Steady market continues to add services

By Staff -- Purchasing, 2/8/2001

The industrial gases market is characterized by steady demand growth and fairly stable pricing, due to the market's wide variety of end uses. And the impact of tough competition in the U.S. market generally keeps a lid on price volatility. In general, demand and pricing trends seen in the second half of last year should continue through the first half of 2001.

With increased pressure on buyers to reduce costs wherever they can from the supply chain, producers continue to add services to their product offering. In many cases, producers are now handling every phase of buyers' industrial gas needs from large-scale to smaller-scale generation plants located on the customer's site, to delivering merchant gas on demand, to developing extra services, which often involve far more than the on-time delivery of industrial gas at a reasonable price.

Market update

The current market for industrial gases is mostly quiet, save for some upward pricing, which has come as a result of higher energy costs. Because more than half of the cost to produce nitrogen, hydrogen and other industrial gases used in the CPI comes directly from energy costs, prices have trended up with natural gas and crude oil pricing. Merchant-market gas is doubly impacted due to the added costs of transportation and logistics, as opposed to on-site services.

In terms of demand for the global market, analysts predict annual growth of about 5%/yr to total more than $40 billion by 2004. However, this estimate may be a little optimistic. Economic conditions in the U.S., (as well as in most other regions of the world) are expected to slow this year, which could put a damper on industrial gas buying.

In terms of pricing, several indexes compiled from data collected by the U.S. Department of Labor's Bureau of Labor Statistics' Producer Price Index (PPI) show price movement over the past three years for several related markets (see chart).

In general, industrial gas pricing has been fairly stable in recent years, showing gradual increases with good growth of the U.S. economy. However, for some industrial gas markets the reverse was true. Pricing in these markets seems to have declined about as much as other industrial gas markets have increased.

According to PPI data, the price index for all industrial gases has increased steadily from an annual average of 152.8 index points in 1998, to 154.5 points in 1999 and an average of 157.4 points last year.

Prices for liquid natural gas (merchant market) have also increased gradually. The BLS index shows an annual increase from 167 points in 1998 to 168.1 in 1999. The liquid index then jumped to 168.8 points on average for 2000.

Other industrial gas markets that followed this gradual upward price trend include nitrogen, which is used in high volumes in chemical processing, and carbon dioxide.

But for the oxygen market, the index shows a slight downward price trend. According to BLS data, the oxygen index slipped from an annual average of 112.3 points in 1998, to about 111.7 points the following year. Last year the oxygen index fell another 1.1 index points to 110.6.

The "other industrial gases" category also showed downward price movement. From a peak of almost 198 index points during the second quarter of 1998, the index fell to an annual average of 191.3 in 1999. Last year, pricing for these chemicals saw some rebuilding as the index increased to 191.8.

Primary industrial gas markets include chemical processing, petroleum fuel refining and reformulating, electronics and semiconductor industries, and in the production of metals. Nitrogen and oxygen are by far the highest volume industrial gases sold in the U.S. market. Other more specialized gases, such as argon, xenon, krypton and neon, are produced in lower volumes, but due to their specialized nature, carry significantly higher price tags.

While many smaller producers exist in the domestic industrial gas market, the primary market players include Air Products and Chemicals Inc., Lehigh Valley, Pa.; Air Liquide, based in Houston, Texas; BOC Gases, in Murray Hill, N.J.; and Praxair Corp., Danbury, Conn.

Expanded services

In order to attract buyers, industrial gas producers continue to develop their services. This is in line with a trend among suppliers to get away from simply producing and delivering merchant gas, and instead providing total solutions for industrial gas buyers, customized to the specific needs of their plant.

"Industrial gas companies want to be viewed more as 'service providers,'" says Roger Shamel, president of Consulting Resources Corp., an industrial market research firm based in Lexington, Mass. "They're trying to develop themselves into all-service companies, which includes engineering services, consulting, inventory management, helping to manage other chemical supplies, etc. They're going beyond just producing industrial gases," he says.

For example, BOC Gases has made an agreement with Advanced Biological Services, (ABS), an environmental services consulting firm that would provide BOC with access to the company's wastewater treatment and auditing systems.

BOC's wastewater auditing services now include biomass validity assessments, aeration efficiency studies, sludge dewatering evaluations and overall pollution prevention assessments.

Air Liquide has developed its DATAL process control systems, which are designed to assist the company in customizing its service offering to the specific requirements of the customers' operation. Using tank telemetry and flow and pressure monitoring, the system can configure customers' systems to allow for billing in their own metrics. Also, DATAL allows the company to break its total costs into per-unit costs, which allow customers to determine product price levels based on their operations. "We're constantly asking ourselves what the customer needs and how we can package solutions to their needs to add value to their operations," says Kathy Donovan, director of services at Air Liquide.

Air Products and Chemicals is partnering with Quantum Global Technologies, LLC to provide a tool-parts cleaning service to customers operating in the global semiconductor manufacturing market.

Air Products and Chemicals also offers its APEX services, which are designed to provide petrochemical and refining customers with hydrogen and nitrogen gas supply under short-term or emergency conditions, such as during plant start ups, peak demand periods, pipeline displacements, or due to planned or unplanned outages.