2009 still looks like solid year for PVF
BY MORRIS R. BESCHLOSS
PVF and economic analyst
With all the early year signs pointing to a deepening of the global economic recession, I intensified my efforts to determine whether the PVF sector would continue to maintain its relative strength, as opposed to other elements of the plumbing-heating-cooling-piping industry.
Although these interviews were anecdotal rather than scientific, the geographic breadth and the diversity of the manufacturers and distributors contacted convinced me that there is still plenty of momentum as the first quarter of 2009 unfolds.
However, the economic components that comprise the strength of this three-year surge are changing. It’s still uncertain whether the end-use factors, comprising this panorama, will eventually throw a monkey wrench into the ongoing boom.
As the year wears on, the question will be answered by whether those factors which continue to show strength will overcome some aspects of PVF, which are beginning to sputter. Overall, new projects of all types may be restricted by credit availability. But expansion and maintenance of existing facilities -- whether power generation, refining, chemical and petrochemical, waterworks, and renewable energy -- seem to be in good shape, and show few signs of abating.
The most serious concern is the implosion of oil prices, which is endangering new development projects as well as ongoing production of high cost facilities that are depended on to keep crude flowing into refineries and eventually to the tens of thousands of gas stations throughout the countries.
Although a glut has developed in America’s main storage depot in Cushing, Okla., this is primarily due to demand destruction, which has reduced driving by America’s 250 million cars and trucks by 5% on a year-to-year comparison with 2007.
Since such derivatives as heating oil, jet and diesel fuel, and production of natural gas are also being affected, it will be only a matter of time before a balance between supply and demand is reached. The wild card is the effect of opec cutbacks, slowdown of oil sands production in Canada, and the already developing reduction of drilling rigs in the Gulf of Mexico.
Also impacting the supply/demand balance will be the upcoming driving season and the rising unemployment which may discourage thousands from driving no matter how low the price at the pump.
One thing is certain, the expansion of off-shore drilling and prospective oil shale conversion in the Rocky Mountains will be put on hold until the price of oil per barrel climbs back up to the high double digits.
One segment relying heavily on pipe-valve-fittings is power generation. This sector is red-hot and indicating no signs of slowing down. With the discovery of the Enron scam earlier in the decade, creating an illusion of power surplus, projects were either mothballed, or put on the shelf.
America now faces a distorted supply shortage, which could result in blackouts and brownouts later this summer. Although nuclear power is limited to one new generating station soon to come on line in America, the 104 operating units are expanding their existing capacity, which will add anywhere from ten to twenty percent additional electric power to this nation’s fast-increasing demands.
Natural gas will become even more important in the months ahead as coal power is eschewed by the Obama administration, which considers this plentiful resource out of bounds for powering electrical utilities or the possibilities to convert coal to oil or gas. But don’t shed a tear for the coal producers, they’re doing just fine; getting top dollar for all they can mine. Apparently China and others are not that sensitive about putrefying the air.
The repetitious answer I get from both distributors and manufacturers when asked where the action is, is one word, “power.”
Fabricators are busier than ever, and some mechanical contractors are getting involved with industrial construction, previously the sole purview of turnkey constructors.
Speaking of mechanical contractors and their activity level, commercial construction is heading toward a standstill. Developers who depend on huge loans from financial institutions are being frozen out by the unavailability of such monies. Simultaneously, hotels, motels, shopping malls, and multi-storied apartment buildings are becoming less in demand as debt deleveraging and reduced consumer spending is puncturing the discretionary spending balloon. The commercial subsector will be the main drag on the PVF arena.
Another intriguing factor that may benefit PVF is a massive infrastructural component of the trillion-dollar stimulus bill. With damns, bridges, and waterworks facilities benefitting from this influx of liquidity, infrastructure should provide another “shot” in the arm to PVF. And if exports hold up as I expect, the wide variety of products provided by PVF will, unquestionably, be beneficial.
All in all, I’m betting on another big year for the PVF sector, even in a down year for the global economy in general.
2009 economic predictions paint mixed picture
Although I have traditionally offered economic predictions at the beginning of each new year, I view 2009 as beset with more imponderables than ever before. But I’m ready to stick my neck out; so here goes:
- After a first quarter 2009 low point in U.S. gross domestic product growth and a peak in unemployment, a slowly-building recovery will be in place by midyear, worldwide.
- A trillion-dollar stimulus plan, passed by Congress early in February, will serve to calm the financial markets and stabilize the gross domestic product of goods and services. U.S. unemployment will crest at 9% during the first three months of the new year.
- The U.S. savings rate will move into positive territory and stay there (2% to 3% annually) as the consumer sector shrinks. The deleveraging process will put a further crimp into discretionary spending, thereby impinging on the retail sector. During the first half of 2009, a record number of stores and shopping malls will be shutting down nationwide.
- Investment banking activities will reach a 10-year low, with mergers and acquisitions few and far between. The age of private banking institutions is nearing an end, as most have already scrambled to become bank holding companies. This allows borrowing at the Fed discount window.
- With the dollar again weakening versus the euro and the yen, exports will maintain a slightly lessened surge, while imports continue to dwindle. This will shrink the trade deficit to its lowest point in this decade.
- China and India, which have taken aggressive stimulative action, will lead the international recovery as they rebound from their second half 2008 fall-offs. These world’s largest developing economies will energize an overall global economic rebound. Much of this will come from expansion of their consumer base.
- Commodity prices will be on the comeback trail, as demand improves. Expect oil prices per barrel to reach $75 to $80 by mid-year.
- Expect the stock market to leave the doldrums behind and reach the 10,000 Dow Jones Industrial mark and the 1,000 S&P 500 target by June 30.
I’m sure that my rapidly expanding readership will hold me to account for these predictions by mid-year 2009.
World’s leading nations face grim economic turnaround attempts
As the 2008 economic year staggers to an ignominious close, there are no oases to be found in a veritable worldwide landscape of severe recession.
Western Europe seems to be the most hard-hit, with industrial superpower Germany leading the pack. Under the guidance of embattled Chancellor Angela Merkel, Berlin is pledging expanded efforts to confront a financial crisis that has toppled banks and stunted that once mighty export nation’s growth. A massive national stimulus package is under consideration.
Japan, caught in the web of a decade-long economic stagnation is hoping that an additional $100-billion cash infusion will finally get this once dominant nation going again.
Industrialized Belgium is facing a major political crisis as that nation’s parliamentary government has been toppled in a botched attempt to bail out giant multi-national financial group, Fortis.
Britain’s Barclays Bank has warned that worldwide credit conditions have severely impacted the United Kingdom. Barclays believes the current crunch may last for as much as two more years.
One global bright spot may be the warming of relations between mainland China and Taiwan. A top leader of China’s Communist Party promised Taiwanese President Ma Ying-jeou, a member of once anti-mainland Kuomintang, that Beijing will provide whatever financial aid is needed to keep Taiwan viable. This is remarkable since China, still the world’s leading growth engine, has experienced its first significant slowdown in 10 years.
With the world’s major nations following the United States in severely cutting interest rates, it’s still questionable whether easier access to money will sever the Gordian Knot of the global credit squeeze.
Be sure to log on to my twice daily updated economic blog, which has become one of the most widely read coverages of the ongoing financial and global economic analyses for the nation’s largest publishing company.
You can log in by accessing www.theworldreport.org, and then clicking the yellow band marked “Morrie’s page.” Please recommend if you approve.
Morris R. Beschloss, a 52-year veteran of the pipe, valve and fitting industry, is PVF and economic analyst for Phc News.