Modest growth for global DCS market
The DCS market experienced healthy growth between 2003 and 2004 because of deployments in China, India and other developing countries, as well as stabilization in declining hardware prices. This growth is expected to continue through at least the 2006-2007 timeframe, resulting in overall market growth of 6% between 2004 and 2009, according to a new ARC Advisory Group study, “DCS Worldwide Outlook Market Analysis and Forecast Through 2009.”
Growth in China and India is compounded by the fact that significant restructuring efforts will need to be made in the North American oil and gas along with their refining infrastructures in the wake of an unprecedented hurricane season, as well as a return to stronger, albeit moderate growth, in the previously depressed Japanese DCS market, according to the ARC report.
“After years of decline in the hardware business, increased demand and overall market growth have resulted in a resurgence in hardware growth,” said Larry O’Brien, ARC Research Director and the study’s principal author. “Hardware revenues for suppliers are expected to grow at the average annual rate of just over 4% through 2009, which is a big departure from the declines witnessed in the hardware business in recent years. Most DCS suppliers have retained key business elements of manufacturing and/or design of control hardware.”
Contributing to overall DCS market growth is increased manufacturing capacity utilization in North America and Japan, while developing economies in China and India continue to add significant amounts of capacity. Capacity utilization in the US, for example, is coming closer and closer to breaking the 80% mark, which, as a rule of thumb, should signal a capacity expansion mode, resulting in increased investment in automation. In the US, productivity (measured as output per hour of all persons) increased by more than 4% for manufacturing in the second quarter compared to the same period last year, according to ARC.
ARC views Europe as experiencing a downturn in capacity utilization, which for manufacturing is normally much higher than utilization rates in North America. The reason for this is unclear, but may be affected by increased manufacturing growth in Eastern Europe. The EU 25 New Orders Index for manufacturing has also fallen in recent months, ARC said.
Japan is experiencing a recovery in capacity utilization, with rates over 2% higher than average levels for the year 2000, marking five consecutive quarters of increase. The near term prospects for Japan continue to look favorable in light of this increased utilization as well as continued supplier reports concerning increased investment for Japanese manufacturers.
The oil and gas industry will experience the most growth in the DCS market through 2009, driven by the increased investment in oil exploration and production in Asia, Eastern Europe, the Former Soviet Union and Latin America, according to the ARC study. Investment in new production, compounded with the investment required in North America to reconstruct the damaged offshore industry, is also a major contributor to growth in this sector. Growth in refining has increased for many of the same reasons. Large, new facilities continue to be built in Asia and other developing regions, while many refineries in North America remain closed due to hurricane damage and will require substantial investment to get them back online.
The need for added refinery capacity in North America is also apparent, and hopefully recent events will result in expanded refining capacity. This is the longest period for high margins in the refining industry for more than 20 years. Added capacity in North America makes sense but oil companies are reluctant to commit capital because of regulatory burdens and anticipated environmental resistance. Canada, meanwhile, is experiencing a surge in growth for its oil sands industry that will last well into the next decade according to ARC.