Although most cranes are still bought by end users, an increasing proportion are being bought by crane rental companies from domestic players, and by joint ventures funded by international firms keen to get in on the action, reports Will Dalrymple
Under China's planned economic system, crane end users and owners used to be the same. So construction, petrochemical, steel, power, transport and other end-user companies owned a great deal of cranes. But as the system has moved toward a market economy, the masses of cranes that used to signify the strength of these enterprises are now starting to be seen as burdensome fixed assets.
Most of the large and super-large cranes in China are purchased by construction companies under the umbrella of state-owned monopolies Petro China and Sinopec. For example, nuclear power construction company China Nuclear Engineering & Construction (Group) announced in April 2008 that it had spent more than CNY200m (USD28.2m) on a Terex-Demag CC8800-1 Twin crawler crane. These cranes ensure the key projects remain in their own group. The rental industry has difficulty accessing these projects, but may be able to fill in vacancies.
For smaller cranes, different economic rules apply. Construction companies are increasingly turning to rental after finding that the cranes that they bought to win a project are idle once it has finished.
Liebherr has found, for example, that two-thirds of the cranes it has sold over the past two years have gone to rental customers: "We have seen the crane rental business increasing. Central government is trying to cool down the economy, limiting state-owned companies to purchase goods. Therefore, a lot of bidding and projects are delayed. But there are huge projects that demand cranes, which give the opportunity to private companies," a spokesman says.
He says crane rental companies often work in high-value niches where domestic manufacturers are weaker than foreign competitors. "They tend to specialise in large capacity all-terrain mobile cranes and heavy duty crawler cranes, for example for lifting of wind turbines."
In recent years, the Chinese government has invested more in wind power construction, so wind turbine lifts are a big driver of demand for large cranes. According to privately-held domestic rental company Shandong Longkou Yuhua Lifting Co, a 350t AT with tower configuration can install a 1MW wind power generator. Because ATs are more expensive to buy and maintain than crawlers, and do not need to be built up on site, they command the highest prices. The average monthly rental price for a 350t AT is around CNY650,000 (USD95,000); a 500t AT is almost CNY1,100,000 per month. In comparison, a 400t crawler crane costs CNY600,000 a month.
The Liebherr spokesman adds that 3.0MW turbines are on the way, requiring at least a 750t-class crawler.
The sweet spot for crane rental extends down to about 200t capacity, says Adam Lim, corporate development manager of Singaporean crane rental company Tiong Woon. The company has a subsidiary, Tiong Woon (Hui Zhou) Industrial Services, that does crane rental based in the southern province of Guangdong. It is not the only foreign company to start a crane rental joint venture in China. Shanghai Tengfa Engineering Construction Co. Ltd was set up by two Japanese crane rental companies, Yonehara Shoji and Itochu Corp, with help from mobile crane manufacturer BQ Tadano, itself a Chinese-Japanese joint venture. The crawler crane rental company Xie Xing, which has a 400t crawler, has a Shanghai headquarters, but is actually from Taiwan, which is governed separately from the rest of China.
The working schedules of big cranes remains tight, and requires booking months ahead, or having a good relationship with the crane owner, according to Shandong Longkou Yuhua Lifting Co. But despite their popularity, the rental price of 200-tonners (CNY16,000¨C18,000 per eight-hour day) is not as much as 160-tonner three years ago. Yuhua has been in business more than 10 years, and now has five cranes, including a 500t Liebherr LTM 1500-8.1 and a 250t LTM 1250.
It says that some cranes punch above their weight class by virtue of special design features, such as long booms. The daily rental price for an ordinary 250t AT is around CNY20,000 per day, but the rental price for the Demag AC250-1 is CNY26,000¨C27,000 because of its 80m main boom, or CNY23,000¨C25,000 for the Liebherr LTM 1250 with 72m main boom. Grove's 220t AT also gains a CNY2,000 premium over the ordinary rental price for 200t class AT.
Generally, crane rental prices are lower in the south than the north of China. The monthly rental price for a 400t crawler crane is CNY500,000¨C550,000 in the south, and CNY600,000¨C650,000, or even CNY700,000, in the north. Crane demand is higher in northern provinces such as Inner Mongolia, Xinjiang and Ningxia, where there are more construction projects, especially wind power construction. Also, southern drivers are said to have difficulty working in the northern climate.
At the local level, there are worrying signs about the oversupply of small-capacity cranes in the market. These new cranes are now busy, but their popularity in five years' time remains unclear. Facing the current hot construction market, a lot of buyers are optimistic that the local construction boom will last longer than the general three to five year term that it typically takes to pay back their new crane.
Financing
Unlike state-owned crane and equipment buyers, finding capital to buy cranes is a particular problem for privately-owned crane rental companies. "Most end-users are state-owned and do not use financing. Rental companies are private and need financing," says the Liebherr spokesman.
Although leasing programmes go back to the 1980s, constraints in financial capital, risk analysis, controlling bad debts, and other factors, continue to limit their growth. Nevertheless, all the major Chinese crane manufacturers operate leasing programmes. Manitowoc and Zoomlion have set up financial leasing companies.
Zoomlion Xinxing Leasing Company was set up in June 2006 and began offering leases in May 2007. In the half year to September 2007, its sales revenue had reached CNY3bn, 15% of the total Zoomlion Group sales revenue in the period, according to general manager Jun Wan.
"Our financial leasing company not only has entirely new construction products, but also second-hand equipment," says Wan. ¡°Buyers could sell their own existing equipment to Zoomlion Xinxing Financial Leasing Company as the deposit or the first payment for new equipment purchasing, then this old equipment could be re-rented to the buyers by Zoomlion Xinxing Financial Leasing Company. This method can reinvigorate buyers' fixed assets.¡±
An alternative for private companies are secondhand cranes. Although Chinese state regulations make it difficult to import secondhand cranes, private companies are the main buyers of the secondhand cranes in China that make it through. The most common purchases are rough terrain and crawler cranes.
Tower cranes
"For tower cranes, China is a huge market," says Adam Lim at Singapore's Tiong Woon. "But China has quite a number of producers of tower cranes. The tower crane rental business is not as good as the crawler crane business."
While Tiong Woon's subsidiary has focused mainly on crawlers and mobiles, its Singaporean rival, Tat Hong, also known for its crawler crane fleet and distributorships with Hitachi-Sumitomo, among others, has spent millions of Singaporean dollars setting up a major presence in tower crane rental in China through four joint ventures and alliances.
Tat Hong's advantage in the Chinese rental business is its alliance with one of China's major manufacturers, Fushun Yongmao. Tat Hong owns a stake in Yongmao Holdings, the Singapore-traded parent of the Chinese tower crane manufacturer. In February 2008,
it upped its share from 18% to 20%.
In January 2007, Tat Hong entered a 50:50 joint venture through a Chinese subsidiary with what it says is the country's largest tower crane rental company, Beijing ZhongJian Zhenghe Construction Machinery. The joint venture is called Jiangsu Zhenghe Tathong Equipment Rental and has operations in Beijing and Shanghai.
In December 2007, it bought an extra 5% (costing USD650,000) to give it a controlling stake. Under terms of the deal, Beijing ZhongJian Zhenghe contributed 33 tower cranes from its rental fleet, worth CNY35m, and Tat Hong supplied four cranes and cash to make an equivalent amount.
In April 2007 a wholly-owned Tat Hong subsidiary Tat Hong Equipment (China) paid CNY13.1m (USD1.92m) to buy a 76.4% stake in a four-way joint venture with China Nuclear Industry Huaxing Construction Company Ltd and two individuals, Gao Song and Sun Zhao Lin. The new company, called Jiangsu China Nuclear Industry Huaxing Construction Machinery Co., Ltd, providers of tower crane rental, heavy lifting equipment and related services to the construction industry in China. It has a special focus on the Chinese nuclear industry. Its headquarters are based in Yizheng, Jiangsu province, and it operates in Shanghai, and the southeastern provinces of Jiangsu, Zhejiang, Guangdong, Anhui, Shandong and Jiangxi. It also agreed to pump CNY45.8m of capital into the new JV, based just north of Shanghai, a month after the acquisition was completed.
In April 2007, the fleet consisted of 36 tower cranes. The company predicted it would increase the fleet size to 200 units and have turnover reaching CNY70m by the end of 2008.
Although Tat Hong was not available to speak to Cranes Today about its Chinese tower crane business, it has made several statements in published quarterly reports.
"We see vast potential for growth in the Chinese market, where tower crane usage is prevalent and the development of equipment rental is still in its infancy. We believe the Chinese market presents excellent advantages for the early mover and our acquisitions are intended to accelerate our penetration into the region," said Roland Ng, Tat Hong president and CEO in a May 2007 press release.
In an April 2007 presentation about the company's tower crane initiatives in China, he said that equipment rental is highly fragmented, with small companies of up to 40 staff. Rental is only available in Beijing, Shanghai, Guangzhou and Shenzhen. He added that there is lots of potential for demand from national utilities.
In November 2008, the company announced further plans to compete in the Chinese tower crane rental market. It announced a memorandum of understanding with Fushun Yongmao Construction Machinery to set up a new joint-venture tower crane rental business called Beijing Tat Hong Equipment Rental. Tat Hong would have a 55% stake in the business, which has an initial registered capital of CNY20m. In a statement, the company said that the joint venture would be mutually beneficial for both parties, 'as the Chinese tower crane rental market is growing rapidly.'
Tat Hong's investment seems to be paying off. Also in November, it issued a downbeat press statement about trading conditions: "Going forward, conditions are expected to be more competitive." But its Chinese operations seem to be going the other way. It reports that its Chinese tower crane rental division increased revenue three times to SGD11.4m (CNY51m) in the six month period to September 30, contributing 3.1% to the group's total revenue. It also predicts steady demand for tower crane rental in China from energy and infrastructure.
Source: Cranes Today Magazine |
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