Peter Ward takes a look at the pumps and valves market
Infrastructure projects in the Middle East have been affected extensively in the areas of the region which witnessed the Arab Spring. For the pumps and valves market, this had the potential to be a major issue, but the industry is still performing well.
"The Middle East market for pumps remains stronger than several other regions of the world within those countries which have stability. Several Middle Eastern countries are currently subject going through periods of unrest and some are under political sanction at present," says Andreas Schulte, managing director, Sulzer Pumps Middle East.
The major factor behind the strength in the market is the big spending countries which have not been affected by the Arab Spring and have a number of infrastructure projects underway. Qatar is investing billions on projects to improve Doha's infrastructure, and power and energy is one of the areas it is focusing on. Other countries such as the UAE and Saudi Arabia are also seeing a large number of infrastructure projects being planned or coming online.
"The Middle East is probably the most lucrative and buoyant territory for Pump Manufacturers and continues to grow rapidly over the next 10 years. Budgets for spend in certain countries have already been approved until 2022 to support the infrastructure required to sustain and grow these countries’ economies," explains John Houston, sales & business director, Torishima Service Solutions.
"Other territories such as USA, Far East and Europe are trying to get close to the Middle East spend and growth but they are still some way back in the line," he adds.
The range of countries which are seeing strong demand for pumps and valves is wide. Different companies are reporting success in different areas. "The Iraq market is still our major hub for business and we are looking to extend our expertise to other countries in MENA by establishing business network with major oil and gas, CPI, power, water and general industries sectors," reveals Yuriy Skrynnik, strategic marketing director, The HMS Group.
Meanwhile, Sulzer Pumps explains that Saudi Arabia, Kuwait, Oman and the UAE dominate its revenue streams. For Torishima Qatar, Saudi, Kuwait and the UAE are the main sources of income from the Middle East.
The variation of projects on offer in a number of different countries in the region is part of what makes this such a vibrant and profitable industry.
"The Middle East region is still a hot spot for major oil and gas, chemical, petrochemical, and energy projects. There are still demands for pumps across the region for both green and brown field as the UAE, Iraq, Saudi and Kuwait are seeing growth in the energy, power, water and general industry sectors," says Skrynnik.
Most pump companies will see oil and gas as a major market for their products. "24% of our global sales in 2011 are in the oil and gas segment," reveals Schulte.
It is an area where Sulzer has great pride in its performance. "Sulzer Pumps success in the oil and gas industry is based on our unique ability to break through technological barriers and provide highly reliable equipment. We are engaged with our customers from concept phase through design, manufacture, testing, installation and operation. We continue to create world records in the pump business and our list of firsts is unequalled," enthuses Schulte.
"We produced the first 27 MW water injection pump and delivered the world's highest pressure water injection pump (605 bar discharge pressure) and have recently designed a new pump for even higher pressure," he adds.The firm also reports that it expects its performance in this market to stay stable at the current high level into 2013.
Another firm operating extensively in the oil and gas sector is GE, which invests in research in the area. An example is GE's integrated CO2 compressor and pump system, which delivers power savings and reduces emissions. Part of the system is GE's new DDHF CO2 pump, which enables customers to benefit from significant power savings as well as flexible performance upgrades. Based on GE's proven hydraulic design, the enhanced DDHF is a multistage centrifugal pump specially re-engineered for CO2 pumping and EOR, delivering 540 bar discharge pressure – the highest ever provided by a centrifugal pump in CO2 applications.
The challenges of the pumps and valves market in the Middle East are similar to many industries which work in this region. The Arab Spring is the first concern of many industries and there is evidence of that in the pumps and valves sector.
"Political stability in the Middle East is the major concern as it will affect CAPEX approvals as well as increasing pressure on project lead-times," reveals Skrynnik.
"Other challenges are more specific to the firm itself. Our biggest challenge and has been for last couple of years is the strength of the Japanese YEN, which has presented us a huge challenge in an already competitive market," states Houston.
"One other challenge is the fact that most of our competitors have turned to low cost countries for manufacturing of components. As it is well known, this can be false economy and detrimental to your reputation especially with the quality issues that can come out from this .In our opinion this is an area which Torishima prides itself to continue to supply quality parts from its home country in which it started to manufacture in 1919," he adds.
An issue which is affecting the whole industry is the global turmoil forcing EPC and PMC contractors to squeeze margins, an issue which really puts manufacturers of pumps and valves under pressure.
"There was an extremely aggressive squeeze on margins 2-3 years ago. Margins are still tight and EPCs want very competitive levels. Several End Users, however, are considering or actively increasing direct involvement in the vendor selection and procurement phase since some projects have suffered quality and delay issues related to uncontrolled low cost sourcing by EPC's," says Schulte.
"The ongoing global crisis and the need for business has created high competition among the EPCs which resulted in winning orders on low margins to keep them in business. This has implicated with big challenges with EPCs on OEM price levels," affirms Skrynnik.
This situation does not lessen the need for the manufacturers to work very closely with the contractors. Skrynnik explains that The HMS Group takes pride in its engagement, commitment and involvement in the early stage of projects, which enables the firm to support the consultants, EPCs and end users on establishing the best specification for their process equipments.
The outlook for this market is encouraging. Countries rebuilding following the Arab Spring are joining those countries, such as Iraq, recovering from war will provide waves of business for years to come. For this reason, those inside the industry all agree it will grow regionally, and in this respect it is ever changing.
"The Middle East Market is always evolving. The growth of finished product capability will continue to grow, new technology will be required and it is already planned. The market will continue to produce and refine 50+ years beyond market expiry in the developed nations," comments Skrynnik.
"Power generation, water and utilities, steel and mining, midstream and downstream should be mentioned especially water & utilities market looks quite promising in terms of sales growth," he adds.
Areas such as Saudi Arabia are providing strong growth currently, according to Houston and Iraq is also performing well despite its challenges. "Iraq is obviously a key growth area but remains an unstable and volatile area. Smaller companies struggle to get close to this region and it is being monopolised by the Blue Chip companies who have the spending power to cope with the high costs of security required in these regions for manpower," he states.
Houston adds that Libya will be a key growth market in the years to come. The country is currently recovering from a bloody civil war.
The pumps and valves market has been through a testing time with the economic crisis resulting in contractors tightening the screws on them and the Arab Spring affecting certain regions in the Middle East. However, reports from within the industry suggest business is still booming, with orders looking solid and a bright future on the horizon.