Recent market research has predicted that the industrial gases sector will see year on year growth of 8%, with the most exciting activity occurring in emerging markets.
As we bid farewell to 2010, gasworld looks towards 2011 and beyond, turning a critical eye on the predictions and putting the analysts on the other side of the looking glass.
Just this season, The Freedonia Group published a market research report that anticipated steady annual growth for the industrial gases sector as a whole. While the news was welcomed worldwide, gasworld opted to delve deeper, seeking insider advice to substantiate the optimism before opening the bubbly.
Good news for industrial gases
The report, dubbed ‘World Industrial Gases’, offers a promising outlook. In particular the business research company predicted an annual increase of 5% in volumetric consumption and an 8% increase in overall sector value, leading to a respective $52bn and 530bn cubic metres by 2014.
This upsurge is expected to be fuelled primarily by success in emerging markets. According to Freedonia, the greatest acceleration will be seen in India and China, while other developing regions such as Central and South America, Africa and the Middle East will follow closely behind, witnessing higher than average growth.
Conversely, developed nations with efficient industrial economies will undergo far slower expansion.
A segmented breakdown is equally revealing, showing that hydrogen, metal production, electronics and healthcare will all bear weight on industry development. The increasing availability of merchant hydrogen to refiners is expected to represent the single greatest growth opportunity within the industry. This will be compounded by sector and widespread global adjustments towards cleaner burning low-sulphur fuels.
Furthermore, research predicts that the rise will be most prominent in regions that are yet to adopt environmental targets.
Indeed recent deals, such as the $450m long-term hydrogen supply agreement between Saudi Aramco and Air Liquide Arabia, indicate longevity in the commitments to both hydrogen as well as the industrial gases industry as a whole in the Middle East. Moreover, since the contract represents Air Liquide’s most sizeable industrial investment to date, we can be reassured that Tier 1 players see potential in developing regions.
The Freedonia Group also predicts that metal production and fabrication will represent 24% of overall demand for industrial gases, while constituting the second largest segment by consumption. Again, emerging markets and developing regions will incite this as their requirements for metals rise alongside burgeoning production capacities.
Geographically, research indicates that the best growth opportunities exist in China, Japan, US, Germany and India.
Even analysis of very recent events seems to support this theory.
October’s Commonwealth Games alone illustrated the readiness of countries, such as India, to invest in infrastructure and spend capital. It’s useful to note that 2010 marks the first year in which India played host to such a prestigious and structurally demanding event and only the second occasion it has been hosted in Asia. Similarly, Delhi exhibited the most expensive Commonwealth Games to date, with even reputable commentators, such as the BBC, placing overall costs in excess of $10bn.
Meanwhile, the electronics and healthcare sector is expected to ‘exhibit the most rapid market gains’, according to the publication. The former applies industrial gases as blanketing atmospheres to enable safe production, meaning that while demand increases for semiconductor, integrated circuits and photovoltaics (PV), inert gases will also experience a growing demand.
Regionally, research predicts this to affect China and Taiwan most significantly, followed by the US, Japan and South Korea. Indeed a recent surge in supply and production contracts within this field seems to justify such a regional bias. During this season alone significant contracts have been penned.
These range from Air Products’ turnkey supply agreement with an unnamed global PV manufacturer in Malaysia; to an equally forward looking project which was announced the same day – a contract between Praxair China and the Gobal Fortune 500 company, Hon Hai Precision Industry Company Ltd. Within the agreement Praxair will provide nitrogen to the company’s two electronics manufacturing plants in the Guangdong province of China.
And finally, the latter sector, healthcare will be affected by a number of factors. First of all improved medical provisions in developing regions will see the consumption of industrial gases grow exponentially. Secondly, a rapid increasing need for home healthcare respiratory therapies in advanced economies will also play its part.
And lastly, technological progression in medical imaging, surgical and related practices is also expected to augment the consumption of industrial gases.
An insider’s view
Thanks to the nature of industrial gases, the sector itself offers a unique barometer for more general global financial patterns. gasworld’s Jane Dawson caught up with North American hydrogen solution provider, Proton Energy Systems, to discuss just this.
The company is particularly well positioned to monitor and reflect financial patterns across the whole sector. John Speranza, Vice President of Global Hydrogen Product Sales, explains, “We really feel that our sales figures are a leading indicator for the industry more generally. This is because firstly, our product sales depict whether companies are investing in capital improvement and secondly, the gas that we do provide is a good indicator that OEMs (original equipment manufacturers) are buying on a commercial level.
We operate in over 60 countries and across all three continents, even in Antarctica. With our network of distribution and sales we really do have a pretty good view over the industry overall.”
Indeed, Proton Energy Systems’ sales and regional activity not only reiterated Freedonia’s predictions but almost reflected industry fluctuations at the time of the original crisis.
Speranza recalls, “Things looked very different before the economic crisis hit. It certainly slowed down business in the EU, even more than the States. If you look at our sales numbers historically, our EU sales dropped like a rock. The US was also significantly affected, but we are starting to see signs of a recovery.”
Looking forward, Speranza is full of optimism for the future of industrial gases. In particular he talks of growth opportunities in the Middle East and China, “The biggest activity level seems to be in the Middle East and China, although things seem to be picking-up again in the US. We saw this from May of this year when the number of quotations has really increased, which means that businesses are looking at making capital investments.”
Furthermore, the company reiterated report claims of a growth in electronics applications. Speranza describes, “Going out of this recession we see an uptake in PV and solar manufacturing, which all use high purity hydrogen.”
Despite the activity, Speranza is keen to point out that growth would be steady and strong rather than immediate. He advises, “These are longer term strategies for us. Although things in the Middle East have already started to show signs of success – We engaged in supply chain management and execution (SCME) over a year ago and have already sold into several projects. Progression in China is a little slower, but still exciting – we employ longer term thinking there.”
But perhaps, strong and steady growth is just what is needed. Indeed, with sustainable annual development and burgeoning emerging markets it certainly is, as John Speranza points out, “A very exciting time” for industrial gases.