As mining slumps, the makers of big machines and parts feel the pain

Tough times for makers of giant construction and mining machinery are hitting home in Minnesota.

That weakness directly affects a vast network of Midwest companies that make parts for tractors, backhoes and earth movers.

Bloomington-based Donaldson Co., which makes filters and exhaust systems for heavy equipment, reported a 20 percent decline in sales for its off-road products in the first quarter, and executives don’t expect a resurgence this year.

“We believe that the mining equipment market will continue to decline slightly through the remainder of this calendar year,” Tod Carpenter, chief executive of Donaldson, told investors in February. Companies like Caterpillar, Deere, Komatsu and Liebherr all expect a tough slog in 2015 because of the global mining slowdown, softness in U.S. agriculture and a prolonged pause in oil production.

Through March, manufacturing across Minnesota hadn’t been shedding jobs. Durable good manufacturing employment was up by 5,000 over the past 12 months, and added 700 jobs in March, according to state data.

L&M Radiator, a Hibbing firm that makes cooling systems for very large engines, does about 85 percent of its business in mining, oil and gas, said Laura Ekholm, one of the owners. As the mining slowdown unfolded, it laid off 50 people in Hibbing in 2013 and shuttered plants in Iowa and New Mexico in 2014. L&M is now also dealing with negative effects from currency translation and the drop in new oil production.

The global commodities glut that’s idling mines on the Iron Range has been squeezing mining companies and manufacturers that sell them equipment for a couple of years.

“If it’s slow, more or less that equipment is parked,” said Brad Pogalz, director of investor relations at Donaldson. “If you don’t drive your car, you’re not going to need to replace the air filter or the oil or the gas, at least not at the same rate.”

What’s made the mining downturn especially challenging — aside from the compounding effects of the oil and gas slowdown — is how long it has lasted.

“People were calling an end to the down cycle last year, and then it got worse,” Pogalz said.

But revenue has dropped two years in a row at Peoria, Ill.-based Caterpillar and the outlook for 2015 is tepid. Moline, Ill.-based Deere & Co. reported a 43 percent decline in first-quarter profit. Komatsu, a Japanese company with a U.S. headquarters in Peoria, and Liebherr, a Germany company with U.S. operations in Virginia, face similar prospects.

“People aren’t expanding their mines and they’re not buying as much equipment, so our business is just down pretty hard,” Ekholm said. “The mines are trying to get more hours and more life out of their existing equipment.”

Founded in 1957, L&M Radiator does less than 1 percent of its business in Minnesota. It had four U.S. factories going two years ago, but now its U.S. operations have been pared back to Hibbing, where the firm has 275 employees, and Yankton, S.D., where it employs about 80.

Custom Products, a firm in Litchfield, Minn., that makes cabs and roll bars for machinery, sells to Caterpillar, Terex and Vermeer.

The company is still growing, thanks to its businesses selling roll bars for lawn mowers, cabs for Club Car and helping other firms design their cabs. Maki noted that mining, oil and gas are cyclical businesses and will come back, but for now they can’t be counted on as a contributor to growing revenue.

“We still consider that an important industry for us,” Maki said. “But it’s at a low point.

“On the mining and oil and gas side, for certain we’ve seen the market conditions have a negative impact,” said Scott Maki, vice president of development for Custom Products, which employs about 125 people. “It’s a much smaller piece of our business than it was a few years ago. When the gas prices dropped, orders for new vehicles just sort of stopped.”

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