If there’s a bottom to the pit that Milwaukee mining equipment companies have been in for several years, it’s getting closer but hasn’t been hit yet.
Caterpillar Inc., which has its mining equipment division in Oak Creek, has cut hundreds of jobs at its factories that manufacture some of the world’s biggest machines.
More than half the company’s blue-collar employees at the South Milwaukee plant, members of United Steelworkers Local 1433, are on layoff, said Ross Winklbauer, a Steelworkers subdistrict director.
Last week, Caterpillar announced another 25 layoffs here, which Winklbauer says brings the number of people off work to roughly 450, or about 55% of the workforce. The additional 25 layoffs are scheduled to take effect beginning Monday, the company said.
Peoria, Ill.-based Caterpillar also said it is laying off 200 people at its mining equipment plants in East Peoria and Decatur, Ill., effective Monday.
The company blames the layoffs on depressed commodity markets that have led mining operations to halt expansions and postpone equipment purchases.
Some of the Milwaukee-area employees have found other jobs, more permanent in nature, and aren’t likely to come back. Others are waiting for a recall notice, which industry analysts say isn’t likely to come anytime soon.
Many of those on layoff are young people who answered the mining equipment industry’s call for welders not long ago, only to find those jobs disappear starting in 2013.
“It’s especially tough when you are the one being affected. When you’re a young guy, starting a family, all of a sudden you don’t know which end is up,” Winklbauer said.
Caterpillar’s layoffs in Milwaukee are for an indefinite period of time, according to the company.
“We know this is difficult for our employees and their families, and the company plans to offer impacted employees support services during this time,” company spokeswoman Rachel Potts said in a statement.
Some people on layoff found other jobs, quit those jobs when they were called back to Caterpillar, and were laid off again a few months later, according to Winklbauer.
“A lot of people aren’t happy with what Caterpillar has done in the past,” he said.
The mining equipment industry, which includes Caterpillar and Milwaukee-based competitor Joy Global Inc., is cyclical. Until late 2013, rising commodity prices fueled an equipment boom that resulted in hundreds of new hires at plants and their suppliers.
Companies partnered with technical colleges to train welders in a search for new talent. They complained about not being able to find people who met their standards for highly skilled, tough physical work.
Then demand sputtered for mined materials, coupled with an oversupply of materials such as coal and iron ore, and the need for mining equipment slowed.
Caterpillar closed plants in Virginia, West Virginia and Texas. The company cut its worldwide workforce by about 13,000 people in 2013, including several hundred jobs in South Milwaukee.
Mining equipment companies are likely to remain in a rough patch for the near future, according to industry analysts.
“There’s an end to the downturn, but it’s not fairly soon. I think the challenges are going to continue throughout 2015,” said analyst Mircea Dobrea with Robert W. Baird & Co.
Joy Global, which is Caterpillar’s main competitor for mining machines, recently offered a cautious outlook for the industry.
Mine-operator capital expenditures declined in 2014 for the second straight year, and further declines are expected in 2015, Joy said in releasing its fourth-quarter earnings Dec. 17.
Joy went years without a major layoff at its P&H mining equipment factory in Milwaukee, but in 2013 it laid off several hundred people, including welders and others in the skilled trades.
“We anticipated lower volumes for our new equipment over the last couple years and took the difficult decisions early to balance our workforce to meet manufacturing demand,” said Doug Blom, Joy’s chief marketing officer.
Joy has recalled most of the laid-off employees, according to the union, and the company has brought back work that previously was outsourced.
Last summer, Joy opened a 300,000-square-foot warehouse and distribution center in Oak Creek that created about 75 jobs through Steelworkers Local 1114. It will operate 24 hours a day, seven days a week, supplying equipment and parts to mining customers around the world, according to the company.
Eventually, mining operations will step up equipment purchases as machines costing millions of dollars wear out and are replaced with better technology. That should bode well for Caterpillar and Joy Global.
Still, the industry faces the most challenging market in more than a decade, according to Blom.
“The commodity markets we serve continue to be influenced by weak global demand with supply-demand imbalances,” he said.
It’s not going to be great this year, said analyst Jim Corridore of S&P Capital IQ.
“But the rate of decline is decelerating. I think we are close to a bottom in the market,” he said.
“There’s also a certain level of underlying demand that’s going to be there regardless of whether there’s growth in the (mining) industry or not,” Corridore said.
Over the years, mining industries have experienced boom and bust periods, sometimes lasting for years.
“Either the mines are booming, and they are running the equipment until the wheels fall off, or they’re shut down and nobody is doing anything. There just doesn’t seem to be much in between with mining,” said Mike Osenga, president of Diesel & Gas Turbine Publications, based in Waukesha.
“When it’s down like it is now, you start to wonder if it’ll ever come back. But it will. The need for mined commodities isn’t going away,” Osenga said.
There was a pullback in mining in 2009, but the recovery was fairly quick as mine operators continued to invest in expansion projects. Often when the industry comes out of a slump, there’s an uptick in business right away, said Tom Aaby, senior vice president of business development at OEM Fabricators, a metal fabricator in Woodville that does work for mining equipment companies.
In the 2009 downturn, Joy spent millions of dollars upgrading its factory at W. National Ave. and Miller Park Way, including the addition of a gear grinder that reduced the time needed to cut a gear from 300 hours to 30 hours.
The long-term employment outlook in mining remains solid, said Lance Roberts, head of the mining, engineering and management department at South Dakota School of Mines and Technology, in Rapid City, S.D.
Soon, there will be a need to replace employees who entered the industry in the 1980s and want to retire if they can afford it.
“A lot of companies have told us they don’t want to get into a situation where the talent pipeline is basically empty,” he said.