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Trends & Forecasts

Equipment as a Service: Extending the Subscription Model to Industrial Equipment

Equipment as a Service (EaaS) is a relatively new concept similar to the widely used Software as a Service (Saas). SaaS allows customers to use cloud-based software on a subscription basis. A very familiar example of the subscription concept is the variety of consumer entertainment subscription services, such as Netflix, where one can watch a movie or tv show or listen to music at any time without having to own it.

EaaS is different from leasing equipment, said Guneet Bedi, chief revenue officer at Relayr, a co-presenter of a webinar on the topic. Besides providing the equipment, the supplier monitors and maintains or repairs the equipment on an ongoing basis in order to keep it in top operating condition and to maximize up time for the customer.

2020 Market Outlook for Mining and Commercial Construction

At this year’s VMA Market Outlook Workshop, Aug. 8-9, 2019 in San Diego, economists and industry experts presented their take on the position of the U.S. and global economies, as well as specific markets of interest to valve manufacturers. Here are summaries of the outlook for mining and commercial construction. See the outlook for other markets in the Fall 2019 issue of VALVE Magazine.



Given that most things that are manufactured start with raw materials taken from the earth, “mining is vital to the future we envision,” said Douglas Anderson, partner at PwC. “How could we build [products] without mining?”

Anderson offered an industry review and outlook based on 40 mining companies that are the largest by market capitalization.

Gold, copper, iron ore and coal represent 72% of revenues among those companies, he explained. The proportion of revenue each of those commodities brings in has remained relatively steady for the last decade and a half (Figure 1).

Figure1 Mining commodity mix

Other minerals of interest include platinum, palladium, molybdenum and the rare earth elements. Today, rare earths are required for many high-tech products, including the batteries and high-strength magnets used in hybrid and electric vehicles. Rare earth elements come mainly from China, but the Mountain Pass mine in California, which is currently under development, is also a source.


Mining revenue increased from 2017 to 2018 by 8%, rising by $51 billion to $683 billion for that year. It should increase again in 2019, Anderson said. The bottom line in mining is improving because operational improvements and reduced costs are offsetting increased expenses such as freight. Overall, capital expenditures across the market were up in 2018 over 2017, though they are currently running below the 5-year average, Anderson said—48% of capital expenditure covers ongoing projects, while the rest is for new projects.

“Miners are generally careful with their capital,” Anderson said. He anticipated a modest increase for 2019, but said there is room for further growth, he said. The exception seems to be among coal-mining companies.

Activity in mergers and acquisitions for the mining industry has picked up, which Anderson said was: “a good sign of a healthy industry.” He cited some recent multi-billion-dollar deals including a Chinese company’s acquisition of 24% of a Chilean lithium mine and two global mining giants’ sale of a stake in one of the largest copper mines to Indonesia’s state mining company.

As for gold, Anderson noted that during uncertain times, people like to hold this precious metal as an investment. Recently, gold prices have been high and trending up. After $7 billion in gold transactions in 2018, the gold business had already showed $14 billion in transactions year to date (2019) at the time of the Market Outlook Workshop. Capital expenditure in gold mining held steady from 2017 to 2018.


Though financial performance for mining companies is strong, stock prices and market capitalization do not reflect this strength. “There’s a gap between financial returns and market value,” Anderson said. He suggested one reason is that the public and investors see mining as an unsafe industry due to disasters such as the 2019 collapse of an iron ore tailing dam in Brazil. “We need the market and the public to regain trust,” he said. One possible solution is technology, which could reduce the number of workers at risk in the mines.

Another factor that reflects poorly on mining is global climate change because of coal’s bad reputation among those seeking to reduce carbon dioxide emissions. He suggested mining companies adopt greenhouse gas reduction initiatives similar to what oil companies have done.

Anderson proposed that this is a good time for mining companies “to engage with those who benefit from their work,” which would be not just investors, but the general public.


  • The commodity revenue mix appears stable among the top 40 mining companies for selected major commodities (coal, iron ore, gold, copper).
  • Mining profits appear likely to increase by about 15% for 2019.
  • Capital expenditures should be up modestly for 2019.

Commercial Construction


Jay Bowman, managing director at FMI Corporation, had a mostly positive outlook for commercial construction in this country. He pointed out that, for the next couple of years, indicators are for the GDP to continue to grow. Also, consumer confidence remains high right now and corporate earnings have surpassed expectations. Unemployment remains below the Federal Reserve’s target. There is no expected increase in the federal funds rate, which means financing for projects should continue to be affordable. All of this is good news for the commercial construction industry, though the industry suffers from one major pressure: lack of skilled labor.


Bowman said he sees quite a few changes in the markets served by commercial construction. For example, fewer segments are spending more money. Three segments make up half the forecast spending for 2019–2023: education at $523 billion, retail and restaurants at $454 billion, and office building at $384 billion (Figure 2). The next three sectors are manufacturing ($346 billion), transportation ($314 billion) and health care ($224 billion). Those six sectors are forecast to account for 82% of the market during the five years 2019-2023.

Figure2 Construction ThreeSegments

A few specific trends include:

Education: Many of the expected projects are in higher education, with colleges and universities building facilities to attract a shrinking number of students, a trend Bowman said he found troubling because of falling enrollments and rising tuitions.

Office buildings: Bowman saw a change in the kinds of office space being built. For example, a greater portion are being built as or reconfigured into co-working spaces.

Commercial: The need for distribution centers is growing, as is the need for data centers.

Manufacturing: In the pharmaceutical industry, biologics are replacing small-molecule drugs. The process for making biologicals is much more complex, so makers of these drugs need to upscale by expanding their footprint or building new facilities.

Transportation: Spending in 2018 was over $50 billion. Projects were not as much for highways as airports, mass transportation and marine ports.


Bowman said megaprojects (those with budgets of $1 billion or more) are growing in size and frequency. The annual value of megaproject starts in the U.S. increased from 3% of total U.S. project starts in 2013 to approximately 33% in 2018, he said. In the U.S., 320 megaprojects have been awarded since 2012, representing $718 billion in investment and another 674 are in the planning stages. Megaproject spending is projected to increase about 600% over the next decade, Bowman said.

Data centers for companies such Amazon and Microsoft account for much of the growth in megaprojects. They can run to a million square feet or more, with budgets of more than $1 billion each. Bowman said the economics on the client side look like this: A client spends $1 on construction, $8 on equipment and achieves a 300% return on investment. Data center construction looks like it will grow at about 11% CAGR over the next 5 years.

Figure3 Construction ShrinkingSchedules

Shorter construction schedules have become a trend for nonresidential projects. Between 2007 and 2019 the average construction schedule for nonresidential projects has fallen considerably. During that time, the average schedule for projects valued at $25 million or more went from 34.5 months to 21.4 months, a reduction of 38%. Meanwhile, projects valued over $250 million reduced their average schedule from 72.6 months to 40.7 months, down 44% (Figure 3).


  • Commercial construction continues but in an uneven manner. It should grow, but at a slower rate, for the next two years.
  • Activity will continue to concentrate in fewer markets. Changes in composition are as important as changes in volume.
  • Data center construction looks like it will grow about 11% CAGR over the next 5 years.
  • Projects will continue to trend bigger and faster. Megaprojects will become more prevalent.

This email address is being protected from spambots. You need JavaScript enabled to view it. is web editor of VALVE Magazine.

AWWA: 2019 State of the Water Industry

Water industry professionals reported increased optimism about the current health of their industry in a recent report from the American Water Works Association (AWWA). Respondents rated the state of the industry at 4.85 on a scale of 1 to 7, up from 4.47 in the 2018 report and 4.34 in 2017. The trend had been downward for the previous 14 years and has now turned clearly up.

Since 2004, the AWWA has conducted annual surveys to discover the challenges and concerns of water professionals, how these are being addressed and what the trends are in the water/wastewater industry. The recent survey closed in October 2018, after collecting the responses of 2,048 water industry professionals. The State of the Water Industry Report presents the findings.


Table 1 shows the overall ranking of the top 20 issues affecting the water/wastewater industry, based on survey responses. “Renewal and replacement of aging water and wastewater infrastructure” has been number one for the past five years, with “Financing for capital improvements” number two, overall. The ratings on other issues have changed over time. In particular the following challenges moved up in the ranking and gained higher “critical” ratings:

  • Groundwater management and overuse (2018: 15th/26% critical; 2019: 7th/34% critical)
  • Compliance with future regulations (2018: 16th/21% critical; 2019: 13th/29% critical)
  • Water conservation/efficiency (2018: 21st/25% critical; 2019: 16th/30% critical)

table 1

The importance of issues is different for small utilities. Medium, large and extra-large utilities shared the same top 5 concerns (though in differing order). Small utilities’ top five concerns were different:

  • Watershed/source water protection
  • Water rights
  • Water conservation/efficiency
  • Public understanding of the value of water systems and services
  • Improving customer, constituent and community relationships


Respondents agreed the water/wastewater infrastructure needed renewal and replacement. The survey inquired further about the challenges involved. Infrastructure reliability, access to funding, justifying cost to ratepayers and oversight bodies, and maintaining levels of service showed up at the top of the list. Each system has its needs, of course, but the U.S. Environmental Protection Agency’s drinking water infrastructure needs survey showed $472.5 billion will be necessary to maintain and improve the drinking water infrastructure over the next 20 years.


Utilities always need to look ahead to figure out how to supply water needs in the future. When asked how prepared their utility is to meet long-term needs, 55% of respondents said they were fully or very prepared, while 4% indicated their utility was not at all prepared. Utilities use a variety of approaches to help maintain their water supply.

Mandatory or voluntary restrictions: A gauge of short-term water availability is how often a utility imposed water-use restrictions in the past decade. Among participants at utilities, 53% indicated they had zero or one year of voluntary restriction during that time and 65% reported zero or one year of mandatory. On the high end, 13% reported five or more years of voluntary restrictions and 10% reported five or more years of mandatory restrictions.

Desalinating brackish groundwater: Where salt or brackish water is available, some utilities perform desalination to augment their water supply. Three percent of utility respondents said their utility has fully implemented desalination of brackish groundwater. Another 2% reported desalination projects in development and 3% were considering desalination. Most of the utilities that desalinate brackish groundwater are in California, Florida and Virginia, the report stated.

Desalinating sea water: Three percent of utility respondents work for utilities that are currently desalinating sea water. One percent reported desalination projects in development and 2% say their utility is considering it. Most utilities using seawater desalination are in California, Texas, and Virginia.

Wastewater reuse: Indirect potable reuse is used to add to the water supply in 5% of utilities surveyed, while 6% have a project in development and 10% are considering it. Direct potable reuse has been implemented in 2% of the surveyed utilities. An additional 4% have a process under development and 7% are considering it.

Stormwater capture and reuse: Of the utility responses in this area, 2% are already reusing stormwater and 6% are considering this process.


With possible threats such as extreme weather events, wildfires and economic instability, utilities that provide critical services such as water are preparing for emergencies. A community risk and resilience assessment helps show where a utility is at risk. Survey respondents reported the status of their assessments.

 table 2

America’s Water Infrastructure Act of 2018 (AWIA) was signed into law in 2018. The law acknowledges the effects of extreme weather, such as hurricane Harvey, and requires water utilities to complete an emergency response plan and update it every five years.


AWWA added cybersecurity to the survey to assess its prevalence in this industry. Not surprisingly, very large utilities experienced more cybersecurity events than smaller ones (Table 3).

table 3

“The threat is clear […] that data breaches are prevalent across all sectors,” said Kevin Morley, AWWA’s manager of federal relations, quoted in the report. “It is essential that water systems make cybersecurity a top priority to protect against harm to public health and safety, damage from service interruptions, lost data, compromised systems, litigation, recovery costs and reputational harm.”

The report covers many other areas, including affordability for customers, specifics about water quality, public-private partnerships, and financing for infrastructure renewal and replacement. Altogether, though the industry faces major challenges, those surveyed who work in the industry have a positive outlook.

This email address is being protected from spambots. You need JavaScript enabled to view it. is web editor of VALVE Magazine.


2019 State of the Water Industry survey participants

Of the 2,048 respondents:

  • 55% work for water utilities
  • 15% work for consulting firms or are consultants, providing technical and engineering services to the water industry
  • 30% have industry association as service providers, academics, scientists, members of regulatory bodies or industry retirees.

The 943 utility respondents represented all sizes of water utilities

  • Small (0 - 3,300 connections) 17%
  • Medium (3,301 - 10,000 connections) 16%
  • Large (10,001 - 100,000 connections) 40%
  • Very Large (100,001+ connections) 26%


Speakers Share Market Outlook for the Rest of 2019, 2020 and Beyond

Members attending the VMA Market Outlook Workshop, August 8-9 in San Diego, received good news and bad news about markets important to the valve industry, as well as recent overall economic conditions domestic and worldwide. One piece of good news the speakers had: they don’t project a recession for 2019, nor is it likely in 2020.

MDM Mid-Year Economic Update: Slowing Growth for 2019

valves ready for distributionThough 2018 represented a strong year of revenue growth in most sectors, the second half of 2019 will likely show a downshift. This would result in an overall economic slowdown for the year, according to Brian Lewandowski, associate director of the business research division of the Leeds School of Business at University of Colorado Boulder. Lewandowski presented a mid-year economic update for Modern Distribution Management (MDM), an information business providing resources to the wholesale distribution industry. He is a research partner with MDM.

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