Mining OEMs feel COVID-19 pressure

Sandvik and Caterpillar, among other mining equipment manufacturers, have provided updates on how the spread of the COVID-19 pandemic is impacting their businesses and supply chains

 Sandvik, Caterpillar give business updates regarding COVID-19

Sandvik, Caterpillar give business updates regarding COVID-19

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Sweden-based engineering group Sandvik said business development in most markets in the first two months of 2020 was in line with its expectations - with the exception of China.

During March the spread of the coronavirus and related uncertainties reached other parts of the world; however, the company's Chinese operations are back up and running.

While most of the company's production units continue their operations, due to government restrictions, production is currently on hold in Italy and India, as well as partially in some other regions.

Caterpillar, which as recently as during the Conexpo event in the second week of March said it hadn't witnessed significant disruptions due to COVID-19, is now also feeling the impact on its supply chain.

The company said it was monitoring the situation closely, and its supply chain teams were executing business continuity plans related to potential short-supply situations. If necessary, it might use alternative sources and air freight, redirect orders to other distribution centres, and prioritise the redistribution of the "most impactful" parts.

Caterpillar is still running most of its US operations and will continue operations in other parts of the world as permitted by local authorities. However, due to weaker demand, supply constraints and government restrictions, the company said it would temporarily close "certain facilities" and may have to suspend operations at additional facilities as the situation evolves. It did not specify which facilities this would affect.

Due to Caterpillar's financial results for the March quarter and the remainder of the year being impacted by the pandemic and the resulting global economic uncertainty, it also withdrew its financial outlook for 2020.

On March 26, Sandvik said it believed the direct impact on its financial performance during the March quarter would be limited. Nonetheless, it has initiated measures to mitigate future effects on its businesses.

These include short-term activities, such as reductions in worktime, temporary employees, consultants and discretionary spend, and in the long-term it is reviewing structural changes and reductions in workforce to adapt to changed market conditions.

"Temporary short-term actions, primarily related to reduced working hours, will generate savings of about SK1.5 billion [US$150 million] in 2020," the company said.

"We also initiate long-term structural measures which imply costs of about SK1.4 billion reported as items affecting comparability in the operating profit in the second quarter of 2020, with the majority impacting cash flow. Savings of about SK0.9 billion from these long-term structural measures, will reach full annual run-rate by the end of 2021."

The temporary reduced worktime will have a negative effect on the compensation for many employees, while the members of Sandvik Group's executive management have decided to reduce their salary by 10% during this period.

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