By Kim Yoo-chul
Staff Reporter
South Korea's Doosan Infracore has joined forces with China's biggest heavy equipment-related company to meet growing demand in China.
The South Korean company will set up a diesel engine joint venture with Xuzhou Construction Machinery Group by 2013, company officials said as part of Doosan's strategy to establish overseas production facilities.
Doosan and Xuzhou plan to invest some 125 billion won in the 50-50 venture over the next four years to produce 50,000 diesel engines with displacements of six and eight liters on a yearly basis when construction is completed, Doosan spokesman Jeong Kyong-O said.
The venture will be located in Xuzhou, Jiangsu Province, Jeong added.
"The joint venture will lay solid ground for us to become one of the world's top 10 diesel engine makers by 2015," Lee Hwang-ryeol, a senior executive at Infracore’s engine unit, said.
Global diesel engine demand is forecast to rise 3.5 percent annually through 2012 to a value of $160 billion.
The Asia-Pacific region will remain the largest market while North America will be among the fastest growing ones based on increasing heavy vehicle output and the use of diesel engines in light vehicles, according to experts and market research firms.
"We maintain a 'buy' rating on shares of Doosan Infracore, while presenting 20,000 won as our target price, up from Tuesday’s 16,950 won. The joint venture will add additional momentum to Doosan's heavy equipment-related business in China," Ha Seok-won, an analyst at Woori Investment, said, adding the Korean company is seeing a drastic sales increase in excavators.
The decision has also been in line with Doosan's aggressive stance toward machine tools.
It has targeted 2.2 trillion won in annual machine tools sales by 2012. Doosan, which earns more than 40 percent of its total sales from construction equipment, also produces forklifts, excavators, engines and defense products such as armored vehicles and anti-aircraft guns.
But some analysts say challenges are ahead in the diesel engine market in China. They say projected declines in metal prices are set to lower production costs, moderating growth.