January 8, 2008 -- Hitachi Construction Machinery Co. (TSE:6305) plans to establish a joint venture in Russia to start producing excavator parts there this year and to churn out finished goods by 2012, The Nikkei learned Monday.

The Japanese firm, which to date has exported hydraulic excavators to the Russian market, will switch to local production because of anticipated demand growth in Russia for infrastructure and mine development amid high resource prices.

Hitachi Construction Machinery aims to set up the parts joint venture as early as the spring with local sales agent Tech Story Contract. The new firm will be capitalized at roughly 500 million yen (US$4.6 million), with Hitachi Construction Machinery likely contributing 70-80 per cent.

Tech Story has already purchased a construction machinery plant in the province of Kostroma, some 300km northeast of Moscow. After upgrading the plant, it aims to churn out parts for 3,000 hydraulic excavators a year. The components will be attached to imported hydraulic excavator bodies.

Once finished products are also made, Hitachi Construction Machinery will halt imports from Japan.

The construction machinery market is growing sharply in Russia, whose economy is booming thanks to oil money. Demand for hydraulic excavators apparently surged 40 per cent on the year to 8,500 units in 2007, with the market growing to a quarter the size of Japan's and China's.

Despite playing second fiddle to Komatsu Ltd. (TSE:6301) in the domestic market, Hitachi Construction Machinery is No. 1 in Russia, with a share of 35 per cent. In fiscal year 2012, it expects Russian sales to hit 100 billion yen - double forecasts for fiscal year 2007.

Source: Asia Pulse