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Process Industries Weather the Storm

June 24, 2009
But we’re still a way from smooth sailing, say ARC analysts.

Process industry automation growth was robust in 2007 driven by large investments in manufacturing and infrastructure industries. Automation expenditures in the process industries reached $45.5 billion dollars in 2007, and are forecasted to exceed $61 billion by 2012. Emerging economies, such as those in Brazil, Russia, India, China, the Middle East and Eastern Europe, helped propel this growth 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. Growth in emerging Asia remained exceptionally strong in the first half of 2007. The regional expansion was led by China, where real GDP grew robustly as exports and investments accelerated, and by India, where gains in domestic demand, particularly investments, underpinned strong growth. 

However, during the last quarter of 2007, the economic landscape changed quickly. In fact, through most of 2008 and into 2009, the global economy has been hampered by the deepening crisis in financial markets, major corrections in housing markets in a number of advanced economies, volatile commodity prices, weak consumer confidence, rising unemployment rates and decreasing demand across nearly all industries. Going forward, the market will not continue to grow at levels seen in 2007 or 2008. “The economic recession has had a substantial impact on the overall market and significant challenges remain for process manufacturers and automation suppliers alike,” according to analyst Joseph Gillespie the principle author of ARC’s “Automation Expenditures for Process Industries Worldwide Outlook.”

In the ARCwire report for the week of May 22, ARC analyst Allen Avery expands on this prediction. He says, “The economic downturn has finally made a significant impact on the revenues of major process automation suppliers. Sales numbers for suppliers have contracted sharply. As the order backlogs that sustained project activity begin to dry up, the double-digit revenue increases we have seen over the past few years have given way to double-digit declines. However, there are signs that we may have seen the worst of the economic crisis. Supplier revenues are traditionally a lagging economic indicator; it may be that the industry has already suffered the worst.”

The process industries are suffering less than discrete industries during this downturn because the process markets do not rely as heavily on consumer expenditures, says the Gillespie report. Many governments have also allocated billions of dollars in economic stimulus that focus on rebuilding, retrofitting and developing new infrastructure projects. This money is expected to benefit the process industries more than discrete or hybrid industries, which may mean that process industries will be some of the first to emerge from the recession.

Automation expenditures in the process industries are expected to exceed $61 billion by 2012.

Asia and Middle East Greenfield Growth

Regionally, suppliers can expect to see the largest growth in the Middle East, due to its high concentration of oil and gas activities, and in Asia, where investment in new plant construction in core sectors remains steady. In the mature North American and Western European markets, suppliers will rely on replacement business. Latin America will see above average growth due to Brazil’s expanding ethanol industry and recent offshore oil discoveries, but will remain a relatively small market for process automation suppliers.

Upgrading industrial infrastructure in North America, will provide growth opportunities as well, says the report. In recent years, after several high profile accidents, the decaying infrastructure in the United States has become a primary issue for local and federal governments all across the country. Much of the infrastructure in the U.S. is over half a century old, and ARC estimates that there is $65 billion worth of process automation systems that are nearing the end of their useful life.