Back in 1929, we were given the Wall Street Crash. Fast forward 80 years and 2009 gave us the industrial gas crash.
Crash is perhaps too strong a term for the state of the global gases market last year, but after years of successive growth, the decline of 2009 was a shock to the system.
It shouldn’t have been, given the way in which industry suffered throughout virtually all corners of the world. The slump in manufacturing affected industrial gas consumption in particular, as supported by the comments of a number of gasworld’s interviewees last year.
The gases business has typically remained robust in the face of recession or global economic struggles of the past. But our industry is not removed or immune from the rest of the world and in 2009 there was little cushioning the blow, with the global gas business thought to have registered a 7-8% (10% in the worst case scenario) decline over 2008.
Cold, hard figures are not yet ready to confirm this, but early projections anticipate a gases market valued at approx. $60bn last year.
Just as there’s no escaping the role of gases throughout a wide range of industries, applications and walks of life, there’s no escaping the negative impact this coupling can have on gas consumption as a result either.
The recent financial statements of some of the major industrial gas players would appear to support the early expectations. Gas companies are keen to put a positive spin on matters where possible and place emphasis on the ‘very high’ quarters of 2008. They do of course have a point – despite the fourth quarter drop-off, 2008 was undeniably a strong year overall.
It’s also true to say that the bigger and smaller players have adapted well to the new economic environment, demonstrating strong cash flow, effective cost reduction programmes and structural efficiency gains.
Yet the decline in sales and revenues is unavoidable too. Part of that impact is attributable to lower natural gas prices around the world.
Air Products reported fourth quarter 2009 revenues of $2.129m, a decline of 22% compared to fourth quarter 2008. Underlying sales declined 7% on lower volumes in the Merchant Gases and Electronics and Performance Materials Segments, and lower pricing in Electronics and Performance Materials.
For fiscal 2009, the company’s sales of $8.256m declined 21% on lower volumes, lower energy and raw material cost pass-throughs, as well as unfavourable currency. Underlying sales fell 8%.
Sales had risen on a sequential basis though and gave oxygen to the argument that the second half of 2009 saw the onset of recovery, while Air Liquide’s Q3 2009 results echoed this point.
The French gases major declared Q3 group revenue of €2.980m, at a limited decline of 5.2% on a comparable basis against the high Q3 2008. Perhaps more importantly, the group’s Gas & Services activity registered a marked upturn in volume demand and a Q3 sales increase of more than 3% compared to Q2 2009.
Overall then, the road to recovery has been aroute well travelled in the latter half of 2009 and this momentum should carry the gas companies nicely into the expected upturn of 2010.
The noticeable declines were more profound in particular continents and regions, with North America and Western Europe understandably the worst affected.
As the largest industrial gas markets, both regions had the most to lose at the hands of faltering gas demand and crumbling economies. North American industrial gas revenues are thought to have contracted as much as $1.5bn over 2008 levels, leaving a market valued at just over $19bn, while in Western Europe it’s a similar story; revenues dropped almost $2bn compared to 2008 to ensure a West Europe gases business valued at approx. $17.8bn.
Least affected, or perhaps just the quickest to recover, were the gas markets of the North Pacific Rim, where revenues increased by approx. $1bn in 2009 and left all those in our industry in no doubt where the growth is.
Projections estimate the North Pacific Rim market to be worth around $13.5bn in 2009, representing the third largest industrial gas region and fast-growing – further growth of almost $1.2bn is expected in 2010 and by 2013, the region is anticipated to have significantly closed the gap on Western Europe.
In just three years time, we could be talking about market worth $19.3bn, compared to a Western Europe business valued at $19.9bn and a recovering North American market still out in front and worth $24.2bn.
Other marginal yet noticeable increases in 2009 were seen in the Africa and Middle East regions, up $20m and $60m against 2008 revenues respectively. This means that the African industrial gas market was valued at around $1.3bn in 2009 and the Middle East at $1.4bn.
In the twelve months ahead we can expect to see all of the globe’s regional markets register growth of some margin. While we won’t know exactly for quite some time yet, it’s thought that the next set of quarterly results will again show a sequential improvement. With growth around the world continuing throughout 2010, by 2011 we may see a return to the levels of 2008.
With the regional markets picking-up again as the year unfurls, what does this mean for the outlook of the global business as a whole? During our last global analysis, published around March 2009, gasworld remained optimistic for the year ahead.
Early estimations spoke of a possible 3-4% growth for 2009, something which had still seemed feasible up until spring last year. But when the actual figures later emerged, the reality-check of a 2009 contraction became clear. With that in mind, what can we expect going forward?
Well, you might be forgiven for thinking that there’s a lot of mixed messages coming to the fore right now. So let’s keep it simple.
Deep down, we’re looking at an industrial gas business worth around $60bn in 2009; and perhaps even $63bn in the very best case scenario.
The electronics and chemicals (including petrochemicals) sectors remained among the most resolute end-use consumers of gases in a difficult year, while revenues from manufacturing fell by a whole $1.2bn globally.
As for going forward, the news appears to be much more optimistic. Enquiries for equipment are reportedly on the increase and we have already referred to the strengthened sales recovery of latter 2009. That is expected to carry on through into 2010, where an anticipated upturn should see our industry bounce back to record a 3-4% growth rate. That would result in a global gases business valued at around $65.3bn by the year’s end – bringing us closer to those aforementioned high levels of 2008 ($66.5bn).
A further 6% growth rate is anticipated in 2011, ensuring the industry reaches a whole new high of $69.2bn. By the close of 2013, the early projections suggest, we could be looking at a gases business valued at $79.6bn.
There’s undoubtedly still more to be squeezed out of cost reduction programmes and efficiency gains, but it’s clear that our industry is robust, even during the most difficult of periods.
We’ll look back on 2009 as a tough year and a reality-check, without a doubt, yet we’ll look forward to a kinder 2010 and as a year where industrial gas growth (however marginal) returned.
Equipment - A deflated market
Worse hit than gas sales were equipment sales – suggested to have dropped as much as 20-30% in terms of the market for welding equipment in the US.
The market for welding machines is thought to have suffered the most, at more than a 30% decline, while welding peripherals and safety supplies are believed to have dropped between 15-20% in the last couple of quarters of 2009. Overall, gasworld understands, total hardgoods same store sales (in the US at least) slumped around 27% in recent quarters.
Moving on into 2010 with a spring in our step however, there’s encouraging signs ahead for the equipment companies.
Enquiries for equipment products from the gas companies are definitely increasingly, while the buoyant Asia-Pacific region (especially India and China) is driving the expected upswing.
For companies such as Chart Industries and Cryolor for example, who have strong operations in the region, this upward demand bodes well for their equipment sales.
Servomex too, as one of the leading analytical equipment manufacturers, has already been reaping the rewards of high growth and development in the Asia-Pacific region, having established its own dedicated offices in Japan, China, Taiwan and Singapore. The company has seen ‘extremely pleasing’ business in the Asia-Pacific and doubled its sales in the region in 2009 against those of 2007, gasworld understands.
Economic expansion in India and especially China is driving growth in manufacturing, infrastructure build, hydrocarbon processing and industrial gas production – all of which is both upholding and boosting equipment demand.