Mcilvaine Insights

No. 145   September 18, 2020

Betty Tessien

Increasing Valve Profits in the Power Industry Despite the Pandemic

The market for valves for the power industry is being impacted by both the Coronavirus and wildfires. Due to the pandemic valve industry personnel are not able to communicate in person or attend power and valve exhibitions. Investment in valves by power industry purchasers will be down in 2020 due to postponement of both capital and repair projects.⁽¹⁾

The impact of the pandemic is affecting various segments differently. This includes

·       Countries: Impact on India and the U.S. will be negative while China is moving forward as planned

·       Fuel Type:  Nuclear projects are not impacted whereas renewable projects have been delayed in some countries

·       Project Type: There is progressively decreasing impact for the following categories

o   New companies will be the most impacted. Very few valves are sold to new power companies who have never purchased a valve. 

o   The market for valves for new power plants owned by existing operators is  relatively small but impacted

o   The market for replacement valves is larger and less impacted

o   The market for repairs and service is large and the least impacted

·       Valve Type:  In general there are high performance and general performance valves.  With high performance valves the decision can be made to delay replacement and instead repair them. When general performance valves fail they are normally replaced rather than repaired. So there is greater impact on the high performance valves.

The wildfires in Australia, California and elsewhere are being blamed on climate change and specifically fossil fired power generation. This has the effect of delaying gas turbine and coal fired plant projects. 

Valve companies are therefore facing several years where revenues from the power industry will not be increasing. However, profits can be increased.

Valve companies which adapt to the new ways to target prospects and communicate with them will have an advantage which can be converted to greater markets shares, margins, and  profits.

Market research has been used as a peripheral tool by valve suppliers. Now it can be the foundation of a program to successfully pursue the Most Profitable Market (MPM). There is already enough information available through media, associations, conferences and internet resources to determine the best prospects and then convince them that the supplier has a better product. Here is an approach based on customer knowledge and not sales leads.

Ninety percent of the power industry valves are purchased by less than 1000 companies. Valve suppliers can easily identify the prospects and even the processes used in each plant.

Here is an example of those coal fired plant operators with planned additions between 6000-7000 MW

With knowledge of the existing capacity at any point in time the expenditures for new valves, replacements and repairs can be made.  Here are some tabulations for East European countries.

The Coronavirus and climate change present challenges to valve companies.  Those that best meet these challenges can increase market shares, gross margins, and profits.

(1)   Valves: World Markets published by the McIlvaine Company