March 2018 - McIlvaine Insights 53

Weekly selected highlights in flow control, treatment and combustion from the many McIlvaine publications.

Webinars: We are conducting a webinar later this month on municipal wastewater. Next month the subject will be coal fired boilers and the subject in May will be gas turbine combined cycle plants. We will be providing market forecasts for combust, flow and treat but also providing details on project databases and decision guides for each industry. You can register at Free Market Webinars

5 step program; the market forecasts, project tracking and decision guides are all part of a 5 step program discussed at www.mcilvainecompany.com

Municipal Wastewater Plants to Spend $64 billion for Flow and Treat Equipment This Year

Municipal wastewater treatment plant operators world-wide are anticipated to spend $64 billion for selected flow and treat products and services this year. The majority of these purchases will be made by just 200 operators and 30 engineering/consulting firms.

Suez is supplying more than 30 million people with water and wastewater services. They are also designing plants and purchasing flow and treat products for new as well as existing plants. Beijing Enterprises Water Group (BEWG) operates more than 400 wastewater plants in China and other countries and is also involved in design build projects where they would specify flow and treat products. Chicago MSD operates seven wastewater reclamation plants. It is also expanding its scope by encouraging nearby food processors to send waste to the plant for conversion to biogas. This will increase its sludge processing, compressor and air pollution control purchases. Los Angeles Sanitation's operations are approximately half the size of those in Chicago.

2018 Municipal Wastewater Purchases $ millions
	World	U.S.	Suez	Jacobs CH2M	BEWG	Los Angeles	Chicago MSD
Guide	5280	1100	106	63	33	11	22
Control	8640	1800	173	104	54	18	36
Measure	4320	900	86	52	27	9	18
Valves	4800	1000	96	58	30	10	20
Macrofiltration (belt presses, sand filters)	2400	500	48	29	15	5	10
Pumps	9600	2000	192	115	60	20	40
Treatment Chemicals	6720	1400	134	81	42	14	28
Sedimentation and Centrifugation	4320	900	86	52	27	9	18
Variable Speed Drives and Motors	4800	1000	96	58	30	10	20
Turbines, Fans, and Compressors	10560	2200	211	127	66	22	44
RO/UF/MF Cross Flow Membrane Systems	1200	250	24	14	7	3	6
Air Pollution Control	960	200	19	12	6	2	4
Total	63,600	13,250	1271	765	397	133	266

McIlvaine is forecasting flow and treat product and service expenditures for all industries and for 550 operating companies and 400 OEMS, EPCs and process sub system companies worldwide. Municipal wastewater is one of 14 industries which are covered. The wastewater purchases in many countries are concentrated among just a few operators. Suez operates more than half the plants in Chile. In the U.S. the engineering/consulting firms play a big role.

There is a metamorphosis in the way purchases will be made in the near future. Process management system suppliers are providing monitoring and control of every valve, pump and filter from remote monitoring centers. Suez is monitoring hundreds of plants from its European base. The equivalent of millions of total lowest cost of ownership analyses are continually generated. This development will profoundly change the route to market as explained in N031 Industrial IOT and Remote O&M.

A decision system for municipal wastewater flow and treat purchases includes a number of decision guides. One is on aeration blowers. Another system provides the odor control options. There is a guide just on mercury control options for sewage sludge incinerators Details are found at Municipal Wastewater Decisions.

A free webinar to discuss the municipal wastewater flow and treat market and the sea change in the way purchasing decisions will be made will be held at 10:00AM Central time on the March 28. To register click on Free Market Webinars

After World War II the U.S. led the way to world prosperity with the attitude that a rising tide lifts all boats. The better each country does, the bigger the potential market. Now the world is facing trade restrictions which are based on the opposite philosophy.

Last week China eliminated the two-term presidential limit and the U.S. announced plans for tariffs on steel and aluminum. Neither initiative bodes well for the $400 billion Combust, Flow and Treat (CFT) industry. ⁽¹⁾ In fact, any individual efforts toward trade restrictions will have a negative impact on the industry. Here are some of the reasons why this is so.

CFT purchasers are rapidly becoming more global: Alcoa just received a big contract to ship bauxite from its Australian operations to companies in China. The U.S. produces less than 1% of the world's aluminum because of the locations of bauxite and cheap electricity. In the last year Alcoa received contracts totaling $665 million to supply bauxite from mines around the world to China, Brazil, the U.S. and Europe. The Alcoa "Smelting Center of Excellence" is in Canada. So, Alcoa cast products made in the U.S. from ingots made in Canada will be more costly.

With annual achievable production capacity of approximately 113 million tons of crude steel and some 199,000 employees across 60 countries, ArcelorMittal is the world's leading steel and mining company. It is the largest producer of steel in North and South America and Africa, a significant steel producer in the CIS region and has a growing presence in Asia, including investments in China and India. It is also the largest steel producer in the EU, with significant operations in France, Germany, Belgium, Spain, Luxembourg, Poland, the Czech Republic and Romania.

ArcelorMittal recently purchased dust collector systems for multiple plants on two continents from Hamon. The order was placed in Europe. Hamon has a European base but the dust collector technology comes from its purchase of Research Cottrell which was a U.S. company.

The U.S. steel production in 2017 was 82 million tons. So, Arcelor Mittal is a more important customer than all the plants in the U.S. World crude steel production reached 1,691.2 million tons (Mt) for the year 2017, up by 5.3% compared to 2016. Crude steel production increased in all regions in 2017 except in the CIS, which has remained stable. Since U.S. steel production is only 5% of the world production a tariff which increased U.S. production by 20% would only have a world total redistribution of just 1% of the market. It would also mean a lower output in the rest of the world.

Fewer than 2000 major international corporations will purchase the majority of the CFT products and services this year. Purchasing is becoming centralized. Arcelor Mittal has made huge savings by centralizing decision making and purchasing based on total cost of ownership for all plants. BASF has made decisions from Germany on valve and instrument vendors for condition monitoring systems at all their plants.

Conclusion: The 2000 international customers are much more important than individual countries to the CFT industry. A tariff which helps one country hurts the international players and therefore the CFT industry.

The CFT supplier industry is rapidly becoming more global. CFT companies are increasing their market share in the areas of the world with the large and growing markets. Emerson purchased Pentair Valves which had purchased Tyco valves which had purchased many dozens of local valve companies. Xylem purchased a European pump company to become a major international pump supplier. Most major CFT companies now have a significant presence in China and vice versa. Neway Valves headquartered in China is a major supplier of valves on a worldwide basis. Andritz has made major purchases in the U.S. and other countries to expand beyond its European roots.

The Chinese air pollution system and product companies are now focusing on the international market. Since the market for FGD and SCR has peaked in China the local suppliers are aggressively pursuing markets in Asia, the Middle East and Africa. International catalyst suppliers with joint ownership of Chinese plants are expanding their global presence through this path.

Conclusion: Most of the CFT products and services are sold by international companies who are negatively impacted by trade restrictions.

The U.S. market share shrunk from 60% after WWII to 15% today. The U.S market is small compared to the world market. Japan, Europe and the U.S. once represented more than 90% of the world CFT market. The Asian countries absent Japan now represent larger markets than the three onetime leaders for most CFT products. The coal fired boiler market represents one of the most significant shifts. Twenty years ago, 90% of the FGD and SCR markets were in the former big three. Over the last decade China purchased more of these products than that three combined. Now ASEAN and India are the big markets with purchases greater than the former big three. Most of the new coal fired boilers are being built in countries in Asia other than Japan and China. Africa will buy more coal fired boilers than the U.S. and Western Europe combined. Most of the new wastewater treatment plants are being built in Asia.

Conclusion: No one country and specifically the U.S. is the dominant success determinator for CFT. In fact, when a big market opens up in one country the wise CFT company needs to ask, "How do I take advantage of this opportunity in the short term while focusing on the longer-term world opportunity?"

The ratio of profits based on knowledge/manufacturing is increasing: In the future the Industrial Internet of Things (IIoT) will be empowered by the Industrial Internet of Wisdom (IIoW). ⁽²⁾ CFT companies will be selling packages justifying higher margins and selling prices because they will offer lower total cost of ownership (TCO). This lowest TCO is achieved with process wisdom which results in better specific products for the application. The added revenue from remote monitoring and operational support will be very significant.

The manufacturing and transport costs for high performance products will be less important than product design and process knowledge. Many valve companies have retired foundries and are buying castings. ⁽³⁾ Most suppliers of pollution control systems purchase all the products and or parts and have only a few assembly or special part manufacturing facilities. ⁽⁴⁾ High performance products generate more revenue than general performance price-based products.

Conclusion: Knowledge is more important than low cost manufacturing. With IIoT empowered by IIoW the importance of knowledge will increase.

Knowledge has no geographical limits: MHPS is monitoring coal fired power plants in Asia from a remote-control center in the Philippines and gas turbine power plants from a center in Florida. Donaldson can remotely monitor filter performance of off road vehicles. With cloud-based systems subject matter experts anywhere on earth can be made available for instant advice based on data analytics of performance at any plant. An avalanche of data analytical information will allow subject matter experts to become subject matter ultra-experts (SMUE's) who will make a major impact on TCO.

Knowledge knows no geographical boundaries. Greater knowledge will lead to international success. Those companies who allow SME employees to become SMUE's will obtain a large market slice. Trade restrictions are a negative factor in the success equation for CFT companies.

The ethical behavior of international corporations may be no better or worse than that of the politicians who run the countries of the world. However, corporate self-interest dictates the same type of ethical policy that led the U.S. to create the international free trade structure after World War II. Therefore, the greater impact international corporations can have limiting trade restrictions the better.