- Destocking trends and consolidated end-user markets will continue to place pressure on positive displacement pump suppliers, especially those with products specialized for applications in underperforming process markets, until 2018, according to the latest analysis from IHS Markit.
- Shockwaves from upstream production cuts predictably reverberated up the supply chain and led to suppliers revising their 2017 pump sales expectations downwards. Since early 2016, growth of commodity prices and upstream business confidence has prompted a slight recovery in production, but improvements to production efficiency amid a flurry of mergers and acquisitions has resulted in fewer opportunities for competing pump suppliers.
Destocking to adversely impact process markets
- Both active and reactive destocking are forecast to hurt process markets through 2017. Recent volatility in capital spending and uncertainty regarding future demand have led to efforts among systems integrators and machine builders to reduce overhead and on-hand discrete stock.
- In addition, larger pump suppliers are increasingly providing EPC and machine builder services.
- These two trends are simultaneously driving the positive displacement pumps market to maintain supply with less lead time between orders and fulfillment, deflating sales to the intermediary market.
Operational improvements abound
- Industry analysts have noted that upstream efficiency improvements have resulted in an increase in volume output of approximately 20 percentage points, while also achieving a decrease in time of 20 percentage points.
- These trends are reducing the positive displacement pumps install base needed to maintain the current level of production. Even a quick turnaround in oil demand and prices would not likely result in an immediate recovery in pump sales, as idle equipment returns to production.
- Upstream operators in North America are shifting to new tactics to accommodate their new role as a swing producer, such as renting process machinery equipment installed on portable skids.
Mergers and acquisitions in the works
- The decline in oil prices temporarily distressed higher-cost operations in the upstream sector, but had long-lasting effects on the upstream competitive environment. This restructuring is forecast to reduce demand for capital equipment such as positive displacement pumps until 2018.
- Several acquisitions and asset sales have cannibalized the customer base for upstream pumping equipment, increasing price competitiveness among suppliers.
- The most notable merger in the oil equipment market was that of GE and Baker Hughes’s oil and gas businesses. Although positive displacement pump suppliers often specialize in specific industries, this merger represents a higher degree of vertical integration. As the market for process equipment becomes more competitive, more mergers and acquisitions are forecast to occur among equipment suppliers and service providers.