Japan forklift sales: Exports weaken further

by SR on June 26, 2012

Japan forklift sales and exports, cumulative (thousand units)

Conclusion: domestic surprisingly firm, exports keep falling.

I don’t want to sound relentlessly downbeat on Japan forklift sales (announced yesterday), because it is a fact that year-to-date, combined forklift sales and exports are up 17% year-on-year for the January to May 2012 period. This has to be a positive for forklift plays like Toyota Industries, Nichiyu and the construction machinery guys that have forklift operations such as Komatsu and Hitachi Construction Machinery. But I can’t help thinking that this surge in forklift sales is driven by domestic demand that is likely to be short-lived.

Meanwhile exports – recall that Japanese forklift suppliers dominate the global market with a more than 30% share – are already in negative territory year-on-year. My preference would be to avoid trucks and machinery-related stocks unless you can find a secular story strong enough to outweight the weakness in those markets. In the meantime, I still like Toyota and its related parts suppliers, not for any especially clever reason, but simply because Toyota has good product momentum, is gaining share in the US and is going to post significant year-on-growth. I would prefer parts suppliers, because they will see the benefit earlier.

A closer look reveals poor seasonality

The Japan Industrial Vehicles Association (JIVA) disclosed forklift sales for May 2012 on 25 June. Combined domestic sales and exports reached 8,407 units, rising 9.1% YoY and falling 3.6% month-on-month. Domestic sales came in at 5,283 units (+23.7% YoY, -4.1% MoM) while exports were 3,124 units (-9% YoY, -2.8% MoM). What is driving that strength in domestic sales, which are up 33% year-on-year? It’s hard to say, but I note that diesel forklift cumulative sales have risen 41.7% YoY and gasoline forklift cumulative sales have risen 41.4% YoY. Battery-powered forklift cumulative sales have risen only 26.6% YoY.

From that I draw the tentative conclusion that the strength is in manufacturing rather than in areas such as food or medical, as battery forklifts are still not the best solution for heavy-duty manufacturing operations. But I’m sort of clutching at straws here. My interpretation is that post-earthquake rebuilding demand in Northern Japan and rising auto output is pushing domestic forklift sales, but I have no direct evidence to support this.

More importantly, domestic forklift sales were not that good on a seasonal basis. Usually, May is a solid “up” month, which means that sales rise relative to April. The chart below shows this quite nicely: there have only been a few “down” months for May over the past 20 years. And May 2012 was the second-biggest sequential decline during that period. So that’s not really as positive as the year-on-year growth would suggest and may indicate weakness up ahead.

Japan forklift sales, % month-on-month change for months of May

It’s difficult to put a positive spin on the next chart, which shows exports for January to May 2012 (the red line) have turned down year-on-year and are tracking below 2011 exports (the blue line) by 1.5%.

Japan forklift exports, cumulative (thousand units)

The long road to recovery

Finally, let me put it all in historical context for you by showing combined domestic sales and exports of forklifts in relation to the previous highest ever level, which was 17,499 units recorded in March 2008. How are the mighty fallen, indeed. While we’re talking about year-on-year growth on a monthly basis, the big picture shows us that current level of sales is less than 50% of the peak. We may have to wait another year or so before we get anywhere close to those levels, although I am hopeful that this will happen.

Japan combined forklift sales and exports vs previous peak

Global road truck weakness worrying

In the past we have made the argument that forklift truck shipments ultimately must follow road truck shipments, because everything of any size that is put on a road truck is put there by a forklift truck. If road truck sales are rising, that suggests that transport capacity is tight and that trucking activity is rising, which has positive implications for forklift demand.

That’s still logical and sensible. The problem is that, North America aside, trucks are doing badly. In this post on Volvo’s truck deliveries, we explained how Europe and South America deliveries are crumbling and how North America was the only area of genuine strength. Volvo is only one company, but it is the second largest supplier of heavy trucks in the world. If it’s doing badly, the chances are that not many places are doing well. Meanwhile, commercial vehicle shipments in China are down 10.4% YoY with no signs of respite.

Unfortunately the two biggest forklift markets in the world are China and Europe, although foreign forklifts are effectively priced out of the China market. With the exception of the US and some short-term strength in Japan, things don’t look too good for forklifts. Longer term there are reasons to revisit forklift demand, but this year I think it makes sense to stick to autos, auto parts and tyres.

NB: for an overview of the global forklift market, take a look at this post that we wrote earlier in the year.

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