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Komatsu to explore ways to tame extra costs from trade war

Construction machinery maker's chief worried about drawn-out US-China spat

Komatsu produces construction machinery and other products at 85 sites worldwide. (Photo by Masayuki Terazawa)   © Photo by Masayuki Terazawa

TOKYO -- Construction machinery maker Komatsu will have to take steps to rein in higher costs if the U.S.-China trade war persists, President Tetsuji Ohashi said Friday.

Cost increases tied to the trade friction will range between 4 billion yen and 5 billion yen ($35 million to $44 million) annually, the Japanese company estimates.

"We will need various measures" if the trade war is prolonged, Ohashi said at a news conference in Tokyo.

Komatsu generates more than 80% of its sales outside of Japan, and the manufacturer benefits from its ability to cross-source items from the company's 85 production sites around the world. But heavy American tariffs now apply to Komatsu's shipments of machinery parts to the U.S. from China, including the arms for hydraulic excavators made in Asia's largest economy.

Before the trade war, the company saw little merit to producing the parts in the U.S. amid the high costs of steel materials in America. But a drawn-out spat between Washington and Beijing could force Komatsu to move the production out of China, possibly to the U.S.

The company expects its Chinese sales to grow 2% to 167.9 billion yen for the year ending in March. Though the market accounts for less than 10% of Komatsu's group sales, Ohashi said the country "holds the key to the broad market trend going forward."

The Chinese Communist Party and the government's State Council will hold their annual Central Economic Work Conference this month. "We will gauge the economic trends for the Lunar New Year and beyond based on the results of the conference," Ohashi said.

In its home market of Japan, Komatsu projects a slight decrease in demand for construction machinery this fiscal year following a boost that came the previous year before tighter emissions regulations took effect. But the company expects the slowdown to run its course the following year.

Globally, Komatsu has seen a recovery for mining equipment this fiscal year after demand bottomed out in 2016, and the company expects room for further growth.

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