It appears 2010 will represent the low-point for control valve shipments when we look back on the most recent global economic crisis. Although orders increased for many control valve suppliers over the course of 2010, shipments were still down on the whole. This dichotomy between increasing orders and decreasing shipments is attributable to a number of factors. Much of the growth in new orders came from new projects in developing countries. As a result of the long time-frame of new projects, there is often a lag of 6 to 12 months between a control valve supplier receiving an order and actually shipping the valve. As a result of this lag, many control valve suppliers could not fully recognize the revenues associated with their new orders received during 2010 according to a Control Valves: Five Year Market Analysis and Technology Forecast through 2015, a new ARC Advisory Group study.
Another factor contributing to the dichotomy is the fact that most control valve suppliers entered 2009 with a strong backlog of outstanding valve orders. For much of 2009, control valve suppliers were able to continue shipping valve orders and recognizing the revenues for these orders. Consequently, 2009 was not nearly as bad as one would expect from the precipitous drop-off of new valve orders. However, by the beginning of 2010, many control valve suppliers had worked their way through their pre-existing backlog and were left to depend largely on their aftermarket business for valve shipments.
“Despite the downturn in control valve shipments, the majority of suppliers enjoyed a rebound in new orders over the course of 2010, with a corresponding increase in order backlogs. Based on the growth in incoming orders for new project business, ARC expects a rebound to double-digit growth for control valve shipments to many of the ‘hot’ developing countries in 2011. ARC also expects many of the developed regions to rebound back to healthy growth in 2011 as many suppliers have seen their aftermarket business come back on-line,” according to Senior Analyst David Clayton, the principal author of the study.
Long Term Supply and Demand Issue for Oil Is Critical
The price, availability, and demand for oil remain key factors in the overall health of the global control valve market. Many major oil companies have announced plans to increase capital spending in 2011. Chevron plans to increase spending by $4.4 billion over 2010. Chevron is investing €16.8 ($22.6) billion in exploration and production activities, particularly in natural gas and LNG projects and deepwater Gulf of Mexico production. The company’s planned downstream investments are smaller, at €2.15 ($2.9) billion, but nonetheless represent a healthy expenditure. Many other large energy companies are also predicting big increases in capital spending. According to Barclay’s survey of capital expenditures in the oil & gas industry, global exploration and production spending is expected to rise 11 percent in 2011, based on the 402 companies polled. According to the survey, the biggest increases will be in regions, such as Latin America, the Middle East, and Asia. Unlike previous years, when national oil companies dominated spending, private energy companies are expected to show the greatest increase in expenditures, such as Chevron.
Oil prices continued their rapid rise until a 15 percent correction occurred in May 2011. Both IEA and OPEC forecast that demand will increase in 2011 and with the current political turmoil in the Middle East, it is a fair bet that prices will tend to stay where they are post-correction or begin to increase again as the year goes on. Higher prices also mean more investment in non-conventional energy sources, such as the tar sands. Production and capital investment in the Canadian oil sands is expected to increase substantially in 2011, as the financial justification remains even post-correction.
Demand for Additional Electric Power Generation in Emerging Countries Is Also Key
Capital spending for power generation has grown substantially in the developing countries in recent years, especially in China, with high growth in India expected in the near future. The rapid expansion of the Chinese economy, especially in manufacturing, is in some cases limited by the availability of power, so pressure to develop more generation capacity is intense. This problem is magnified in India, where unreliable power infrastructure often times affects manufacturing and has caused many companies to build their own power generation facilities, creating substantial demand from both public and private sources. Similar, but less intense pressures are being felt in other emerging economies.
Developing Economies Remain the Engine for Growth
Developing economies, such as the Middle East and China, are still the primary growth engine for the global control valve marketplace. Emerging economies, such as those in the BRIC (Brazil, Russia, India, and China) countries, and the Middle East will continue to prop up the global control valve market with increasing consumer demand from the growing global middle class, a healthy lending environment for capital investments that project solid returns, and the need for producing and saving energy to cope with rapidly rising energy demands and costs across the globe.
The Electric Power Industry in China, in particular, is investing heavily, creating a lot of opportunities for control valve suppliers. India is still investing heavily in basic infrastructure, particularly in the electric power sector. Brazil will benefit from the upcoming 2014 FIFA World Cup, and Rio de Janeiro was elected host city for the 2016 Olympic Games, both of which will require tremendous infrastructure investments in roads, buildings, facilities, water & wastewater, and power.