China housing boom drives bulldozer demand - for now

Adam Jourdan

* Caterpillar, Komatsu, Sany post strong China Q1

* Industry sales to rise 21 pct vs 1 pct rise in


* Fast growth in H1 on gov support, slower in H2 - execs

SHANGHAI, April 28 (Reuters) - Chinese demand for trucks,

cranes and diggers is gaining momentum after bottoming out last

year, driven by a Beijing-backed infrastructure push, a housing

boom and increased investment linked to China's modern-day "Silk


Chinese and global machinery makers, including Caterpillar

Inc, Japan's Komatsu Ltd and Sany Heavy

Industry, posted strong profits this week for the

first quarter of the year, citing growing strength in the

Chinese market after years of decline.

The performance was boosted by China's faster-than-expected

economic growth of 6.9 percent in the first quarter, the fastest

pace in six quarters. Economists say Chinese policymakers have

leaned on property investment and infrastructure spending,

including their plan to build a modern "Silk Road" trading

route, to help support the economy.

"The strong demand in China resulted in a reduction in

Asia-Pacific dealer inventory, as demand outpaced our sales to

dealers," Caterpillar Chief Financial Officer Bradley Halverson

told analysts this week.

"If policy remains supportive we expect strong market

conditions in China to continue at least through mid-year," he

added. The U.S.-listed firm posted stronger-than-expected first

quarter sales on Tuesday.

Sales of construction equipment, including dump trucks,

excavators and mobile cranes, are set to shoot ahead by 21

percent this year after a slight 1 percent increase last year

and 42 percent slump in 2015, forecasts by industry consultant

Off-Highway Research, show.

Industry revenues peaked in 2011 at $35 billion and then

fell as activity slowed down.

Investors have been looking hard for signs of a broader

economic revival. A team at BlackRock Inc started

picking up increased signs of building activity on the ground in

China in the second half of last year by using satellite



Revenues at Zoomlion jumped 74.5

percent in the first quarter, its fastest quarterly growth since

the start of 2011. Net profit hit 18.6 million yuan, swinging

from a 660 million yuan loss a year earlier.

Sany Heavy Industry Co Ltd said on Thursday net

profit for the first quarter rose 727 percent to 745.7 million

yuan. Sales increased almost 80 percent.

Executives and analysts, however, cautioned that the upturn

would likely lose pace in the second half of the year as

measures to rein in a hot property market take greater effect

and there is also no clear policy certainty longer term.

"In China there is the Communist Party Congress in the

autumn, so after that there is some uncertainty about policy,"

said Mikio Fujitsuka, executive vice president and chief

financial officer of Komatsu Ltd.

Komatsu has forecast a drop in operating profit this year,

but said it had seen signs of improvement in China.

"We think the first half of the year should be fine but are

more cautious about the second half of the year."

Shi Yang, a consultant at Off-Highway Research, said the

year would be divided by a fast start and a slower second half,

and that there were even signs of a bubble.

"Since the third quarter of last year til now, the recovery

has been pretty strong - but it has its limits," he said.

"The big peaks we saw before are certainly behind us and

there are some signs of overheating. In fact, already the market

has started to slow."

(Reporting by Adam Jourdan; Additional reporting by Maki

Shiraki in TOKYO, Brenda Goh in SHANGHAI and SHANGHAI newsroom;

Editing by Neil Fullick)