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Last Updated: Sunday, 5 June, 2005, 14:46 GMT 15:46 UK
Plugging into China's energy gap
By Mary Hennock
BBC News business reporter

"No crisis without opportunity" could be the motto of Cummins Inc. Its generator sales have been fired up by China's incessant power cuts, making it one of the few winners from the booming Asian giant's energy gap.

Apprentice Luke Warburton at US firm Cummins' engineering plant, Ramsgate, Kent
Luke Warburton learns the nuts and bolts of engineering

When the lights go out across China, Cummins emergency generators come on.

Factories use them to battle against the rolling brownouts which routinely knock them off the grid.

The majority of Cummins generator sets start their journey to the overstretched front line of global economic growth from the pleasant seaside town of Ramsgate in southern England.

Cummins has taken on 60 extra staff at its two factories there since mid-2003, giving a total of 410 of whom two thirds work in manufacturing.

The US multinational expects to export at least 1,500 generators to China from Ramsgate this year, compared to 400 from Minneapolis and 400 from Singapore.

Jobs bonanza

For car-crazy Luke Warburton, it has meant an engineering apprenticeship and a chance to quit his desk job as an estate agent. "I didn't enjoy the office environment," the 19-year-old says.

A roadside foodstall next to power lines in Shandong province, China

He is busy bolting together portable generator sets, typically used on construction sites.

This particular production line now turns out 18 machines a day compared to just two in December 2003.

Tony Mockett is at the other end of his working life. The 60-year-old says his job at the US multinational has enabled him to stay locally.

After four redundancies, the short journey to work was an unexpected bonus. "To go too far with the wages around this area eats up what you've got," says Tony, who originally trained as a toolmaker.

He is leaning on a newly-finished 10.5 tonner - destined for Yip Shing Diesel Engine Co, Cummin's long-standing distributor in China - which has taken him a day to build.

'Caught out'

Cummins was caught out by the surge in demand from China, whose overloaded power grid failed in 24 provinces last year.

Tony Mockett stands next to a power generator set at Cummins plant, Ramsgate
A typical emergency power pack for China's factories

Foreign firms seeking a slice of China's economic boom suddenly found their production lines stuttering to a halt.

"The typical firm we talk to is on two days a week" of blackouts, says Tony Satterthwaite, vice-president of Cummins' generator set business.

The problems persist, with little sign of the improvements in supply promised by the Chinese government.

The Sars flu outbreak of mid-2003 was one reason generator makers did not spot what was going on.

"Our people in China weren't travelling...they were hunkered down" so the crisis "just kinda hit like a freight train", says Mr Satterthwaite.

"We chased demand all year long. We're still chasing demand....You wouldn't get delivery into next year on some models", says Bob Sonntag, Cummins' vice president in charge of worldwide power generation operations.

Twin-track market

This is an industry working at the extremes of economic development, thriving on both order and chaos.

Mr Sonntag's tour of Cummins factory floor is like a trip round the world's economic hotspots and a lesson in uneven development.

Workers building a new power station in China's Shaanxi province
China's boom is sucking in steel and pushing up prices

In North America and Europe, customers often buy emergency back-up generators to comply with legal safeguards and hope never to use them.

The Cummins' generator at the Statue of Liberty, for instance.

Last year, Cummins Inc's sales totalled $8bn across its four industrial divisions. A quarter - $1.9bn - came from the power generation business, with about half of those sales made on this "mustard on the side of the plate" principle.

In the US and Europe powerful machines for data storage centres are big sellers too, since a power failure there can wreck a business in ways a blackout in a goods warehouse never could.

Crisis sales

At the other end of the spectrum, though, are customers who rely on their generators in countries where infrastructure is overstretched by rapid growth or collapsing in chaos.

"Two years ago it was Brazil, this year it's in the Middle East and in China, every year it's in India," says Tom Linebarger, president of the company's power generation business, by phone from its HQ in the American Mid-West.

Cummins has sold generators to Baghdad airport, Russian oilfields and Indian factories.

Competition is fierce in the market for extra power, with the main rivals being Caterpillar's FW Wilson or French firm SDMO.

"When we're walking in the door, they're walking out, or when we're walking out they're walking in," says Mr Sonntag.

Guessing game

And calculating where the next big opportunity will arise can prove more foolhardy than foolproof.

Like many construction firms, engineers and oilfield services groups, Cummins was expecting Iraqi reconstruction to bring a surge in demand. It stocked its Dubai warehouse, and waited. And waited.

"The rebuilding effort has been hampered, it's been slower than everybody planned," Mr Linebarger acknowledges.

Fortunately, record high oil prices created a prosperity-driven construction boom elsewhere in the Middle East, and the Cummins generators piled up in Dubai found other markets.

Sales from the Ramsgate factory "almost doubled" from 2003 to 2004, according to Mr Satterthwaite.

Although China's boom has been the strongest factor driving sales, it is pushing up the price of raw materials like steel, copper and oil, and squeezing profit margins too.

"Our whole product is nothing but a big lump of steel," says Mr Sonntag.

Steel prices more than doubled from January 2003 - when hot rolled steel was $300 a ton - to $650 a ton in January 2005.

But Mr Sonntag is looking on the bright side. The mining industry is rushing to meet demand - and it needs generators too.

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