February 26, 2011 Mining Opportunity

Volume 14 | Issue 1

As a South American distributor of heavy equipment for sale and rental, Marcosa is the exclusive Caterpillar dealer for the rapidly growing

Caterpillar Inc. is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. Building on its more than a half-century history in Brazil and Latin America, Caterpillar recently expanded its manufacturing operations to meet increasing local demand for its products.

“While North America suffered through an economic downturn, the situation in Brazil is exactly the opposite,” notes Jeferson Paris, director of operations for Marcosa, exclusive Caterpillar distributor to nine states in northeastern Brazil. “We have large and well-developed agricultural, mining, manufacturing and service sectors that have been doing quite well despite a depressed global economy. Also, upcoming plans to host both the 2014 World Cup and the 2016 Summer Olympics require a great deal of investment in building infrastructure, which means construction companies are busy with new projects and employing people to get the work underway. It also means they need additional heavy equipment to undertake these new projects. So it’s a good time to be a Caterpillar equipment dealer in Brazil.”

Indeed, Brazil’s economy outweighs that of all other South American countries and has steadily expanded since 2003. While there was a short recessionary period following record growth in 2007 and 2008, Brazil was one of the first emerging markets to begin a recovery; according to Index Mundi, positive GDP (gross domestic product) returned in the second quarter of 2009 and continued to grow by 7.5 percent in 2010 with a nearly $2.2 million GDP, fueled in part by a boost in exports.

Founded in 1947, the private family-owned Marcosa is situated in a territory that has contributed significantly to this growth. “The nine states in northeastern Brazil account for about 18 percent of the country’s geography that is rapidly developing,” Paris notes. “Which is why the area contributes about 16 percent of Brazil’s total GDP.”

Marcosa currently has nine locations with a total of 1,000 employees. Paris, a former Caterpillar marketing manager for 35 years, explains that Marcosa primarily sells new equipment to the mining and general construction industries. “About 17 percent of our business is supplying parts, while another 5 percent is from rentals,” he says. “Of course, Caterpillars are famous for their durability, but, logically, the more machines we sell and the longer they are in service, the more we expect the percentage of our parts sales to grow.”

Paris says there are five major markets for Caterpillar equipment in Brazil. “The first is heavy construction equipment for airports and highways. The second is the general contractor, who is a smaller customer and mostly needs backhoes and loaders. To the mining industry, which is a large segment here, we sell 200-ton trucks, large loaders and tractors. The fourth is forestry equipment and the fifth is engines in sizes ranging from 100 to 3,000 kva (kilovolt ampere) in power typically used in large projects by the marine industry.”

QUALITY, RELIABILITY AND SUPPORT
There are a number of heavy equipment players in these markets, including New Holland, Volvo and Kawasaki. In addition, Paris notes, “There are a lot more Korean manufacturers now, such as Hyundai, providing excavation equipment. About eight months ago, we also started to see a lot of low-priced, low quality machines from Chinese manufacturers. The problem with the Chinese machines is there is no product support. You can buy three of their machines for the price of two from Caterpillar and use the third machine for parts, I suppose, as long as you have enough mechanics on staff and you don’t mind the hassle, but why would you? The Korean manufacturers generally have a reputation for better quality, but, for the most part, they also lack any extensive product support.”

In contrast, the Caterpillar brand is well established with a reputation for high quality, supplanted by a local dealer network that offers both technical support and parts availability. “About 90 percent of anything a customer would needs is in our parts inventory,” Paris points out. “Because Caterpillar has a manufacturing plant in Piracicaba, we can usually get the other 10 percent in a very short turn around.”

Indeed, Caterpillar recently announced the expansion of its manufacturing operations by acquiring an existing industrial facility in Campo Largo, Paraná State from Chrysler. The expansion will add 538,195 square feet in manufacturing capacity and will be dedicated to producing backhoe loaders and small wheel loaders. About half the machines (wheel loaders, motor graders, backhoe loaders, track-type tractors, hydraulic excavators, compactors, underground mining loaders, generator sets and a number of components) made by Caterpillar in Brazil are sold domestically, with the other half exported to other Latin American countries. In addition to the purchase of the Campo Largo plant, Caterpillar has announced its intention to invest about $180 million in both facilities over the next two years to further expand capacity and productivity.

Paris also notes that Caterpillar announced this past November the acquisition of Wisconsin-based Bucyrus International, a global manufacturer of surface and underground mining equipment. “Brazil is rich in such minerals as nickel, iron ore, gold and copper, as well as coal and phosphates. Mining is a big industry here,” Paris says. “Caterpillar’s acquisition of Bucyrus is a significant commitment to dealers such as Marcosa to improve our ability to support our mining customers, particularly in the area of large excavators and 400 ton trucks. You are talking about equipment that starts at $1 to 4 million a piece for trucks and wheel loaders and $10 to $15 million for a large shovel. This is obviously a huge revenue opportunity for us.”

Further opportunity is represented by continued anticipated economic expansion, both across Brazil and in the region served by Marcosa. “The country is going to grow over the next four to five years,” Paris says. “That’s being fueled by Brazil’s selection to host both the World Cup and the Olympics and the fact that the country currently lacks infrastructure. In addition to stadiums and housing facilities that have to be built, we not only need highways to connect them, but hotels and airports to accommodate the crowds that will be attending these events.”

Further contributing to this bright outlook, Paris adds, “The country is rich in future potential for oil exploration. A lot of Brazil’s reserves have been too deep to bother with, but new technology is making this more cost-effective as worldwide demand continues to rise.”

On top of this, he adds, “Brazil has a very stable political climate. The government is pro-growth and endorses policies that can only further contribute to the success of industry and business in general. As a Caterpillar distributor, we see that as further growth and success for Marcosa.”

Subscribe to Industry Today