Industrial gas market runs out of steam

Manchester, UK -- The UK market for industrial gases is expected to increase to a five-year peak of £770 million during 2006 following negligible growth during the year, according to a new report from Manchester-based Market & Business Development Ltd.

Demand within the industry hit a five-year low of £737 million during 2003. However, sales have since increased year-on-year, culminating in an estimated overall increase of 4% to 2006. Recent growth in the UK market is due to strong demand from several end-use industries such as chemicals, steel and manufacturing as well as a slight rise in the pricing of industrial gases, said the report.

Intense price competition, however, now characterises the sector due to the commodity nature of many of the products in the sector and difficulties in achieving product definition. This scenario, said MBD, is likely to continue, with the maturity of several key end use markets, contributing to the situation of low profit margins.

Demand for industrial gases will decline by 2% in real terms between 2006 and 2011, to an estimated   £755.9 million (at 2006 prices) by the end of that period. Marginal declines, said the report, are again anticipated due to price competition and the commodity nature of many sectors of the market.

MBD expects UK production of industrial gases to fall by 1% to £736 million by 2011 as, it said, the majority of growth opportunities are in export markets. Output will fall marginally for the majority of the forecast period, in part reflecting future uncertainties regarding the economic climate and the strength of the pound Sterling.

UK imports of industrial gases will increase during the first two years of the forecast period, "reflecting the continued favourable conditions for UK importers." However, from 2009 onwards MBD expect import activity to decline, albeit at a negligible rate. Import activity will be hampered by reduced demand within a number of end use industries. By 2011, MBD forecasts imports to decline to £35 million, with import penetration remaining at 5% throughout the forecast period.

Looking at the main product sectors, MBD forecast sulphur trioxide to remain the largest sector in the industrial gases market. Between 2006 and 2011 it expects the sector to account for 33% of total demand within the industry, with sales expected to decline to £250 million.

The UK market for nitrogen, meanwhile, is set to increase year-on-year culminating in anticipated real term growth of 10% between 2006 and 2011. The market share of the sector, said MBD, is on track to reach 27% by 2011, compared with a level of 23% in 2006.

In contrast, the UK market for oxygen will register a real term decline of 10% between 2006 and 2011. During the latter year MBD expects demand to decline to a level of £120 million at 2006 prices.

By contrast, MBD expects demand within the rare gases and hydrogen sectors to increase. Sales of hydrogen will account for 5% of total turnover in the UK industrial gases market between 2006 and 2011, whereas sales of rare gases are expected to account for between 8% and 9% of total turnover, it predicted.

The UK market for both argon and carbon dioxide is set to decline year-on-year to 2011, continued MBD. Carbon dioxide will account for a steadily declining proportion of the total market during the forecast period, with demand expected to decline by 32% between 2006 and 2011 to around £10 million.

Sales of nitrogen oxides, inorganics and liquid air are expected to increase year-on-year. However, they are also expected to account for a relatively small proportion of the UK industrial gases market between 2006 and 2011.

Collectively demand for nitrogen oxides, inorganics and liquid air are expected to account for between 1% and 2% of total sales in the UK industrial gases market during the forecast period.