The price of oil continues to ricochet with every market twinge and political riposte, generally maintaining a downward trend at present.
The first weeks of 2016 saw oil prices reach a new nadir of late as they fell to below $30 per barrel in early January – it’s lowest value since 2004. Concerns over both fresh Iranian supplies and continued turmoil in Chinese demand drove US crude down even further, compounding the drastic slide throughout last year.
The US Energy Information Administration’s (EIA) Short-Term Energy Outlook (STEO) released on 12th January, which is the first STEO to include projections for 2017, forecasts the sluggish scenario in oil prices to continue. It projects that Brent crude oil prices will average $40 per barrel in 2016 and $50 per barrel in 2017.
Such modest expectations are hardly likely to warm the hearts of those affected by the current slump. But are they really that surprising?
The EIA recognises that there is still high uncertainty in the crude oil price outlook. Indeed, a single decisive political play between OPEC and Russia, an oil and gas powerhouse in its own right, for example, could set oil prices on an upward curve again. Despite its acknowledgement of the market’s uncertainty, however, the EIA still expects prices to remain low as supply continues to outpace demand in 2016 and more crude is placed into storage. These fundamentals will not be resolved overnight; many expect a glut of oil supply through to the end of 2016 at best.
Uncertainty in the investment climate will not rapidly dissipate either. Oil price volatility has understandably been creating headaches for company strategies, with widespread effects.
An extended recovery period for crude oil prices would have dramatic implications for the global petrochemical industry, gasworld understands, creating a more competitive environment for naphtha producers, for example. There are also more immediate setbacks to plants and projects, as witnessed across the globe before now.
Such effects have already been cited by The Linde Group, tempering its medium-term targets for 2017 due to ‘substantially changed overall conditions’ compared to October 2014 when the targets were originally defined.
At a time when two major areas of application for the industrial gases business – oil and gas and the steel sector – are seemingly in crisis, there is much optimism to be derived from today’s electronics market.
SEMI President and CEO Denny McGuirk described the semiconductor industry’s ‘wild ride’ in 2015, having negotiated an ultimately flat year and a wave of M&A activity that swept across the supply chain unlike any single year before.
The year got off to an optimistic start, with double-digit growth expectations and a good pace observed in both the first quarter and first half timeframes. But as the industry has matured, semiconductor equipment and materials growth rates are ever more tightly correlated to shifts in global GDP and, therefore, the second half of 2015 saw a declining book-to-bill activity and a slowdown in performance. The year is expected to have ended flat or slightly negative.
Though nearly flat, the numbers are still impressive, with a healthy $37.3bn in annual revenue for semiconductor manufacturing equipment and $43.6bn for semiconductor materials (SEMI).
“…what we are seeing now is a move towards a much more stable semiconductor sector; less cyclical and not so prone to boom or bust. All of which can only be good news for the industrial and specialty gases business”
Far from being a wild ride, there’s almost a serenity in the semiconductor space today compared to the maelstrom of challenges facing basic commodities like oil and steel. There’s a notable calm and stability in this market in recent years.
Since the financial crisis of 2009, the markets for electronics, chips and semiconductor equipment and materials have been much more stable year-to-year than in the years prior to 2009, says McGuirk. These segments are also more synchronised compared to years gone by.
The electronics industry will always be linked to consumer demand and increasingly GDP, so will never be truly non-cyclical in the sense that healthcare or food and beverages are. By its very nature, healthcare is indispensable; however deeply engrained in our culture today, smartphones and other electronic devices are simply not in the same bracket.
But what we are seeing now is a move towards a much more stable semiconductor sector; less cyclical and not so prone to boom or bust. All of which can only be good news for the industrial and specialty gases business.
Further still, we’re seeing an electronics business that’s increasingly following a model of interdependence, crying out for a more collaborative supply chain – and potentially placing ever-increasing demands on electronics materials suppliers.
Semiconductor manufacturers already depend on a complex supply chain of equipment and materials, which must keep up with their complex technical requirements. From silane and ammonia to helium and nitrogen trifluoride, and an array of other electronics materials in-between, the gas industry must also keep pace with these changes and offer the right gases, with the right specifications and a robust supply chain.
Helium usage alone has expanded significantly in the last decade; electronics usage traditionally represented less than 1% of total global demand for helium, but today that figure stands at more than 15% as the gas’ unique properties are required to keep up with the demands of smaller transistor dimensions below 100 nanometers.
Now, a different strand of evolution is emerging in the electronics business. Last year’s unprecedented volume of M&A activity – valued at more than $125bn – will permanently change the semiconductor supply chain, according to SEMI. Consolidation raises expectations for technology, product performance, application development, speed and support. The stakes are high, and SEMI members have an increased need for ‘a newly drawn pre-competitive collaboration model’ along the supply chain.
This collaboration and interdependence will accelerate in 2016, requiring rapid and innovative development and delivery from sub-suppliers throughout the chain. What positive demands might this place on electronics specialty gases supply?
The Industry’s Wild Ride in 2015, SEMI blog