Competition keeps prices stable

By Jianfeng Pei -- Purchasing, 9/7/2000

Prices for valves and fittings are expected to remain stable in coming months. Meanwhile, demand will slow down a little bit as the economy heads toward a soft landing with interest rate hikes.

During the first half of the year, prices were quite stable, and they will remain at the current level for the rest of the year, according to suppliers.

"In spite of the rising cost in fuel, prices for valves will hold steady in the second half of the year," says Brett Babbitt, product marketing manager, Tyco Valves and Controls, Houston, Texas. He expects price increases to be lower than the inflation rate in coming years.

George Allen, vice president, Lexair Inc., Lexington, Ky., sees no major price hikes in the near future. "If there are some price increases, they are no more than 2% to 3%," he says.

Competition is the major reason to keep prices steady. It is difficult for suppliers to raise prices as they try to gain market shares. Cheap imports from other countries also help prevent prices from going up.

Demand slowing down

Last year was a record year for valve manufacturers. The market remains very strong in the first half of the year, but suppliers expect the demand to slow down during the second half.

"The increase in interest rates will slow the whole economy, especially the construction industry, which will affect demand for valves," says John Gannon, vice president in administration, Watts Industries, North Andover, Mass.

The presidential election is also an uncertain factor for the economy. "Many customers hold back their buying before the election," says Allen of Lexair.

For the whole year, Babbitt of Tyco expects the demand to grow less than 5%. "The market is witnessing a small upward trend," he says.

According to the Freedonia Group, a market research firm in Cleveland, U.S. demand for industrial valves will increase by 5.5% annually to reach $13.3 billion in 2004. Process manufacturing industries will remain the largest end user of valves due to their sophisticated flow requirements.

Standard valves will continue to dominate U.S. shipments because of their versatility and price advantages over automatic types. Quarterturn valves, specifically certain ball and high-performance butterfly types, will experience the fastest growth in this segment.

Shipments of automatic valves will also exhibit solid growth due to the continuing automation of process industries, say analysts from Freedonia.

Steel and steel alloys will remain the dominant primary valve construction materials. Plastics and other materials will also experience growth due to the development of improved products that can withstand more rigorous applications.

E-commerce

E-commerce is still a new concept to valve suppliers. "We just started the process to develop e-commerce," says Gannon of Watts. "It is too early to tell how e-commerce will affect the industry."

Allen of Lexair says his company has no plans to do business online any time soon. "We follow our customers," he says. "None of our customers have asked to do business online."

Tyco is more aggressive in developing e-commerce. It has set up an e-commerce department to take charge of its Web site. "We are very positive about the future of e-commerce," says Babbitt. "We expect about 15% to 25% of our business will be done online in two years."

Market at a glance