A ‘solid turnaround’ is just one description of business in the North American gases market in 2010. Last year, it seems, was a steady twelve months for the region.

As the overall economic situation stabilised and headed in the direction of growth, so too did the position of the industrial gases business in the region.

For an industrial gas market so largely driven by manufacturing, this was perhaps inevitable, especially for the consumer-driven US economy in particular.

Upturn
Positive manufacturing conditions are generally good news for industrial gas demand, providing a stable indicator for our industry.

Of course it stands to reason that this barometer can be skewed by different factors from time to time; for example, the outsourcing of manufacturing business to other regions may be at the detriment of expectations for certain industrial gas sectors.

This might be the case for some areas of manufacturing in the US, with some companies or industries outsourcing aspects of their operations to locations in the Asia-Pacific. This is also especially relevant right now, when considering the impact of the recent natural disaster in Japan on the global industrial production stage. In the short term, it might be expected that some manufacturing operations are disrupted as a result of the earthquake and tsunami that so affected Japan this March.

Postponed industrial production in the region could cause depleted inventories for US manufacturers, a knock-on scenario that might also be said of manufacturing in Europe.

In the long-term, global industry will no doubt recover as Japan itself recovers and seeks to repair the damage it suffered. As an even longer-term observation, it might be suggested that this disaster highlights how global supply chains can be disrupted and US manufacturers, for example, could incur unforeseen logistical/transport costs.

The question might be asked, is it possible that some of the previously outsourced manufacturing operations return to North America, therefore adding a fillip to existing gas demand in the region as a result?

In terms of the manufacturing sector in North America in 2010, the argument for a suggested upturn in the US manufacturing industry appears to have been reinforced by the financial results of several players in the gases business.

Reading Praxair Inc.’s Annual Report 2010, no less than 23% of the company’s 2010 sales by end markets was attributed to the manufacturing market. With sales for the year ended 31st December rising 13% over 2009 and almost recovering to 2008 levels, Praxair’s results reflect ‘volume growth in all geographic regions and end markets’ and, we might suggest, endorse the notion that it was a good year for North America’s manufacturing industry.

Similarly, in its 2010 Management report extract, Air Liquide also cited a strong rise in revenue in the Americas region for its Gas and Services segment, describing the ‘solid turnaround in North America, particularly in the United States’. Revenue in the Americas rose 10.3% to just over €2.7m for Gas and Services.

Dynamics
Of course, we could have been talking about a changing landscape in North America had Air Products been successful in its pursuit of fellow Tier 1 player Airgas, Inc.

If the much-publicised deal had gone through, Air Products would have gone on to become the largest industrial gas company in North America, ahead of Praxair, Inc., and could have significantly strengthened its supply chain in North America. But the deal did not go through and, instead, we are reflecting on an industrial gases market that appeared to recover relatively well in 2010.

From what we understood last year, bulk gas demand was relatively consistent, and there were signs of increased investment in capital equipment. There was also ‘some recovery’ in steel manufacturing, we learned, and the electronics industry was experiencing an overall revival in demand, supply and investment – driving demand for specialty gases and equipment. Analytical and medical gases reportedly remained steady.

All of which would seem to have since been affirmed by the financials of our industry’s major players. Air Liquide experienced a ‘solid turnaround’ in the region, as described, while Praxair – the largest industrial gas company in North America – saw its sales rise 13% over 2009.

Meanwhile in its Americas operating segment, The Linde Group’s sales in 2010 rose 15% to just over €2.2bn and for Airgas, which reportedly accounts for around 25% of the US distributor business, the company saw sales momentum building as the year unfolded – even if net sales for fiscal 2010 had fallen 11% compared to fiscal 2009. For Air Products, sales of just over $9bn increased 9% over 2009.

Equipment – An observation
Seeking to gain some perspective of the equipment business in North America, gasworld was privileged to speak with Michael A. Tarala, Sales and Marketing Manager for RegO Products and a Director of The Compressed Gas Association (CGA).

From his base in Burlington North Carolina, Tarala emphasised how rapidly responding to the immediate demands of the customer will stimulate success for those in the equipment business. He also explained the importance of the emerging markets to equipment manufacturers. RegO itself is a global supplier with operating centres in the US, Europe and Mexico and a RegO Asia subsidiary, as well as the support of 75 independent product distributors in over 50 countries.

“As our domestic industrial gas picture continues to improve beyond post-recession levels in the US,” Tarala said, “the ability to rapidly serve the market places pressure on gas producers to provide immediate solutions for growth opportunities. As continuous improvement initiatives have streamlined organisations through the global recession, those companies that are structured to react to immediate demands will prosper.”

“Equipment manufacturers such as RegO rely on a groundwork of proven industrial technologies coupled with engineering expertise in forming alliances with original equipment manufacturers and gas producers by providing excellence in product offerings and support. As the glut of existing bulk vessels has grown to record levels domestically, new tank construction has taken less of a position compared to refurbishable inventory.”

“Likewise, many producers weathered the recession storm by deferring new trailer and railcar production and relied on ad hoc maintenance as a means of controlling budgets.”

Tarala added, “Emerging global markets continue to present an exciting opportunity for major gas producers with infrastructure development proceeding at logarithmic speed. In support of their efforts, major equipment manufacturers have invested millions in facilities offshore to offset importation and freight costs. Global opportunities leverage industry experience against vast responsibility in the hands of management located thousands of miles away from the home office.”

“Technology has enabled companies to provide service levels that were not possible in the past and by leveraging leading edge manufacturing, equipment companies can reduce overheads and invest in equipment that provides adequate return on investment.”

“As industry professionals recognise the quality over price-point equation, it is critical to maintain a high level of repeatability of product that adheres to manufacturing tolerances in order to adhere to global specifications and provide longevity in the field.”

Looking ahead, Tarala described, “As the industrial gas market has expanded through emerging markets, producers will continue to rely on time proven products from premier suppliers.”

“As the global segment continues to expand, those companies who successfully innovate and prudently invest will maintain dominance.”

Steady
Continuing to look ahead, we observe that 2010 was a steady year for the industrial gases business in North America, a market that appears set to show further growth in 2011 as the economic recovery gathers pace.

Quite how strong that growth will be this year is difficult to predict, with North America and Western Europe likely to see a much more gradual upward curve than the developing economies of Asia, for example.

Praxair and Air Products both appeared optimistic in their respective 2010 Annual Reports. Describing its 2011 outlook, Air Products predicts that ‘the gradual economic recovery will continue and that manufacturing will be the leading sector in the recovery’.

The company anticipated global manufacturing growth of 3-4% in 2011, adding that it expects volume growth to be the key factor in driving earnings improvement in 2011 and its Tonnage Gases Division is expected to benefit from the full-year loading of the 2010 new plant start-ups and several investments due to come on-stream in 2011.

Praxair sees a modest but steady economic recovery and notes that the energy sector continues to be a major source of growth, generated primarily by hydrogen demand for oil refining.

Steve Angel, Chairman, President & CEO, said in his Chairman’s Letter (Praxair Annual Report 2010), “Looking ahead, I believe Praxair is in its best position ever. In the US, Canada and Europe, where we anticipate modest but steady economic recovery, our continued focus on operational discipline will help generate earnings growth that exceeds underlying economic performance.”