Weak mining demand impacts Sandvik profit

Stockholm-based Sandvik (STO:SAND), the world's largest maker of metal-cutting tools, joined competitor Atlas Copco in posting negative figures for its second quarter, triggered by lower demand from the mining industry, production rates, adverse currency effects and non-recurring charges.

Net income dropped 33% to 1.86 billion kronor ($284 million) from 2.78 billion kronor a year earlier, the Swedish engineering group said Friday in a statement.

Revenues for the period decreased to 23.04 billion kronor from 25.93 billion kronor generated during the same quarter last year. Order intake for the period was down 16 percent to 20.72 billion kronor from 26.19 billion kronor in the prior year.

“Considering the world we live in I think we delivered a pretty strong report,” Sandvik’s CEO Olof Faxander said.

"[The figures] only emphasizes the importance to continue to adjust our costs in accordance with the changing market conditions," he added.

Sales flagged 11% to 23 billion kronor, in line with analysts’ outlook. The hardest hit area was the Mining division, Sandvik’s biggest unit, which declined 30% mainly due to very scarce orders from the Australian market. The strong krona currency cut operating profit by 300 million kronor, Sandvik said.

Miners around the world are under intense pressure to cut costs as they contend with volatile commodity prices, rising wages, labour unrest and lower-grade ores.

This has caused the sector to be quite pessimistic about the status of the industry in the coming months, a recent study by Canadian executive search firm The Mining Recruitment Group Ltd shows. So much so that a bare 9% of mining executives polled by the company said they are actually bullish on the year ahead.

Image courtesy of Sandvick