The rotating equipment industry is undergoing some significant and possibly long lasting changes. While large, well established companies from the West are restructuring and cutting costs to cope with declining revenue, their smaller, lesser known competitors from the East are growing steadily and looking to expand their operations.
Many manufacturers of rotating equipment were heavily reliant on revenue from the Oil & Gas sector. When the price of oil dropped by more than 50% in 2014, from over $100 per barrel at the beginning of the year to less than $50 by December, there was a significant knock on effect, resulting in billions of dollars of lost revenue.
Several industries were badly affected but perhaps none more so than the pump industry. Pumps are synonymous with Oil & Gas and the pump industry has always been susceptible to fluctuations in the price of oil.
The chart below tracks the annual revenue of three major pump companies against the average price of oil over the past 5 years.
We can see that Flowserve annual revenues have dropped by $1.3bn while Weir’s performance closely tracks the oil price. Sulzer follows the same pattern, although the effect is reduced as Sulzer is more diversified, focussing more heavily on other industries, such as water and wastewater.
All of these companies, along with other key players like KSB and ITT Goulds, have attempted to drastically reduce operating expenses by closing facilities and reducing headcount. While effective in the short term, this leaves gaps in their knowledge and capabilities which will only serve to slow down the recovery process.
Conversely, smaller pump manufacturers from China, Korea, India and Japan have been showing steady growth over the past 5 years and are now looking to take on their major European and American competitors on their own turf.
So what does the future look like?
With no signs that the price of oil is likely to rise any time soon, rotating equipment manufacturers need to diversify, focussing more on industrial processes, mining, construction, water and waste management. The strongest growth in these markets is expected in Asia Pacific, largely due to rapid industrial development and urbanisation in China and India.
Asia Pacific is expected to make up over 40% of global trade in these industries over the next 5-10 years, with a compound annual growth rate (CAGR) of 5-7%.
With the big players getting smaller, the playing field is more level and these markets are wide open. The key to success will be the ability to support customers locally and keep their equipment running.