Global DCS market to grow 6% annually through 2009

BUOYED MOSTLY by growth in developing countries, such as China and India, and slowing declines in hardware prices, the distributed control system (DCS) market experienced healthy growth in 2003-04, which is expected to continue through 2006-07, states ARC Advisory Group. These factors will likely result in overall market growth of 6% per year from approximately $10.7 billion in 2004 to approximately $14.1 billion in 2009, according to ARC’s new “DCS Worldwide Outlook” study.

ARC adds that the influence of growth in China and India is compounded by the fact that North America’s oil and gas and refining infrastructure needs restructuring following 2005’s unprecedented hurricane season, not to mention a return to stronger, though moderate growth in the previously depressed Japanese DCS market.

“After years of decline in the hardware business, increased demand and overall market growth is reinvigorating hardware’s growth. Hardware revenues for suppliers are expected to grow at the average annual rate of just over 4% through 2009, which is a big departure from the declines witnessed in the hardware business in recent years,” says Larry O’Brien, ARC’s research director and the study’s main author. “Most DCS suppliers have retained key business elements of manufacturing and/or design of control hardware.”

Process Capacity Use Increases
ARC explains that increasing manufacturing capacity utilization in North America and Japan is contributing to overall DCS market growth, while developing economies in China and India also are adding capacity. For example, capacity utilization in the U.S. is approaching 80%, which typically signals capacity expansion and increased investment in automation. Productivity in the U.S., which is measured as output per hour of all persons, increased by more than 4% for manufacturing in 2005’s second quarter (2Q05) compared to the same period last year.

Meanwhile, Europe is experiencing a downturn in capacity use, which for manufacturing is normally much higher than utilization rates in North America. The reason for this is unclear, ARC states, but it may be affected by increased manufacturing growth in Eastern Europe. The EU 25 New Orders Index for manufacturing has also fallen in recent months.

In addition, Japan is experiencing a recovery in manufacturing capacity use, with rates over 2% higher than average levels for the year 2000, as well as five consecutive increasing quarters. This recovery and continued supplier reports of increased investment for Japanese manufacturers means Japan’s near-term prospects also continue to look favorable.

Oil and Gas Lead Growth
ARC adds the oil and gas industry will experience the most growth in the DCS market through 2009, driven by increased investment in oil exploration and production in Asia, Eastern Europe, the former Soviet Union and Latin America. New investments in production and refining, as well as spending to rebuild North America’s damaged offshore facilities, are the major contributors to growth in this sector. ARC says it hopes recent events will result in expanded North American refining capacity. Though this is the longest period for high margins in the refining industry in 20 years and adding capacity in North America makes sense, oil companies reportedly remain reluctant to commit capital because of regulatory burdens and anticipated environmental resistance. Meanwhile, Canada is experiencing a surge in growth for its oil sands industry, which will last well into the next decade.

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