Tumbling stock markets, a credit crunch, accelerating inflation, fears over recession and something of a gold rush – the global economy has perhaps not been so uncertain for some time. Less precarious, is the blossoming global gases industry.
The industrial gas community has been progressing at an incredible rate as the core markets demonstrate steady growth and emerging regions continue to push towards the forefront of the industry.
Demanding sectors such as the steel industry, chemicals and petrochemicals, glass, healthcare and manufacturing all represent sizeable drivers for gases growth. So much so, that the industry grew by an impressive 10% overall in 2006 and is estimated to have achieved a similarly robust 10% again in 2007 to reach a revenues value of approximately $58bn.
So far in 2008 gasworld has explored several of the key industries providing the drive for industrial gases, with the chemicals business perhaps showing one of the greatest degrees of demand. From an end-user profile perspective, the manufacturing industry has traditionally paved the way for gases exigency and in 2006 accounted for 29% of the global gases market, closely followed by the chemical sector at 20%.
While year-on-year growth of approximately 4% had been expected in 2007 and recent estimations from the Spiritus Group suggest that this could well be correct, the chemicals crunch is looming and a combination of oversupply and rising feedstock prices pose doubts at the back of the minds of many industry insiders. Time will ultimately tell if there is to be a fragile period after all, but according to the European chemicals industry association (CEFIC) the worldwide chemicals industry turned over an estimated €2.3 trillion in 2006 – with 80% of this output deriving from the EU, Asia and the US.
These are indeed the key players in the industry, with the EU accounting for around 28% of the world turnover and growth for both the production and sales of chemicals in China, India and the Middle East among the highest anywhere in the world. This is naturally driving gas demand around the globe and North America appears to be a region where this could blossom further in the future. As recently as March it had been reported that the Chemical Processing Industry (CPI) of North America had continued to show progress amid the wave of hesitation arising from a slowing domestic economy. The industrial gases segment of the CPI has consistently shown its strength in recent years and been one of the most profitable segments of the industry – set to be sustained by the continued expansion of US petroleum refineries demanding greater quantities of oxygen and hydrogen to increase capacities.
Equally optimistic it seems, is the fluorochemicals market. Heavy demand for refrigeration products as well as a number of other factors, is believed to be driving a revenue growth in this sector, with the world fluorochemicals market expected to register a moderate compounded annual growth rate of around 2.7%. North America and Europe dominate this market and capture over 65% of volume sales, while the Asia-Pacific region appears promising as it shows a 5.9% growth rate.
A hive of activity in the busy North Pacific Rim, the electronics industry appears to be prospering at present and pushing the drive for gases around the world. Representing a healthy 7% of the global gases demand in 2006 and estimated to have increased by 7% last year, opportunities continue to increase across the Far East and early forecasts predict this trend of 7% rise to carry on annually through to 2011 as China, Japan and Taiwan step forward and obtain a higher rate of the global production.
Likely to be a key growth market over the next 5-year period, back in July/August 2007 Air Liquide announced investment of $15m in a state-of-the-art Electronics Material Centre (EMC) in the Shanghai area, focusing on electronics specialty gases (ESG). Speaking at the time of this announcement, Vice President Electronics of Air Liquide Christophe Fontaine commented, “Over the past years, this investment will prove to be a reliable operational support for our customers in China and Asia, able to offer very competitive materials.”
Air Liquide is also to launch a large scale silane unit in Japan, in association with the Denka Group. Expected to be operational by 2010, the initiative is seen as further proof of the group’s investment in this industry, while Air Products is to expand production at its plants in the busy electronics markets of Schulfkill County and Korea. The company’s production of the gas will increase 28% to 3,200 tpy, while in Korea it will double production at its Ulsan plant to 1,000 tpy.
The Linde Group has also been busy reinforcing its presence in the glowing electronics industry, as it tied-up a number of multi-year contracts to supply high purity gases to China’s wafer fabrication plants. Having made a series of major investments in the semiconductor manufacturing industry, the group is contracted to supply wafer fabs located in Chengdu, Shanghai and Suzhou.
The electronics industry is clearly aglow and goading gas demand, with the semiconductor industry alone thought to have grown by around 30% for the past 5 years. Showa Denko K.K, a leading company involved in the production and supply of specialty gases and high grade ammonia gas, typified the boom in this industry and the region itself as it declared an 11.6% increase in its consolidated operating income for 2007.
Accounting for 13% of the global gas market in 2006, the healthcare and homecare sector provides a diverse requirement for gases and still has room for increased investment.
Long term investment in industries can often be unpredictable but the healthcare sector offers considerable margin for improvement in several areas and numerous regions. An industry dominated by both the North American and Western Europe markets, demand is expected to pick-up in Eastern Europe too.
Cryogenmash’s Vadim Mikhalkevich describes, “Medicine and healthcare service have far and wide moved to the procedure of choosing a supplier on a tender basis. Medical organisations are financed completely. The compulsory medical insurance system is being operated. In this connection, we expect a considerable increase in demand for homecare services in the short run.”
While there seems to be financial storm clouds across the globe at present, the industrial gas business remains unaffected and looks to be performing prominently. Regional revenue rises continue to illustrate the promising position of the industry as openings continue to arise and persistent progress is made throughout.
Developed gases markets such as Western Europe and North America exhibit strong growth and build upon their solid platforms, while emerging markets such as Eastern Europe and the Middle East develop at a pace of real velocity.
Coupled with the perpetual and balanced growth in other regions such as South America, the North and South Pacific Rim(s) and the African continent, and the global outlook looks very promising ahead. Early estimations suggest that a growth in revenues of around 7-8% could be expected for both 2007 and 2008, while the compounded annual growth rate (CAGR) across the globe for the period 2006-2011 is estimated to stand at a vigorous 8.3%. Perhaps unsurprisingly, the industries that are predicted to feed this growing appetite the greatest are chemicals, refining, metallurgy, and electronics peaking at a CAGR of 10.5%.
The Middle East is in fact a region of much gases potential and though is only thought to account for around 2% of the industrial gas market, prospects are believed to be here in abundance with estimations from Linde and the Spiritus Group that growth rates of 20% could be expected in the region.
Predominantly packaged gas-led (65% business share), the Middle East is thriving with fresh opportunities and areas for development as high oil prices change the investment climate and the number of air separation plant projects significantly rises.
Qatar is thought to represent a real investment window for the LNG industry too, as this takes hold and the output of associated natural gas condensates also increases. Qatar is indeed a fast-expanding economy with GDP growth expected to achieve 14.3% in 2008, 13.5% in 2009 and a rate that has consistently been around 10% for 7 years.
Eastern Europe continues to showcase its potential and room for investment in the future as its gases market boasted revenues of around $2bn in 2006 – a rise of 18% for the year – and is expected to see a CAGR of a generous 10.7% for the period 2006-2011, one of the highest forecasted of all the regions.
Central Eastern Europe (CEE) countries are the driving force as the region ushers to the forefront of the industry and catches the eye of all concerned. Cryogenmash is possibly the most prominent name among the Eastern Europe players, as it sustains a growing reputation and keeps-up the progression.
Speaking of this potential and the territories in which the company is most actively engaged (notably Russia, Ukraine and Belarus), Vadim Mikhalkevich, Deputy General Director of Technical and Medical Gases Production and Sales for Cryogenmash, comments, “In recent years, these countries’ economies have a strong advancing trend. At economic growth rate of 5-8% per year, the gas market growth is forecasted to be not less than 10-12% per year.”
Mikhalkevich continued, “…considering its scope and expansion rate, one may state that in the next 10 years this market will be on the upswing and will demand large volumes of investment.”
Grasys, one of the largest and most reputable companies in the field of gas separation, would seem to concur with this positive outlook for the region as Marketing Director Eugene A. Elansky comments, “By our estimates, the growth of the industrial gases and gas equipment market in Eastern Europe and, inter alia, in the post-soviet environment is bound to continue in the near term. We expect the annual growth rate may be sustained at 20-25% per year up to 2010.”
Noting the growth in the region and the drivers for this, Elansky added, “In Eastern Europe, a considerable growth of the industrial gases and gas equipment market is driven by wear and tear of existing, mostly cryogenic, air separation plants originating from the economic stagnation period. At that business-unfriendly time, manufacture of equipment for nitrogen, oxygen and argon production was practically stopped. However, in recent years the situation has changed dramatically and customers are facing the new problem of finding themselves on a waiting list with orders for nitrogen and oxygen equipment.”
Economic growth shows no sign of relaxing in the Asian market either, as its gases industry witnessed a steady increase of 12% in 2006 to reach revenues of $645m.
Widely regarded as another rapidly emerging market for the gases industry, Asia is largely led by the flourishing Indian industry – a country that it is thought could become the 5th or 6th largest gas market over the next 20 years. A CAGR of 11.5% from 2006-2011 is second only to Africa and appears to confirm the level of optimism for the Asia region.
The African industrial gases market continues to show exemplary growth so far, as developing economies and infrastructures drive gas applications. Having grown by an impressive 15% in 2006, revenues in Africa appear to affirm the potential that the region upholds – if a collection of challenges are met and resources addressed. Overcoming these obstacles will be key to the market’s projected push forward, with the Spiritus Group estimating a CAGR of 15.2% for the region for the five-year period of 2006-2011 and gasworld highlighting the challenges ahead courtesy of its first-ever African Conference this summer.
South Africa accounts for around 40% of the total market in the continent and is perhaps the country of most fervent activity. Dominated by Air Products and Afrox, Southern African activity is the subject of much offshore oil and gas industry exploration. Addressing the CO2 demand could also be seen as an arising window of opportunity to be explored and will be critical to the smooth progression of the soft drinks carbonation business, while the proposed takeover of Carbacid Investment by The Linde Group’s BOC Kenya could tighten up the CO2 market – if a conclusion is finally brought to the protracted acquisition.
The bustling business of the North Pacific Rim shows perpetual increases and a glowing gases potential, evidence of strong demand from the electronics and semiconductor industries, where high purity and specialty gases are of significant supply. Down Under, in the South Pacific Rim, opportunities are bountiful as there is still much room for ideas and investment. This is still a relatively under-developed gases market which represents a burgeoning region of promise and demonstrates steady revenue rises accordingly, with CAGR of 9.5% estimated for 2006 through to 2011.
North America and Western Europe, as featured in last month’s issue, both continue to build on their developed infrastructures and consistently stimulating revenue rises – perhaps reflective of the overall industry performance.
Throughout the world it seems the industrial gas market faces a number of challenges and some rough terrain to negotiate in certain regions, though still displays increasing revenues across the board. This was perhaps typified by the recent financial results of the US’ Praxair, as the company achieved a 13% increase in sales growth in 2007 and attributed this to strong performances in every geographic region from new business and new plant start-ups.