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by Laura Harvey, Pump Industry Managing Editor

Looking back on 2014, the year provided a mixed bag for the Australian pump industry. Downturns in traditionally strong industries, such as mining, have had an impact on many businesses; but an increasing awareness of, and focus on, energy efficiency and sustainability from pump end users is providing new opportunities for many businesses. The year ahead is shaping up to present similar challenges and opportunities. Pump Industry spoke with some of the major players in the industry to prepare our outlook for the industry in 2015 and beyond.

The year that was

Our respondents all agreed that the key event impacting the pump industry in 2014 was the downward trend for the Australian mining industry, impacted by flow-on effects from the mining tax and falling commodity prices.

While the mining tax was officially abolished in September 2014, our respondents noted that it will take a while for the industry to recover, with time needed for investors to see the value in the industry again.

The sharp fall in commodity prices over the course of the year, with particular emphasis on iron ore, has also had serious implications for the pump industry.

A rapid increase in the global supply pool of iron ore (which is Australia’s most valuable export), combined with moderating demand growth in China, resulted in the price falling nearly 50 per cent in 2014, according to Australia’s Bureau of Resources and Energy Economics (BREE).

Mining’s flow-on effects

The massive drop in prices for raw minerals is leading to a reassessment of priorities for mining companies – which is in turn having implications for pump manufacturers and suppliers.

Our respondents involved in mining noted that sales have been down, and they are predicting that this will be the case again in 2015.

“Commodity prices and the economy (are impacting sales),” said Simon Treptow, General Manager of Irrigear Stores. “We find customers are hanging on to funds, perhaps fearing an increase in interest rates, or anticipating a reduction, or simply due to reduced confidence. These factors influence their willingness to spend, particularly on larger projects, unless supported with government funds.”

In terms of when this sector of the pump industry will recover, respondents admit they are unsure, with many suggesting it will take years for the industry to recover from the double hit of the mining tax and falling commodity prices.

Other respondents noted the fact that mining industry suppliers will no doubt look to other potential revenue streams, potentially squeezing competition in other sectors.

“Suppliers to the mining sector will look to other sectors for income, which may put pressure on prices/margins in these other sectors,” noted Garry Grant, General Manager of Hydro Innovations.

Added Martin O’Connor, State Sales Manager at KSB Australia, “Although Australia is a large country, population is limited, hence the pump industry is extremely competitive.”

And another said, “The industry will remain very competitive at all levels. Those who provide superior benefits and promote a point of difference will prevail.”

Competition will no doubt continue to grow fiercer thanks to pressure on traditionally strong markets.

The one potential silver lining for companies involved in mining is the falling Australian dollar. Over the course of 2014, the value of the dollar has dropped considerably, and many analysts predict it remains overvalued, suggesting 2015 could be another soft year for the Aussie dollar.

The flow-on effect here is that exporters should see increased profits – which will hopefully free up capital for investment in pumping equipment.

Energy efficiency and sustainability: new opportunities

It must be noted that it’s not all doom and gloom for the Australian pump industry in 2015. New opportunities are being presented to the industry in the form of energy efficiency and sustainability.

As pump end-users become increasingly conscious of the need to use energy as efficiently and sustainably as possible, a whole new area of opportunity presents itself to the Australian pump industry.

As Mr Grant noted, “Asset owners are looking for pumps that offer sustained and sustainable efficiency. Pump manufacturers and suppliers will need to address this.”

Added another, “Efficiencies seem to be emerging as a significant driver of sales in the industry. Consumers are increasingly looking at total lifetime cost rather than just initial cost. This is particularly so in the solar pumping sector, which seems to be growing quite quickly.”

Creating efficiency in new and existing pump systems will provide businesses with opportunities in 2015 and beyond.

Creating efficiency in new and existing pump systems will provide businesses with opportunities in 2015 and beyond.

Opportunities for growth

The key sectors that respondents see as being poised for growth as a result of the need for sustainable and efficient pumping systems are the wastewater and building sectors.

One respondent said they expect projects in municipal and industrial wastewater to increase. As a result, their company will be launching new products and systems in 2015 specifically designed to deliver sustainable efficiency to wastewater asset owners.

Meanwhile in the building sector, the pump industry is able to benefit from the growing importance of the Green Star building scheme, as established by the Green Building Council of Australia. A cornerstone of any building’s energy rating is its energy usage – to which pump systems can make a considerable contribution.

For new buildings, and the retrofit of existing buildings, there is considerable scope for new pump systems with improved energy efficiency and sustainability characteristics.

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End users are increasingly demanding sustainable product choices.

 

Manufacturing outlook

The manufacturing of pumps in Australia has been steadily declining over the course of a number of years, and our respondents feel that this will continue to be the case in 2015.

The low economic climate in general is at least partly to blame for this, according to our respondents, as is a lack of major infrastructure projects to really give the manufacturing sector a boost.

This is unlikely to come as news to many, and more than anything is a reflection of manufacturing generally in Australia.

Keep calm and carry on

If we could summarise the thoughts of our respondents regarding the year ahead, it would undoubtedly be the now ubiquitous ‘Keep calm and carry on’. Conditions are challenging at the moment – the downturn in mining and fall in commodity prices are having far-ranging impacts. In response to these conditions, our respondents are going back to basics – keeping expenses in check, and focusing on core markets.

Mr Treptow summed up the thoughts of many when he said, “In 2015, we will be very conservative in our choices of projects and activities. We are watching the market very closely and going back to the basics of controlling working capital, overheads and generating sales.

“Really we will be sticking to what we know in the coming year. We don’t feel it’s the time to take risks.”

Despite the challenges, there are opportunities for savvy players in the market. Energy efficiency and  sustainability are the areas generating interest and buzz. There is much that pump manufacturers and suppliers can do to help large organisations keen to reduce and keep their energy consumption in check. Businesses who position themselves to offer products and services that help improve pump efficiency are the ones that will be best placed to ride out the challenging times ahead.

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