The issues control valve suppliers face in 2009 are very different from those they faced in 2008. In 2008, suppliers struggled to meet demand due to the robust growth occurring in developing markets, stretching their manufacturing capacities and pushing order backlogs to new highs. In stark contrast, in 2009, control valve suppliers face drops in control valve orders and declining backlogs. The worldwide market for control valves will decline over the next two years, but is expected to rebound in 2011, according to a new ARC Advisory Group (www.arcweb.com) study.
The dynamics of the global control valve market have changed dramatically as a result of the current global recession. "Over the previous four years, all of the control valve suppliers benefited from rapid growth in the market. The more aggressive companies, pursuing new business, grew even faster. With the onset of the global recession, however, control valve suppliers once again find themselves competing over a dwindling pool of opportunities. As a result, the ability to go out and acquire new business remains crucial, but holding on to the existing installed base of customers is now more important than ever for control valve suppliers," according to Senior Analyst David Clayton, the principal author of ARC’s "Control Valve Worldwide Market Outlook" report.
Perhaps the only thing standing between control valve suppliers and a precipitous decline in shipments for 2009 is their pre-existing backlogs. They began 2009 with huge backlogs amassed during the explosive growth of the past few years. Several control valve suppliers told ARC that it would take years for them to work off the backlog they had accumulated by the beginning of 2009. Although many of the leading control valve suppliers still have healthy backlogs, ARC is finding that many backlogs are quickly diminishing as growth in orders for control valves and aftermarket services continues to slow. However, due to the inherent complexity and long lead times of control valve shipments for multi-year projects, this backlog will not disappear overnight.
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. While ARC has seen a temporary reduction in demand for oil this past year and steep price declines, the long-term trend is clearly one of increasing demand amid shorter supply. In ARC's opinion, this will result in increased oil prices in the long term, increased investment in heavy oil production (such as oil sands), and increased investment in upstream oil-and-gas development and production in deep-sea fields. As of the publication of this report, prices have already started to increase. Many industry analysts expect a return to $85 a barrel oil within a year.
Developing economies such as China, India and Brazil also feel the effects of the global economic crisis, shedding many growth points compared to the extremely high growth levels experienced through 2008. The developing economies, however, 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, the Middle East and Eastern Europe, 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.