Water Market Insights No

Water Market Insights
No. 4 May 15, 2012

WELCOME

The following insights can be sent to you periodically. This alert contains the details on the upcoming hot topic hour and breaking news. This is one of a number of free services. You can sign up for any of these newsletters and of course request to be removed from the mailing list at any time. See registration following the newsletter.

· Decisive Classification is an Important New Tool in Air, Water and Energy

· Encourage the selection of lowest life cycle cost products rather than those with lowest initial cost

The Decisive Classification system is being developed by the McIlvaine Company and is accessible free of charge in the Global Decisions Orchard website.

All decisions are a sequence of classifications. The more relevant the classifications, the better the decision. In the increasingly international world it is also important that classifications be precise and that this precision is conveyed in the appropriate languages of which Chinese and English are the two most important.

The system is designed to assist purchasers in finding the right products in the air, water and energy sectors. But it is also equally useful to suppliers, researchers and even investors.

The purchaser typically starts with classifying his application. McIlvaine has adopted the U.S. NAICS code system but with decisive additions.

Click Here	Application Sequencing
z	211111 - Crude Petroleum and Natural Gas Extraction	Oil Shale
z	211111 - Crude Petroleum and Natural Gas Extraction	Shale Gas 页岩气
z	211111 - Crude Petroleum and Natural Gas Extraction	Shale Oil

In this case McIlvaine has chosen to separate oil shale from shale oil. The reason is that they are two completely different applications. Shale oil can be extracted with hydraulic fracturing because it is a liquid. Oil shale must be heated in-situ or mined in order to process the solid kerogens.

Classification of products is by market share rather than by theory. A decade ago dissolved oxygen monitors were based on either galvanic or polarographic methods. Then optical instruments gained popularity. This created three categories. Today optical instruments are dominant, so the first classification should now be optical or electrochemical. This classification is very valuable to the searcher because it indicates that it is more important to decide between optical and electrochemical than between specific electrochemical approaches. A new development in this field uses nanotechnology. Therefore, the classifications are likely to change again.

The classification sequence includes applications, processes, products, goals, tasks and supplier companies. A process could be water treatment. The goals could be safety or air quality. One of the big problems with identifying supplier companies is the multiple names in Chinese and English. This is overcome by a system whereby every company is identified by a number. The corporate name in Chinese and English is linked to the number as is the precise subsidiary name.

Tasks and products are identified in a parent–child system. Here is an example for catalyst maintenance for a power plant selective catalytic reduction system:

Parent	Descriptor	Chinese Descriptor	Definition
Catalyst Maintenance	Cleaning Catalyst	催化剂除灰	A dry process that utilizes vacuum and compressed air to mechanically remove as much of the flyash accumulation as possible.
Catalyst Maintenance	Regeneration Catalyst	催化剂再生	“Catalyst cleaning” followed by a wet chemical process to remove decay compounds plus re-impregnation of the catalytic compound(s).
Catalyst Maintenance	Rejuvenation Catalyst	催化剂复原	“Catalyst cleaning” followed by a wet chemical process to remove some decay compounds with minimum removal of catalytic compound(s). There is no re-impregnation of the catalytic compound(s).

The value of this classification to Chinese power plant operators is substantial. They have just recently installed their first DeNO_x systems and do not have the maintenance experience to be familiar with the options. A system which clarifies that there are three main options is therefore very helpful.

The McIlvaine Company will continue to develop the system and is seeking input from associations, governments and corporations. A niche expert network is also being established to ensure that the classifications reflect the world’s knowledge.

For more information, click on: Global Decisions Orchard or contact the McIlvaine Company at editor@mcilvainecompany.com 847 784 0012.

The present world market for chemicals to combat air pollutants is $13.8 billion but will be growing at a healthy eight percent per year over the next five years. The larger ($24 billion) water treatment chemicals market will be growing by six percent per yr (real dollars). These are the latest findings by McIlvaine Company through extracting forecasts from a number of its market reports.

Presently, lime, limestone and ammonia are the chemicals most used for air pollution control. However, the use of other chemicals will be growing at double-digit rates. In the U.S. this segment presently generates $1 billion in revenues. It includes activated carbon, sodium products, bromine, potassium permanganate, hydrogen peroxide, sulfuric acid, amines and certain other chemicals. These chemicals are used for mercury, acid gas, volatile organic compounds, odor, CO₂ and microbial capture or destruction.

The U.S. market for activated carbon for air pollution promises to be twice as big as the market in water pollution which is presently 400 million pounds per year. Norit, Calgon Carbon, Albemarle and a joint venture involving ADA-ES are the major players. Bromine is competing with activated carbon. Chemtura, Albemarle and ICl are spearheading the U.S. effort.

FMC has formed an environmental group to supply air pollution, water pollution and remediation products. Hydrogen peroxide is being promoted for NO_x control FMC, Tata Chemicals and Church & Dwight have formed Natronix to offer various sodium products for SO₃ and SO₂ capture. Potassium permanganate is used for odor control. Amines are used for CO₂ and SO₂ capture.

Lime usage in the U.S. is 20 million tons with revenues of $2 billion. Environmental uses are seven million tons but with the average price of $150/ton generate revenues of $1 billion. Air applications now account for 80 percent of the total environmental revenues. Lhoist, Carmeuse, Graymont and Mississippi Lime are quite active in the U.S. market. The Chinese market for lime is presently 180 million tons with less than two percent used for air pollution control, but there will be double-digit annual growth over the next five years.

Dry injection for HCl control will boost lime sales in the U.S. Another potential is the use in inhibited oxidation wet SO₂ removal systems. The resultant calcium sulfite sludge can be fixed with excess lime and encapsulate toxic metals. This eliminates the need for expensive wastewater treatment. Limestone will continue to be the most utilized reagent for SO₂ capture. The largest growth will be in China in the next decade.

Ammonia is used in various forms (anhydrous and aqueous). A popular alternative is the purchase of urea and on-site conversion to ammonia. A huge NO_x control program is underway in China. A preference for the urea to ammonia approach has been indicated.

The $24 billion water and wastewater chemicals market will grow at levels well above GDP in the next five years, but its pace will be slower than air. One reason is that non-chemical technologies such as Ultra-Violet disinfection and electrodeionization are taking market share away from chemicals. In the U. S., air chemicals presently represent 78 percent of the total for water. This will increase to 85 percent over the next five years.

Analysts and executives were participants in the McIlvaine Markets webinar last week. One of the questions was in response to the display showing that all the markets are fractured. The top five companies in valves, pumps, filters, etc. have less than 10 percent of the world market. The question was: Why are they fractured?

The answer was that it is easy to roll-up a market dependent on mass production or mass marketing. Economies of scale can be achieved without too much difficulty. But the air and water roll-up synergies are based on shared knowledge. Creating an environment where disparate groups are willing to share knowledge is very difficult. Early failures have discouraged newcomers from pursuing the roll-up strategy.

· R.W. Baird projects big earnings for ADA-ES based on refined coal success and opportunities to sell systems to remove air toxics.

· Activated carbon potential is expanded by new potential to utilize it in the scrubber to separate the mercury from the gypsum.

· The FLS roaster concept would make activated carbon applicable even when flyash is to be sold. It could also open the door to a big market for metals recovery and solve the huge waste disposal problem facing power plants.

· Activated carbon can also remove selenium. This recent discovery could boost the market.

· W. L. Gore and Shaw have technologies to threaten activated carbon. The Gore technology is a trim system to be used with a wet scrubber, whereas Shaw uses bromine compounds to supplement the existing air pollution control equipment.

· Norit is looking at either IPO or sale as a result of big debt load. Goldman Sachs is the adviser. Norit is the largest A-C supplier to the U.S. power market.

· Calgon Carbon is second largest supplier of A-C for mercury, but a bigger potential is in ballast water treatment with UV and complete systems.

· Alfa Laval, Veolia, Severn Trent and Calgon Carbon are early leaders in a ballast water treatment market which will generate $70 billion in revenues in just seven years.

· Renewables are unreliable and are supplemented by big CO₂ emitters such as peaking turbines. Schneider Electric has technologies to extend renewables reliability.

· Co-location of sewage treatment, waste-to-energy and coal-fired power would be cost effective and have big environmental benefits. Siemens, Doosan, Xylem and a few others are well positioned to take advantage of these opportunities.

· Energy Recovery bought back over one million shares at a low price of around $2/share after prices plunged due to loss of a mega project desalination order.

· GE is a major player in small desalination plants, treatment chemicals, solid liquid separation and air and dust filter media. Analysts’ near-term assessments are mixed. Last month Morgan Stanley lowered their EPS estimates. Analysts at Goldman Sachs raised their price target; Nomura reiterated a “buy” rating. Barclays Capital reiterated a “top pick” rating on shares of General Electric in a research note to investors on Tuesday, April 17^th.

· Shale gas fracking could be a big market for suppliers of zero liquid discharge systems including GE, Aquatech and Veolia.

· Electrodeionization has a great future according to McIlvaine Company. Siemens is focusing on its use in desalination. Nalco is pursuing the technology for biofuels. Snowpure is a little company starting to have a big impact with EDI for Chinese power plants.

· Xylem first quarter revenue was up six percent to over $900 million. The integration of YSI is going well and underscores the potential for instrumentation and monitoring to enhance treatment. Xylem paid $310 million for YSI, which had 2010 revenues of $101 million. Janney was adviser to YSI for this transaction as well as the YSI purchase of Design Analysis Associates in 2009 which brought the hydrological monitoring. There is a big potential in hydrological monitoring for the shale and coal ash pond markets.

· Culligan has reportedly hired advisers relative to corporate restructure. Chapter 11 may be one option to deal with a $900 million loan. The private equity firm Clayton Dubilier & Rice currently owns the company and could consider selling, according to one source.

· Pentair first quarter earnings were down but, "It was a muted quarter, not indicative of the business going forward assuming the Tyco deal goes through," said John Quealy, an analyst at Canaccord Genuity. Tyco posted a second-quarter profit that beat analyst estimates, thanks to sales growth in its key segments.

· Rexnord Corporation (NYSE: RXN) closed its initial public offering last month of 27,236,842 shares of common stock at $18.00 per share. The net proceeds were approximately $459 million. BofA Merrill Lynch, Goldman, Sachs & Co.. Credit Suisse Securities (USA) LLC, Deutsche Bank Securities, Inc. and Barclays Capital, Inc. acted as joint book-running managers in connection with the offering.

· Pall is receiving $536 million for sale of blood filtration unit to Haemonetics. Larry Kingsley, CEO said, “It will enable Pall to focus on markets and opportunities where we are best positioned for growth.”

· IDEX has acquired ERC. ERC’s products include in-line membrane vacuum degassing solutions, refractive index detectors and ozone generation systems. Located in Kawaguchi, Japan, ERC has a global customer base and annual revenues of approximately ¥2.14 billion.

· Foster Wheeler has entered the air market with the purchase of Graf-Wulff and can take advantage of the fast growing fluid bed dry scrubber segment.

· Doosan has also expanded in the air market and has a number of technologies thanks to the purchase of AEE. Doosan is also a major player in desalination.

· Demand for lime will increase due to new air toxic regulations in the U.S. This will benefit Graymont, Mississippi Lime and Lafarge.

· B&W stock has ranged from $18-$31/share over the last 52 weeks and is presently in the mid twenties. The company could benefit significantly from the new U.S. air toxic regulations.

· Alstom sales should increase by more than five percent per year over the next three years while operating margin should gradually improve to around eight percent in March 2015, said Patrick Kron, Alstom’s Chairman and Chief Executive Officer.

The Electric Power conference next week will be rich in intelligence about all the issues which are facing the industry. McIlvaine will be asking speakers and exhibitors to provide their opinions about the future. Here are the questions which we will address:

We will be gathering answers to these questions at the show and will discuss those answers with participants.

Revenues for reverse osmosis, microfiltration and ultrafiltration modules will exceed $2 billion this year. This is the latest finding in the McIlvaine report, RO, UF, MF World Market. This forecast is in 2010 dollars not adjusted for inflation, so the revenues in current dollars will be closer to $2.1 billion. The forecast is also based on equivalent unit sales in developing countries. The actual revenues in China will be only 65 percent and even lower in India. This is due to lower prices per unit. Hence, the net effect when adjusting for purchasing parity and inflation is a market of $1.9 billion.

The Asian market will grow at a faster rate than the other regions. This is due to the increased purchase of membrane systems for desalination, water reuse, mining, food and beverage, residential and commercial buildings and semiconductors. The only market where other regions are keeping pace is pharmaceuticals.

The trends toward larger membrane modules are promising to increase the market even though the cost per unit of throughput are less. The reason is that lower costs of membrane filtration cause capture of market share away from thermal treatment and other alternative routes.

Water reuse is becoming increasingly popular and necessary in many parts of Asia. Much of China is arid. The rainfall per capital is low compared to the U.S. The increase in industrial output is accelerating the need for pure water. The solution is the reuse of municipal wastewater for power plant cooling water as well as for golf courses and lawns. Microfiltration and ultrafiltration membranes combined with biological treatment can provide acceptable purity for these applications.

Sewer mining is the terminology used for the extraction of sewage and treatment in membrane systems. The membrane reject flow is directed back to the sewer while the gray water is used for the golf courses or lawns. Membrane bioreactors provide a unique hybrid system. The membranes are submerged in the biological reaction tank. This incorporation of two processes in one tank cuts costs, size and energy consumption.

Dow Chemical is the largest supplier of replacement membrane modules. A number of Japanese, European and now Chinese suppliers are also now in the market place. The replacement cycle for modules can be as long as seven years or as short as a few months depending on the application. Even seawater varies depending on the location. Module life in plants desalinating Gulf Coast U.S. water can be considerably different than plants in the Red Sea.

Applications in various industries differ greatly. Semiconductor chip rinsing requires high performance. Ultrapure water for power plant steam cycles and pharmaceutical water for injection (WFI) also demand high purity and reliability.

Category	U.S.		World
	$ Millions	Tons Millions	$ Millions	Tons Millions
Lime Total	2,000	20	33,000	330
Lime Air	600	4	1,800	12
Lime Water	120	1	4,800	4
Limestone Total	7,000	700	70,000	7,000
Limestone Air	400	35	2,000	175
Ammonia DeNO_x	1,500		6,000
Other Chemicals in Air	1,000		4,000
Air Sub Total	3,500		13,800
Water/Wastewater Treatment Chemicals	4,500		24,000
Air to Water Ratio %	78		58