UPDATE 1-Japan equipment makers see China construction recovery
* Komatsu says China March-June construction equipment demand more than expected
* China market seems to have bottomed out, rural construction approvals seen rising
* Komatsu, Hitachi Construction keep full-year profit forecasts unchanged
TOKYO, July 29 (Reuters) - Construction work in China is rapidly picking up even as the economy slows, with the world's second largest manufacturer of heavy equipment Komatsu Ltd saying on Monday it expects the worst to be over for the sector.
China's economic weakness, where growth has eased in nine of the last 10 quarters, has stoked worries about the outlook for the domestic construction sector, the global mining sector and the companies that feed the two industries.
Japan-based Komatsu, however, said the Chinese market was recovering faster than expected as the government speeds up building permits for rural areas, matching the upbeat view held by its rival, the world's biggest manufacturer of earth-moving equipment, Caterpillar Inc.
"China's market has improved from what we saw at the start of the fiscal year (in April)," Komatsu Chief Financial Officer Mikio Fujitsuka said after the company announced first-quarter earnings. "We're past the worst."
Komatsu said demand for construction equipment in China grew 10 percent on a unit volume base during the April-June period, exceeding its initial estimate of 3 to 8 percent growth.
Caterpillar, which announced its earnings last week, also said its sales in China, excluding acquisitions, were up 20 percent year-on-year in its second quarter, driven by demand for construction equipment and power system products.
"It feels like demand has bottomed out," Komatsu's Senior Executive Officer Akira Sugiki told an earnings briefing. "This indicates a substantial increase in government approvals for construction and there's a possibility of further upside ahead."
WORST IS OVER
Analysts say the Chinese government's policy to accelerate urbanisation will continue to drive long-term demand for construction equipment, as will its requirements for massive infrastructure investments.
Hitachi Construction Machinery Co Ltd, Japan's second-largest construction machinery maker, also said it expected a rebound in Chinese demand, citing higher-than-expected sales of hydraulic excavators.
"We had been conservative in our view on mid-sized and large excavators but the result was above what we were looking at," Senior Vice President Hiroshi Tokushige told an earnings briefing, referring to the Chinese market.
Hitachi Construction, which also reported first-quarter earnings on Monday, kept its full-year operating profit forecast unchanged at 83 billion yen, a gain of 61 percent from the previous year.
Komatsu also maintained its profit forecast for the year to next March at 305 billion yen, a rebound of 44 percent.
Komatsu said its overall earnings remained pressured by a drop in commodity prices that has cut demand from Indonesian and Australian coal miners, but this was cushioned by strength in its home market of Japan and North America.
China now accounts for just 8 percent of Komatsu's revenue from about one-quarter three years ago, with Japan and North America contributing 17 percent each.