off its mining division, no matter how painful this decision may sound. This is based on a long-term view in which many countries around the world focus more on becoming knowledge based economies, as they realize that mining is a very vulnerable sector. It could sharply prove volatile for the mining sector lead economies.
Such is the case that GCC countries, such as Saudi Arabia, are stepping up their investments on infrastructure projects to provide a base for their local industries to develop in order to provide new sources of revenues for their dwindling budget surplus due to current low oil prices. The African countries are also doing the same, though they started the process long before the current low oil prices. When the prolonged commodities price slump since the Great Recession hit them hard, it affected demand for Caterpillar’s industrial equipment.
The mineral rich countries, after accumulating years of strong fiscal reserves from recorded commodity prices, are now focusing on their consumer markets to lift them in boosting their economies. This is much like China, which is now doing the same when it depended on unproductive state investments and unsustainable exports to manage them. Simply put, mining is now likely to become a less important part of the GDP in the coming years for all nations around the world.
If the construction equipment producer is reluctant to decide whether to divest their mining stakes or not, here is another reason why they should, at least from a short-term perspective. During its recent earnings call, the company stated that it is still facing a low mining order rate, but also highlighted the point that it is not getting much fresh equipment order. To make matters worse, oil prices are expected to slide down even further, if the ‘world powers’ and Iran manage to sign a final agreement, unlocking millions of more barrels of oil in the already flooded market, chopping prices even further, and prolonging the woes of oil and gas giants.
On top of that, mining companies are planning even more cuts in response to China’s slowdown in its economy and its transition to a new sustainable economy. India may provide a break, but even it’s time to aim towards the sustainable economic goal may not be far from now. Caterpillar may see improvement in its fortunes, as mining will remain relevant in the future, but not when technology starts to take over those jobs. This can be done completely operated by robots, and one that does not require much sophisticated industrial and building construction equipment to squeeze out minerals from the bottom of the Earth.
So with the whole global economy moving to a new phase of economic transition, from both - short and long - term factors, to the era where technology plays a more important role than ever, Caterpillar Inc. is suggested once again to look into the idea of either partially divesting its stake on the mining division or selling it off completely.
Caterpillar stock price traded yesterday at 80.84 yesterday
Such is the case that GCC countries, such as Saudi Arabia, are stepping up their investments on infrastructure projects to provide a base for their local industries to develop in order to provide new sources of revenues for their dwindling budget surplus due to current low oil prices. The African countries are also doing the same, though they started the process long before the current low oil prices. When the prolonged commodities price slump since the Great Recession hit them hard, it affected demand for Caterpillar’s industrial equipment.
The mineral rich countries, after accumulating years of strong fiscal reserves from recorded commodity prices, are now focusing on their consumer markets to lift them in boosting their economies. This is much like China, which is now doing the same when it depended on unproductive state investments and unsustainable exports to manage them. Simply put, mining is now likely to become a less important part of the GDP in the coming years for all nations around the world.
If the construction equipment producer is reluctant to decide whether to divest their mining stakes or not, here is another reason why they should, at least from a short-term perspective. During its recent earnings call, the company stated that it is still facing a low mining order rate, but also highlighted the point that it is not getting much fresh equipment order. To make matters worse, oil prices are expected to slide down even further, if the ‘world powers’ and Iran manage to sign a final agreement, unlocking millions of more barrels of oil in the already flooded market, chopping prices even further, and prolonging the woes of oil and gas giants.
On top of that, mining companies are planning even more cuts in response to China’s slowdown in its economy and its transition to a new sustainable economy. India may provide a break, but even it’s time to aim towards the sustainable economic goal may not be far from now. Caterpillar may see improvement in its fortunes, as mining will remain relevant in the future, but not when technology starts to take over those jobs. This can be done completely operated by robots, and one that does not require much sophisticated industrial and building construction equipment to squeeze out minerals from the bottom of the Earth.
So with the whole global economy moving to a new phase of economic transition, from both - short and long - term factors, to the era where technology plays a more important role than ever, Caterpillar Inc. is suggested once again to look into the idea of either partially divesting its stake on the mining division or selling it off completely.
Caterpillar stock price traded yesterday at 80.84 yesterday
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