Has consolidation cut total cost?
By Albert Genna -- Purchasing, 3/12/1998
In recent years the water treatment industry has experienced significant consolidation, with several large suppliers buying out competitors. What has this consolidation done for buyers? Depends on whom you ask.Large suppliers and some industry observers say consolidation has reduced costs and provided buyers the option of using increasingly comprehensive full-service suppliers. Others, especially smaller regional suppliers, claim the industry shakeout has helped keep prices artificially high by stifling competition--at least to some degree.
The critical factor for buyers is knowing their true costs and exploring all available options before entering into long-term agreements with full-service suppliers. Water treatment is a natural fit within the drive toward outsourcing in industry. Since suppliers already offer water treatment management services, it is easy to see why so many companies use outside help. Many customers favor these types of full-service providers who can treat boilers, wastewater, and everything in between.
Don't look for a quick fix
Water treatment is required by almost every industrial facility, institution, and utility--in fact, in any place where water is used for cooling, power generation, processing, or waste removal. But demand in the U.S. is projected to grow only near GDP levels. Reason? Newly constructed plants often have state of the art water treatment equipment and systems in place, requiring less assistance from outside. It is older plants and facilities that need the most help.
In industrial applications, water-discharge regulations continue to become more complicated (see sidebar). Buyers often find working with suppliers can help solve complex problems. The problems of water treatment often consist of both an immediate need (to solve the problem) and a long-term goal (solve the problem well, and at the best cost). Looking for just a quick fix can cost, long term. "Generally we go in and discover what the plant needs," says Karla Doremus Tranfield, marketing manager at General Chemical. "Then we select the most cost-effective product and run it in the plant to see how well it works."
Most water treatment companies go far beyond just providing chemicals. Providing services is an increasingly significant part of the water treatment business. In fact, according to one supplier, the service side of water treatment accounts for nearly half of the water treatment purchase. And large suppliers say that outsourcing treatment services can pay off big for buyers.
"In addition to the basic application technology, we get involved with the plant operations to review critical areas in the systems where the process is in contact with water," says Lawrence Aytes, market development manager for CPI marketing at Nalco Chemical. "We have developed new methods to control chemical dosages using our Trasar control method. This process results in accurately applying the correct amount of chemical, ensuring best results and economics."
And suppliers are expecting these needs to increase. "We have found that the greatest savings we can offer in the cost of water treatment come from our ability to have a major favorable impact on our customers' total operating costs, not just on the cost of treatment chemicals by themselves," says Kevin Milici, industry marketing for the industrial division of BetzDearborn Water Management.
Most major suppliers are only pushing deeper into the full-service area. "We want to allow customers the opportunity to outsource their entire water treatment management operations, by assembling strategic alliances and building new working relationships," says Kevin Gottschalk, cooling water product manager for Ashland Chemical's Drew Industrial Div. In order to do this, Drew Industrial brings to the table both further expertise in operations and management, and water treatment equipment suppliers.
Despite the addition of comprehensive services, industry sources indicate that water treatment prices should remain relatively stable in 1998. While water treatment chemical prices did rise in 1997, the market remains unsettled from the recent flurry of large acquisitions.
Specialty products growing fast
Some water treatment chemicals are commodities such as caustic soda or soda ash. The commodity products tend to grow at a slower rate, while specialty chemicals are growing much faster.
"Aluminum sulfate is fairly mature, but the polyaluminum chloride family of products could grow as much as 15%-25%/yr due to new regulations for drinking water," says Tranfield at General Chemical. Aluminum sulfate is used as a coagulant for clarification, total organic carbon and particulate removal. Polyaluminum chloride is more of a specialty product, providing additional benefits such as more effectiveness in cold water and less-needed pH adjustment.
Often times the specialty products provide performance benefits compared with the more common commodities. Sometimes, however, they can win in price. Magnesium hydroxide, for example, competes with giants like caustic soda for use in water treatment as a neutralizer. "The economic horizon for magnesium hydroxide is very favorable," says Tom Lingle, product manager for Martin Marietta Magnesia Specialties. Although a small segment of the market, it has historically grown at 10%/yr. "It can provide cost benefits, especially when caustic soda prices are high," he says.
Water treatment buyers shouldn't have any availability problems in 1998, with forecasts for both commodity-type chemicals and specialties indicating good supply. Effluent wastewater treatment will continue to be the fastest growing part of the water treatment market, rising 6%-8%/yr. Another key area of growth is in the recycling and re-use of water, where membrane systems often are used to filter the recycling waters.
Other technologies are on the way. "Demand will grow for technologically advanced products and value-added services that will help reduce treatment costs, minimize product inventory and handling, and improve productivity. Water shortages, environmental restrictions, and other factors that increase the use of water closure also will boost demand for chemicals, since the required programs will require more intensive treatment," according to Milici of BetzDearborn.
Regionals: a flexible option
Although large national suppliers control the lion's share of the nation's industrial and municipal water treatment business, a large number of small regional suppliers are making key inroads--even into heavier industry.
Long suppliers to institutions and light industry, regional water treatment suppliers are increasingly supplying larger manufacturing operations. Regionals claim they can provide some significant advantages over national suppliers, including faster response time, stability of customer relationships, and more technical support.
Regional suppliers also often stress what they consider a higher level of technical expertise, available at a lower price. According to regionals, they have more experienced personnel and lower overhead than the giant national suppliers. "In our region, our performance is very good," claims John Baum, president of Pittsburgh-based Craft Products. "We're seeing growth of 10%-12%/yr, and the outlook is excellent."
New technologies
New technologies are always coming into play in water treatment, as suppliers offer up new developments to help meet shifting regulations and customer needs. BetzDearborn, for example, has developed a proprietary Halogen Resistant Azole (HRA). Like other azole-based corrosion inhibitors, it forms a barrier film between the metal surface and the water. Normal azoles are degraded by chlorine and bromine which are used to control microbiological growth, but this product is stable in the presence of halogens.
Nalco Chemical has introduced Stabrex, a liquid, bromine-based oxidizing biocide that is supplied active and ready to feed. This type of formulation reduces the volatility of the product, keeping most of it in the system for microbial control.
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