Rising demand, prices forecast for 2000
By Staff -- Purchasing, 2/10/2000
The industrial gas market continues to experience volatility, competition and producer consolidation. Prices are beginning to cycle up due mainly to rising energy costs and improving demand.Analysts predict solid demand growth for the next few years.
"The global market for industrial gases is forecast to grow 5%/yr to exceed $40 billion by 2004," says Roger Shamel, president of Consulting Resources Group, an industrial market analysis and consulting firm located in Lexington, Mass.
Industrial gases are primarily used in chemical processing, petroleum refining, and metals industries. Nitrogen and oxygen account for the lion's share of industrial gas demand. These gases can be recovered by cryogenic or non-cryogenic air separation processes.
Growth is also expected for specialty gases. Argon, neon, krypton, xenon and other specialty gases, while produced in lower volumes than the commodity chemicals, carry higher price tags. Despite their low volume, analysts say specialty gases will make the strongest demand gains in the industry over the next few years. Reasons for this include rising production costs and increased demand for these gases in the electronics, medical and metallurgical industries.
Market consultants at Frost & Sullivan, based in Mountain View, Calif., predict that demand growth for specialty gases will exceed 7%/yr through 2005.
Prices climb
The consensus among analysts is that industrial gas prices are on the rise. According to data from the Bureau of Labor Statistics (BLS), the producer price index for a market basket of industrial gases climbed 1.5 points in 1999, to an average 154.3 from 152.8 in 1998.
Indexes for individual industrial gases increased accordingly in 1999. The index for carbon dioxide reached 151.5 points in 1999, up 3.4 points from the 1998 average (147.9). The index for oxygen climbed 1.9 points in 1999 to 168.9 points, up from 167 points on average in 1998. Also, the nitrogen index rose 1.8 points from 95.1 in 1998 to average 96.9 in 1999.
Supplier news
Currently, the main players in the U.S. industrial gas market include Praxair Corp., Air Products and Chemicals, Air Liquide and BOC Gases. But this is subject to change.
In July 1999, Air Products and Chemicals and Air Liquide made a bid to acquire BOC Gases, the number-three player in the global market. If the deal goes through, it will still be subject to approval by the European Commission and U.S. Federal Trade Commission. And while the European Commission has given its authorization (based on certain conditions, including the divestiture of some Air Liquide and Air Products and Chemicals European locations), results are not yet final.
Another trend in the industry involves a shift in the mode of supply toward providing on-site (non-cryogenic) industrial gas production plants. While merchant gas continues to be a viable mode of supply for industrial gas, all the major gas suppliers are building non-cryogenic production plants for former merchant customers. Though this mode of supply isn't for everyone--non-cryogenic technologies don't fit customers with large-volume or high-purity requirements--on-site production can provide significant cost savings for both producers and customers by eliminating large portions of transportation and delivery costs, according to one producer.
Analysts expect to see continued growth in this mode of supply in coming years.
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