Flat demand stabilizes prices
By Jianfeng Pei -- Purchasing, 10/5/2000 2:00:00 AM
Pump prices have been quite stable and are expected to remain at current levels due to flat demand. But many manufacturers are facing pressure to raise prices to offset rising costs.
"Prices have been relatively stable and will remain stable because of overcapacity in the pump industry," says Stan Knecht, global marketing manager, Goulds Pumps, a subsidiary of ITT Industries based in White Plains, N.Y. "Suppliers are under strong pressure from customers who are demanding lower prices to reduce costs."
Competition also helps prevent prices from going up. "We have to keep our prices lower than large manufacturers in a bid to survive the market competition," says Tim Caldwell, marketing coordinator, Versa-Matic Pump Co., based in Export, Pa.
However, rising costs are trimming profit margins of pump manufacturers. Some may end up losing money if they can not pass on the costs to their customers. "We plan to raise our prices by 2.5%-3% this year," says Gordon Durand, division manager, Haight Pumps, based in Evansville, Wis. "This will be our first price increase in three years."
Leroy Williams, marketing manager, Sterling Fluid Systems, based in Indianapolis, Ind., expects prices to increase 1%-3% this year as manufacturers try to cover rising costs.
Flat demand
During the first half of this year, demand for pumps grew about 1%-2%. "Based on increasing project activities and higher oil and gas prices, demand is expected to increase an additional 1%-1.5% in the second half of 2000," says Knecht.
The market is flat because the industry is mature and demand from its major end users is not increasing much. "The whole pump market is expected to grow 2%-3% this year," says Caldwell.
According to research by the Freedonia Group, a market research company in Cleveland, U.S. demand for fluid handling pumps is projected to increase 4.8% per year to reach $7.4 billion in 2003. The growth is prompted by rising construction expenditures and increasing production levels in key end-user markets including chemicals and other process industries.
Centrifugal pumps will continue to be the most commonly used products because of their wide pressure and load handling capability and relatively low maintenance costs. Diaphragm pumps are expected to post the best gains of any pump type due to their safety advantages.
Process manufacturing industries are the largest market for pumps. The chemical and pharmaceutical industries constitute about one-half of the process industry demand. The electricity generation industry also offers opportunity because of the ongoing deregulation of the industry, according to Freedonia.
Consolidation continues
Supply is not a problem as overcapacity remains in the pump industry. Leadtimes range widely from two weeks to 16 weeks.
There are more than 300 pump manufacturers in the U.S. with the top seven producers controlling about 40% of the total market. Consolidation is a trend in the industry and is expected to continue in coming years.
"Major shakeout of the pump industry is expected to happen soon," says Gordon Durand of Haight Pumps. "There were huge movements toward consolidation over the past 18 months as big manufacturers were trying to globalize their businesses and cut costs."
Sterling Fluid System acquired Quantum Fabrications, based in Houston, Texas, last year. Quantum Fabrications will augment Sterling's fire pump packaging and systems-building capabilities and become part of Sterling's newly established Fire Pump Packaging Group based in Cincinnati, Ohio.
E-commerce
Most pump suppliers have Web sites to provide product information and help serve customers, but they are not selling products online. Customers still prefer traditional ways of doing business with suppliers.
"In the industrial pump market, customers have not fully embraced the idea of purchasing pumps online," says Knecht. "First actions will more likely be to purchase MRO parts online. It is not anticipated that actual transactions for pumps will occur in the short term."
Market at a glance
Demand: Flat. The market is expected to grow 2%-3% this year.
Supply: Not a problem. There is overcapacity in the industry.
Prices: Stable. Some manufacturers will increase prices by 1%-3% to cover rising costs.
Leadtimes: Ranging widely from 2-16 weeks.
Fluid handling pumps supply and demand/(million dollars)
| Item | 1998 | 2003 | 2008 | 03/98 annual growth rate |
|---|---|---|---|---|
Fluid Handling Pumps Demand |
5880 |
7425 |
9480 |
4.8 |
Process Manufacturers |
2386 |
3010 |
3880 |
4.8 |
Utilities |
1623 |
2150 |
2824 |
5.8 |
Resource Extraction Industries |
819 |
980 |
1204 |
3.7 |
Construction Sector |
267 |
325 |
400 |
4.0 |
Other Markets |
785 |
960 |
1172 |
4.1 |
Net Exports |
675 |
885 |
1175 |
5.6 |
Fluid Handling Pumps Shipments |
6555 |
8310 |
10655 |
4.9 |
Source: Freedonia Group |
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