Cheap Nat Gas and Coal Could Hit Caterpillar (CAT) Right Where It Hurts: Ratings

September 27, 2012 5:23 PM EDT
Softening outlook for heavy equipment sales to the global mining and construction industries could eventually lead to moderately weaker credit metrics for Caterpillar Inc. (NYSE: CAT) and could potentially have the same effect on other companies with similar exposure to these industrial customers, says Fitch Ratings.

Mining, which represents the majority of Caterpillar's Resource Industries segment, generates approximately 30 percent of Machinery and Power Systems revenue. As U.S. coal mining suffers from near-term competition from extremely low natural gas prices, producers are redeploying equipment and cutting capital spending.

“We believe muted demand in the mining industry could temper near-term benefits from Caterpillar's integration of Bucyrus which was acquired last year,” said Fitch.

Other concerns that surround demand for Caterpillar's equipment include slower economic growth in China that has reduced excavator sales by as much as 30 percent to 40 percent, noted the report.

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