Heat exchanger manufacturers are under fire

Price reductions, rising product lifecycles, failing margins and intensifying competition from suppliers located outside Europe are threatening European heat exchangers manufacturers

Foreign Suppliers pressurise European heat exchanger makers Price reductions, rising product lifecycles, failing margins and intensifying competition from suppliers located outside Europe are threatening the livelihood of European heat exchangers manufacturers.

A new study by market analysts Frost and Sullivan (http://frost.com) found that new competitors operating from low cost bases in countries such as India, Korea and China are threatening to increase their penetration of the European market in the future.

At present, products from these suppliers remain relatively unfamiliar to the European customer base.

However, as familiarity rises and customers come to place greater trust in their reliability, this barrier to entry may fall creating a more fiercely competitive environment and having a disproportionate impact on trends in the European heat exchangers industry, valued at $3.26 billion in 2000.

The study found low revenue growth between 1997 and 2000.

"The relatively poor performance of the market during this period was in the main attributable to the crisis in Asia.

This crisis directly affected Asian export markets and had an indirect impact on capital investment in Europe.

It also generated a severe deterioration in the oil price, which eroded profits in the refining sector, and led to lower investment in this important sector of the heat exchangers market," the study explains.

"As the ripples from the Asian crisis subside and the beneficial impact of improved European economic growth and a higher oil price take effect, revenue growth can be expected to accelerate in the short term.

Rising growth should also be prompt by higher metal prices, which are likely to prompt increases in the price of heat exchangers themselves." A combination of directives from the European Union and legislation at a national level are having a positive impact on demand for heat exchangers.

For example, the stipulation that untreated sewage may no longer be pumped directly into the sea is proving a major driver in the utilities sector, while the waste water act is also driving demand for heat exchangers used in waste water treatment applications.

Additional requirements that the dust particle content of waste gases be reduced are also stimulating demand for heat exchangers, which are needed to cool gases before particles are removed.

It is anticipated that both EU and national governments will pay increased attention to reducing energy consumption at large industrial plants in the future.

This may be expected to further stimulate demand in the heat exchangers market, promoting increased use of heat recovery systems.

Other issues driving the market forward include improvements to heat exchanger efficiency, local power generation, rising raw materials prices, and customer consolidation.

The study analysed product developments in terms of the key application areas: chemicals, fuels processing, HVAC and refrigeration, food and beverage, power generation, utilities applications, general engineering applications, and others.

In 2000, revenues derived from the chemicals sector accounted for the highest percentage (25 percent) of demand in the European market.

Demand from the chemicals sector has been relatively poor as a result of an absence of major contracts and a downturn in the investment cycle.

Frost and Sullivan forecasts further reductions in the sector's significance in the future, both as the result of a lack of new chemical plants being established and also due to more rapid growth in other application areas.

Fuels processing accounted for an estimated 15.1 percent of sales.

This sector also experienced a reduction in significance between 1997 and 2000 as investment in oil refineries faltered following the collapse in the oil price.

Conversely, heat exchanger sales to the HVAC and Refrigeration market rose to 13.4 percent of total sales in 2000 following strong growth in the commercial and industrial property markets, and rising sales of ambient air conditioning systems.

Applications in the food and beverage sector accounted for 9.8 percent of sales in 2000, power generation reached 12.8 percent, utilities 7.7 percent, general engineering 5.6 percent, and other applications 10.6 percent.

Rising sales of heat exchangers for use in utilities, power generation and air conditioning applications are likely to contribute to future growth.

The outlook for the large chemicals and fuels processing sectors is less certain.

The overall result is that in the longer term Frost and Sullivan forecasts growth should start to plateau, although total revenues should see a respectable increase, reaching $3.75 billion in 2007.

Frost and Sullivan is an international marketing consulting company that monitors a comprehensive spectrum of industrial markets for trends, market measurements and strategies.

This on-going research is utilised to complement a series of research publications to support industry participants with customised consulting needs.

Free executive summaries of all Frost and Sullivan reports are available to the press.

Report Code: 3948, Publication Date: July 2001, Price 5000 Euros.

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