Twelve months ago we spoke bullishly about the North American industrial gas market, way out in front as the leading region in the global gases business.
Just days and weeks later, and the global economy careered through a gravel trap and straight into the crash barrier, taking much of the industry with it. Now, the race to recovery is on.
That race has perhaps got off to a better start for some economies, with the US further down the field having been so hard hit by the recession. Other countries may initially be sprinting ahead through the first corner, but from our perspective, North America still occupies the top step of the global industrial gas podium.
With a gases market valued at around $20.5bn in 2008, the region is still way out in front despite the downturn. True enough, the US was generally the worst hit by the global collapse, with a number of industries practically falling off a cliff in the process.
Yet a US gases business valued at just over $16.9bn alone in 2008 keeps driving the North America market forward and demonstrated around 9% growth last year. Impressive, in the face of such an uncertain end to 2008 as the US economy faltered.
The overall North America gases market reached a value of $20.5bn by the close of 2008, demonstrating not only a growth rate of almost 10% over 2007, but also the significance of the US gas business alone. Simply put, this makes the US one of the most important regions for global sales of industrial gases, technologies and related equipment.
It’s also a market in transition – or at the very least, weathering a storm.
In a state of flux is the US distributor market, estimated to be valued at $8bn (including the majors) and also thought to have gradually dwindled in size.
Last year gasworld asked if there was still a role for the distributor. Yes, we were told. Yet the major players, particularly a strategic thinking Airgas, continue to buy-up more and more of the smaller independent firms and perhaps distort the country’s unique multi-tiered supply channel.
While the number of US distributors was once thought to total around 1,400, this has now reduced down to a mere 900 according to some sources.
Much of the distributor business is believed to be accounted for by hardgoods, largely for welding and cutting applications. Enter the storm that requires weathering.
This section of manufacturing is estimated to have been hit hard in recent quarters, especially so as the automotive industry stalled in the face of recession and fabrication fell accordingly.
The initial tremors of decline are thought to have been experienced for hardgoods sales in the US, which could also be seen to have a knock-on effect for argon consumption, depending on your viewpoint.
Approximately 70% of argon volume in the US is used in the welding industry and so, this large volume is at risk of weakening demand. In one respect, this could be perceived as potentially re-dressing the supply-demand balance which had previously been so tight and led to high argon prices.
However, this effect may also be negated by the downturn in steel and chemical demand – with argon largely derived from oxygen production and oxygen demand having been reduced.
Oxygen itself is thought to be an uncertain marketplace in the US at present, as is fellow large revenues generator nitrogen. We’re deep in what is largely unchartered economic times and the dynamics of the market are difficult to assess during such muddied waters.
Oxygen and nitrogen are estimated to account for just over 15% each of the US industrial gas revenues, both of which have been hit by the economic crisis and drop in demand from the metals, chemicals and electronics sectors.
In contrast, still relatively buoyant is the hydrogen business. The largest gas sector in the US market at around 20% of total revenues, hydrogen demand has been largely maintained by the refinery industry – this alone had helped the North American gases business to achieve its consistent growth over recent years and remained comparatively unperturbed in the face of recession.
Similarly, the food & beverages markets helped propel the gases industry during the downturn, such is its non-cyclical nature. This, coupled with use in oil and gas recovery, enabled carbon dioxide (and dry ice) demand to remain steady.
The future of many markets in the US, such as oxygen and nitrogen for example, may depend on the depth and length of the current recession. This is a scenario that is generally applicable to the global gases business as a whole. Much will depend on the shape of things to come and perhaps crucially, the shape of recovery.
Recent weeks and months have witnessed a slight sense of optimism resurfacing in selected regions – but is this just what we want to hear?
The stock markets believe they’ve seen the lowest ebb
of the economic crash and have been giving out a relief-filled exhale.
If we are to embark on a ‘V’-shaped recovery, then the previously wheezing stock markets could be right and will soon be positively out of breath, as the recovery takes off just as sharply as the onset of recession had been.
It’s hoped that a longer, deeper and more enduring ‘U’-shaped recovery is not a prospect, though some might feel a slower re-build is better than the quick fix of the V-shaped scenario in the long term.
More likely and indeed, perhaps feared, is the ‘W’-shaped recovery. Fairly self explanatory and also known as the double-dip recession, the ‘W’ is something of a double V-shaped scenario. A steep slump is followed by an initial sharp rebound, only to collapse again before the final recovery.
Time will tell, some analysts feel we may well be in the midst of this shape of recovery. The stimulus of spending from many regional governments has perhaps disguised or masked the true path of upturn at the moment, yet this vast pumping of money has probably spared us the dreaded ‘L’-shaped rescue.
This ‘L’ shape is perhaps more akin to the cardiac monitor of a hospital ward of health centre, where the economy plummets and just flat-lines, for the foreseeable future at least.
Going forward then, a V-shaped recovery is hoped for and a W-shape is entirely possible.
But what do all these alphabet analogies really mean? And what about our gases business?
The emphasis is likely to continue with its gradual shift from West to East, as the global economic evolution develops. The US gases business, such is its huge stature, will remain big business and the largest global industrial gas market though.
Like the UK, the US is seen as one of the countries with banking systems that are struggling with liquidity – and is therefore looking at a longer period of recovery than might have been hoped for. So for the time being, a careful eye and a cautious approach should perhaps be given to the next twelve months ahead.
It’s also important to point out however, that it isn’t all doom and gloom. The industrial gases business has survived recessions effectively enough before and will continue to do so now. While some sectors are seen to suffer from cyclical environments, others emerge or come to the fore and almost offset this impact.
The first ‘green shoots of recovery’ have apparently been seen in the past few months and our own global gases business is set to show overall growth (however marginal) by the close of 2009. And we’ve already established that North America, and the US in particular, is at the heart of this market.
In tough economic times it can be challenging to see beyond the end of the working week – let alone the end of a tough financial year.
However, Spiritus Consulting sees a US gases market valued at around $17.6bn by the close of 2009. The independent industrial gas market consultancy also anticipates a Canadian market valued at $2bn and Mexico gas revenues of approx. $1.5bn.
Overall then, Spiritus is able to get past the recessionary smokescreen and envisages a North America industrial gas business totalling $21.6bn by 2009’s conclusion.
Furthermore, a CAGR of 7.6% is expected for the period 2007-2013 which could then result in a projected North American gas market valued at $29.2bn in 2013 – almost $30bn!