Valve Magazine - Spring 2012

CONVERSATION WITH…
R. Scott Graham
ANALYZING THE VALVE WORLD

Some analysts consider the valve market a hard one to track because there are so many players in the field and the business cycles are so long term. But Scott Graham, senior analyst for Jefferies & Company, Inc. and a recent speaker at VMA’s Leadership Forum, says those factors are precisely what makes the market interesting.

“The fragmentation of the industry and its long cycles work to the benefit of many valve companies,” Graham says.

Valve manufacturing ranges from the highly specialized to the ubiquitous or more standard product, he says.

“The former benefits larger companies as long- and late-
cycle commodities processing projects are hatched. These proj-
ects are often complex and require valves that meet exacting
standards. The latter benefits the entire sector as valves are
needed in multiple industrial applications.”
The companies that will be the most successful, however, are
those with a geographic footprint, he says.

“Most of the spending in flow management is occurring outside mature markets. A local presence is required to tap opportunities. At the same time, we have seen steady, slow consolidation since access to credit can be limited for smaller companies. The larger companies with a localized footprint and access to credit have more working capital, which customers are looking for,” he says.

ties in the U.S. are too close to using reserves, which runs the risk of costly outages and brown-outs. We expect spending in power in mature markets will see 3% to 5% growth in capex for 2012,” Graham said. He thinks outside of the U.S. and Europe, power spending will rise in the upper-single digits.

The chemical and petrochemical markets have much earlier cycles than either oil & gas or power generation, which means they are already well underway to recovery, though the markets are slowing down. Graham said at the forum that capex increased by more than 25% in the third quarter of 2011 and is expected to grow 5% to 10% in 2012.

The trend, however, is that, as markets get increasingly com-
plex in their needs, production is moving closer to feedstock,
especially in developing regions such as the Middle East, Asia
and increasingly in South America. That creates new opportuni-
ties for valve companies in those areas of the world. Meanwhile,
in North America, gas shale has opened up investment opportu-
nities, but because of the low price of gas, the
most immediate investments will be for turning
gas into liquids, not pulling new sources out of
the ground, Graham says.

In the refining world, Graham says that while the business has suffered in recent years, he sees significant opportunities in the near future.

“In the U.S. and Europe, the difficulty and
cost of permitting means we won’t see much
building in the near term—most of the new capital being spent
is not in this country. But we will see brownfield spending to
increase capacity. Moreover, we are starting to see a lot of new
refinery projects announced in other areas of the world where oil
and petrochemical products are increasingly needed. This, too,
creates opportunities for valve companies,” Graham says.

The water/wastewater situation is different. Worldwide needs
for water/wastewater cannot be denied nor can pent up demand
in the U.S. Graham said that the industry will grow about 6% a
year going forward with growth in BRIC countries two to three
times higher. In the U.S., however, “you have to understand that
even though municipalities and water utilities have funds that
are separate from other budgets, the reality of the situation is
that teachers aren’t going to be fired so a water main can be put
in. In mature markets, water is a priority fix [an old main might
be repaired], but it’s not a priority spend [a new one probably
won’t be put in].”
Overall, for valves, he says the market will remain a good one
for investment.