Market Insight

Aftermath of the global oil crisis: What opportunities can centrifugal pump suppliers expect?

December 08, 2017

Joanne Goh Joanne Goh Analyst, Electric Motor Systems & Capital Equipment

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The latest Centrifugal Pumps Database from IHS Markit shows that the global centrifugal pump market was worth $25.8 billion in 2016, down 3.4% from 2015. The market is forecast to grow to $32 billion at a 4.1% compound annual growth rate (CAGR) in terms of revenue from 2016 to 2021; unfortunately, the market will not reach 2014 revenue levels.

 

 

 

 

 

 

 

 

 

Centrifugal pump demand from the oil and gas sector has plummeted, but that could be changing soon.

The drop in oil prices have had a negative impact on centrifugal pump demand in the oil and gas sector. New project announcements for both the upstream and downstream industries were down 20-25% in 2016 from 2015, and project-detailed design activity in engineering, procurement, and construction (EPC) firms was low. With significantly decreased order activity, the average selling prices (ASP) for all types of equipment used in the oil and gas industry declined sharply, including the ASP of centrifugal pumps, which are estimated to have declined by approximately 10.7% from 2015.

The centrifugal pump market in oil and gas applications has continued to decline in 2017, with the forecast for revenues down 8% from 2016. Despite a significant recent recovery of oil prices from a low point in January 2016 to the fourth quarter of 2017, OPEC is unlikely to remain above $60/bbl for a significant period of time, and IHS Markit expects the price to remain below $60/bbl in 2018. Investor confidence has not fully recovered; therefore, the demand for centrifugal pumps in the oil and gas market remains subdued. IHS Markit forecasts a slight growth of about 1% for centrifugal pump revenues in 2018.

On the other hand, onshore upstream capital expenditure (CapEx) is expected to increase by 16% at the end of 2017, leading to stronger upside in demand for centrifugal pumps in this application. IHS Markit forecasts that the centrifugal pump market in onshore upstream applications will have the fastest growth among other oil and gas processes, with revenue growth of 5.1% in 2018.

Urbanization and population growth counterbalance the drastic decline in heavy industries.

While centrifugal pump demand in many regions and industries declined, high-performing markets such as commercial HVAC, domestic, and municipal water and wastewater sectors were able to offset the losses in 2016, counterbalancing the drastic decline in oil and gas from recent years.

The commercial HVAC market for centrifugal pumps is forecast to expand more quickly than other industries. Growth of the centrifugal pump market in the commercial HVAC sector will grow the fastest in the Asia-Pacific region. Within Asia-Pacific, the Philippines and Vietnam are expected to be the fastest growing country markets in both 2017 and 2018 as a result of rapid expansion in technology and manufacturing sectors. The EMEA region will experience an increase in commercial building construction, spearheaded by Qatar and its preparations for the upcoming World Cup, as well as an initiative to diversify its economy. Furthermore, rapid urbanization and infrastructure development in the Middle East continue to increase expectations for pumping systems, as taller buildings and increased electricity and clean water demand drive consumer demand.

In the municipal water and waste water section, growth opportunities are mainly in emerging countries, driven by rapid growth in industrialization, despite the lingering financial and global economic crisis in many regions. The same goes for the centrifugal pump market in the food and beverage sector; developing markets in Asia-Pacific continue to be the backbone of market growth. Urbanization and the growing number of restaurants, restaurant chains, and fast food centers, along with the increased number of food processing facilities, create increased opportunities for centrifugal pumps in food and beverage on a global level.

 

 

 

 

 

 

 

 

 

Competitive environment

There have been significant changes to the competitive environment in this market. The oil and gas industry collapsed towards the end of 2014, which led to revenue declines for several major pump suppliers that are heavily exposed to the energy sectors. Sulzer, ITT, and Flowserve have lost market share to companies that are less affected by the same factors. Meanwhile, manufacturers that rely on the commercial and domestic markets gained market share as a result of these industries outperforming the overall average.

Supply to the centrifugal pump market was highly fragmented in 2016. However, the centrifugal pump market is consolidating as merger and acquisition activity has shaped the market substantially over the past few years. IHS Markit observes an increasing trend of mergers and acquisitions with larger centrifugal pump companies able to acquire smaller companies due to strong competition and fluctuating commodity prices, which are difficult for the smaller companies to cope with.

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