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Trends & Forecasts

Forecast for U.S. Valve Industry: No Growth Expected

2016 magnifying glassFor the first time since 2009, U.S. industrial valve shipments are predicted to have almost no growth in 2016, according to the annual forecast of the Valve Manufacturers Association (VMA). VMA’s forecast indicates shipments will be up just $3 million over 2015 to be about $4.5 billion total.

“Our industry crested in 2008 at about $4 billion before taking a tumble from the recession. We’ve been slowly gaining ground ever since, but this is the first year we’re predicting little to no growth,” says VMA President Bill Sandler.

“One of the reasons for the flatness from 2014 to 2015 is that the petroleum and power industries have encountered significant downturns, which affects our overall numbers,” he adds.


Is Your Company Ready for The New Reality?

Is Your Company Ready for The New Reality 1Since August, 2015, when VMA’s 2016 Market Outlook event was held, there have been a few more bumps in the economic road for valve, actuator and control manufacturers, their suppliers, distributors and end users. In our ongoing efforts to keep readers apprised of situations that could have an impact on the valve industry, we’ve assembled a summary from recent reports and summits that may help companies prepare for the impact of lower oil and gas prices and other market influences over the next 18 months.

Oil Prices and Climate Change

According to professional services giant PwC, the third quarter of 2015 saw upstream profits wiped out after a record $22.9 billion in income a year earlier. In response, these companies are slashing outlays to the tune of an expected 30% in 2016. Wood Mackenzie reported earlier this month that U.S. oil companies have scrapped about $380 billion of projects since oil prices began declining and about $170 billion of the projects were meant to begin production in 2016-20. Worldwide, oil companies are negotiating aggressively for 10% to 30% discounts from oil-field service providers, and, according to recent company announcements more than 200,000 employees have been or soon will be let go.

While competition, a glut in supply and drop in demand are seen as the reason for the drop in prices now, PwC analysts suggest in an early 2016 report that these are not the only factors affecting the oil and gas industry. The report points to the fear of climate change and ongoing efforts to reduce CO2 emissions as concerns that will affect this industry far beyond the current cycle.

In June, 2015, G7 leaders issued a communiqué calling for the phasing out of petroleum-based energy by the end of the century. This was followed by a resolution by 200 nations at the COP21 summit in Paris agreeing to a goal of limiting global temperature increases to less than two degrees Celsius above preindustrial levels and to reach net-zero greenhouse gas emissions in the second half of the century. Basically this means there is now a collective commitment by nations to move away from fossil fuel production and consumption. What effect that will have on energy producers and their suppliers over the long term is yet to be seen.

Mergers & Acquisitions

According to another report from PwC US, mergers and acquisitions (M&A) for the last quarter of 2015 in the U.S. oil and gas industry reached the lowest levels of fourth quarter deal activity in five years. Analysts suggested that this could be because companies are operating in survival mode and saving cash to realign strategies and business models.

Joe Dunleavy of PwC is quoted as saying, “The drop in commodity prices also shut oil and gas companies out of the capital markets in the fourth quarter. Right now, the priority for many oil and gas companies is to work with lenders to revise the repayment terms of their debt agreements.”

Construction

During Industrial Info's most recent Industrial Market Outlook, held earlier this month, presenters predicted a 4.8% drop in spending for project construction starts in 2016 as project timelines are pushed back to reflect the fall in energy prices and a softer world economy.

Michael Bergen, executive vice president of analytics for Industrial Info, said the U.S. is expected to reduce crude oil production by 800,000 bpd in 2016. This will have an impact on crude oil pipeline projects as well as exploration activities. Bergen pointed out that the removal of the ban on U.S. oil exports came five years too late. "Back when we were at $100 per barrel that was probably the thing to do," he said.

Is Your Company Ready for The New Reality 2However, Bergen was optimistic about U.S. construction generally, saying that the numbers are indicative of a good market. He pointed to the fact that U.S. refiners are planning larger maintenance turnaround projects this year as the refineries have been run "pretty hard" during the past year and a half to take advantage of lucrative margins. This is especially true for the petrochemical sector, thanks in large part to low feedstock prices, and for the power industry, which is expected to continue to build natural-gas-fired power plants in addition to solar and wind projects as they replace shuttered coal-fired plants.

Canada, however, is not faring as well. In 2015 there was a 44% drop in project starts and Canada’s capital spending growth is expected to remain flat in 2016. Canadian oil producers have taken a huge hit, leading to the expectation that drilling in Canada will decline by about 15% in 2016. That could result in job losses in sectors such as transportation and equipment that supply the resource sector, and has already affected consumer spending and housing markets.

Manufacturing

The mid-January 2016 report from MAPI (Manufacturers Alliance for Productivity and Innovation) suggests that the first quarter of 016 will be challenging for U.S. manufacturers. Slowing growth in China and the implosion of the stock market there is reflected in volatility in U.S. equity markets, so manufacturing is expected to stay flat according to MAPI’s projections.

That sentiment was echoed in a recent webinar held by Modern Distribution Management, when one of the presenters said, “The world is awash in too much of nearly everything.” As a result, demand for everything is down, so industrial manufacturing is decelerating, which puts deflationary pressures on manufacturers and distributors.

The Silver Lining

While there is cause to be concerned in some sectors as 2016 begins, there is still much to be counted as positive in the economy, according to Alan Beaulieu, president of ITR Economics, who delivered the keynote at the Heating, Air-conditioning and Refrigeration Distributors International conference last month. Despite a host of concerns ranging from the economy to oil and gas, to China's instability, he told attendees to look for a turnaround in the second quarter, that all of these factors are "on the verge of improving," he says.

The U.S. GDP is still climbing, unemployment is at prerecession levels and last month the Federal Reserve raised the federal funds interest rate for the first time in nearly seven years.

In more positive news, Industrial Info Resources has reported that the meat and poultry segment in the U.S. is seeing a rise in capital expenditures for new plant construction, expansions and equipment upgrades. More than $5.17 billion in project spending is in the planning, engineering and early construction phases. Individual projects range in value from $1.4 million to $270 million.

From early 2015 to November 2015, construction had already started on projects with a combined total investment value of $1.8 billion. Forty-two new plants are being planned, including a record-breaking $270 million pork-processing plant in Iowa.

In what may be considered another positive factor, it was reported in the Russian news agency RIA Novosti and in Reuters that Nikolai Tokarev, the head of Russian state oil pipeline monopoly Transneft says talks on output cuts are planned with Saudi Arabia and OPEC.

Is Your Company Ready for The New Reality 3Tokarev said that Saudi Arabia had "taken the initiative and come out with a proposal to discuss the possibility of reducing volumes.” It’s not certain that the negotiations will be within the OPEC format, but although Tokarev is quoted in Tass as saying that the Saudis are the “main negotiators” and that Transneft expects Russian oil exports to decline in the summer of 2016.

Whether this will do anything to prop up the declining oil prices is yet to be seen, but some analysts believe it could be a positive sign.

While low oil and gas prices pose a negative drag on the economy, some are finding the positives in it, from lower transportation costs to low fuel prices keeping "full-size SUV and truck sales at high volumes," according to a plastics & rubber products executive in the ISM Report on Business.

Non-residential construction is looking good and commercial real estate loans are still positive. According to presenters at the MDM webinar, multi-family housing is currently the strongest construction sector. Companies with U.S.-centric drivers such as maintenance and construction are also healthier than manufacturing selling outside the U.S.

Prepare to Change Focus

During the MDM webinar in January, Tom Gale, publisher at MDM, pointed out that it’s important to remember that disruptive cycles aren’t new. “The impact of what’s taking place in technology, globalization, and many other areas accelerate the rate of change. But the fundamental issue… is how companies are changing their capabilities to create value for their customers in spite of what’s taking place in the local and global markets.”

While Gale was specifically addressing distributors, analysts at PwC pointed out in their reports that many companies are using the same business model that worked years ago, but that is not going to work now.

For oil producers and suppliers including valve manufacturers, that may mean preparing for a future where fossil fuels will decline in use. The PwC report suggests that opportunities for stability and growth in the energy sector may in fact be connected to adjusting the business model to accommodate more biofuels and emission-abatement technologies.

Additionally, manufacturers and distributors must be customer-centric and be able to identify more closely their customers’ purchasing and buying behavior.

Companies who invest in training and talent and adapt digital platforms and e-commerce to get ahead of the competition during the down times will have a much better recovery and be able to ride out any future disruptions more easily.

Kate Kunkel is senior editor of VALVE Magazine. Reach her at This email address is being protected from spambots. You need JavaScript enabled to view it..

Improving Control Valve Maintenance with the Industrial Internet of Things

Improving Control Valve Maintenance with the Industrial Internet of ThingsBy connecting previously stranded data from smart sensors, equipment, and other industrial assets with advanced applications and predictive analytics in the cloud, the Industrial Internet of Things (IIoT) is becoming a strategic enabler to improve manufacturing performance. Despite initial concerns, many companies now realize that, when properly implemented, internet and wireless technologies can provide appropriate security and availability of services across multiple plants and facilities. This helps further meld plant floor and enterprise systems, creating an opportunity to transform manufacturing operations through IIoT strategies.

Did You Miss Any of 2015’s Top 10 Articles?

2016It’s that time of year again, when we are treated to versions of the top 10 everything, from most-viewed cat videos on You Tube to the top 10 list of lists. Not to be left out, we at VALVE Magazine have been compiling our own list for the last few years and share the top 10 web features as chosen by you, our readers.

As in years past, technical information passed on by the many experts among our membership is popular, but so, too, are articles that provide forecasts for the valve industry. So here, in reverse order, the top 10 articles published online in 2015, as determined by you, our readers. If you haven’t yet had the chance to read them, take advantage of this list to find out what you’ve been missing! Just click on the title to get directly to the article at VALVEMagazine.com.

Countdown

Number 10 for 2015 was Solenoid Valve Technology for Upstream Oil and Gas Heating Equipment. Process heating system burners are widely used by oil and gas firms as well by as original equipment manufacturers that produce gas heating equipment or burner management systems and controls in upstream oil and gas pipelines and tanks. Low-temperature stainless-steel fuel shutoff valves are typically used for on/off control of fuel gas within these systems’ fuel trains, but this application presents challenges for valve manufacturers.

According to Bob Cadwell, Gerry Longinetti and James Chiu, a new generation of solenoid valve technology has been changing the shutoff valve game in recent years, and they shared examples of newer solenoid shutoff valve technologies are making this operation safer, more efficient and environmentally friendly.

In ninth place is Ben Wilkerson’s roadmap for designing, producing and qualifying new products to meet the needs of operators working in deeper waters, more extreme temperatures and higher pressures. Best Practices in New Product Development (NPD) offered a five-stage process similar to that used by the Department of Defense.

Best Practices in New Product Development 2

Wilkerson set out the five stages of NPD, with details including recommendations for risk analysis, technology maturation and risk reduction as well as market and production feasibility analysis.

Demonstrating the ongoing concern in the valve industry, articles that dealt with finding skilled workers were also very popular in 2015. One of those comes in at Number 8 in our top 10 list. Filling Jobs, One Woman at a Time brought attention to the fact that, while women hold about half of the jobs in the U.S. economy today, they occupy less than 25% of the STEM (science, technology, engineering and math) jobs and only about 30% of the approximately 14 million Americans who work in manufacturing are women. With the continuing spectre of a shortage of skilled workers hanging over North American manufacturers, VALVE Magazine reached out to several women who are currently involved in the industry and they shared their stories and offer encouragement to young women who might not otherwise consider a career in this field.

University of Kentucky Helps Students Prepare for Real World EngineeringStaying with the theme of finding and keeping skilled workers, our Number 7 top article for 2015 was one in which Dr. Jeffrey Seay and one of his graduate students, Maxwell Croft, filled you in on the way the University of Kentucky Helps Students Prepare for Real World Engineering. Noting that, despite their education, graduating engineers are often lacking in key areas of knowledge in instrumentation and control, which is critical in the process and manufacturing industries. To address this challenge, the University of Kentucky (UK) Paducah Extended Campus program entered into a collaborative effort with a local equipment provider to provide formalized instruction in the chemical and mechanical engineering programs.

The installation of an industrialized operating process was the missing link needed to provide a learning environment to augment the core of the engineering curriculum while fostering interaction between students and industry. Despite some challenges in establishing this joint effort, the result has been the creation of a learning environment that benefits students and local industry, and could be considered a template for other educators to work with similar equipment suppliers.

In The Case for a Severe Service Standard, Ross Water of CGIS pointed out in our Number 6 article that, at this time, no national standards exist that clearly define severe service valves (SSVs) or set them apart from general purpose valves. He argued that a recognized definition would benefit users through improved process performance and increased profitability, safety and environmental protection.

Water stressed that all valve design functions require basic information, but for those valves destined for severe service, it is imperative to have a comprehensive understanding of the factors that affect their in-service performance.

Forecasts are always popular with our readers, and this year was no exception. Coming in at Number 5 of the Top 10 web features for 2015, our Market Outlook for Distributors grabbed the attention of many among our newest VMA members in the distribution category, as well as valve manufacturers.

Based on the reports shared in a webcast hosted by Modern Distribution Management (MDM), this article provided insight into the forecasts for distributors and manufacturers of valves, actuators and controls, and their suppliers. This article was published early in 2015, and many of the prognostications have proven to be very accurate as we reach the end of the year, especially concerning mergers and acquisitions.

Number 4 in our top 10 list was coverage of The Industry Coming Together at the 2015 Valve World Americas Show. Valve manufacturers and distributors met with valve users and other professionals interested in the educational offerings at this biannual show. Among the most popular topics was VMA’s one-day Valves, Actuators & Controls 101 course attended by a largely young crowd of more than 100. Additionally, many VMA members had booths and reported the event was a good opportunity to network with customers and suppliers while catching up with colleagues in the industry.

While not necessarily glamorous nor technologically innovative, Valves in a Cement Slurry Line was third in line for the top spot in the web features published in 2015. While the technology and requirements for valves needed for producing cement have not changed drastically in the last 20 years or so, efforts to make the process more environmentally friendly continue as do efforts to make all of the valves as robust as possible. As was noted in the article, “No matter the valve, in this business they all take a beating.”

Valves in a Cement Slurry Line 2

Coming in at Number 2 for 2015 is one of our consistently highest-rated annual features: The Market Outlook. In this look forward into 2016 and beyond, the price of oil was foremost in the minds of presenters and attendees alike at VMA’s 2016 Market Outlook event held in Chicago in August. However, a few other issues also seemed to bounce off the walls and return repeatedly to the list of concerns among the assemblage. Among them: China’s current economic doldrums and the high U.S. dollar.

And Now, Drum Roll Please……….

The Number 1 Most Read Web Feature at VALVE Magazine.com, 2015…. a technical article based on a presentation by Dr. Homayoon Feiz on behalf of Asher Glaun P.E. at the 2015 Valve Manufacturers Association Technical Seminar & Exhibits. Advanced Computational Fluid Dynamics Analysis in Control Valves. CFD is used in early field issue resolution where a small section of geometry is modelled in order to test a hypothesis such as low-pressure zones around corners, minimum temperatures, impingement angles for wear studies, etc. With the advancement in CFD mathematical models and the increase in speed and capacity of desktop workstations, it has become possible to use the full mathematical modelling capability of modern commercially available CFD codes, producing full three-dimensional flow regimes and flow results.

Be sure to keep VALVEMagazine.com in your favorites tab, as we continue to keep you up to date on all-things-valves, as well as the latest technological, economic and regulatory changes that affect your business this year. If you’ve missed any of these great articles, now is the time to check them out, along with other valuable information at VALVEMagazine.com.  

The U.S. Economy: A Curve in the Road

The U.S. Economy A Curve in the RoadDr. Alan Beaulieu is a frequent presenter at VMA events, with an impressive record for accurately predicting economic developments. In a webinar early in December, Beaulieu shared what he and his team at ITR Economics foresee going into 2016 and early 2017.

Where We Are

“Don’t you get bogged down in the negative stuff going on in the world,” said Beaulieu. “Bad things are going on, but they are not having a big effect on macroeconomics in the United States. Banks are lending and there is much more money out there. There are more than $1.8 trillion in excess reserves. The world is generally making money. That includes Canada, the U.S. and Europe. Remember, a healthy Europe helps the global economy; it helps with sales opportunities for everyone here.”

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