PVF Roundtable reaches preeminence
BY MORRIS R. BESCHLOSS
PVF and economic editor emeritus
The PVF Roundtable has reached preeminence as the networking core of a sector that has achieved its peak at a time when much of the plumbing-heating-cooling-piping industry has suffered with the global economy during the past year.
Founded by president-emeritus Sid Westbrook in 1987, the Houston-based organization’s quarterly meetings have become the big tent where manufacturers, distributors, turnkey constructors, fabricators and sales representatives come together at the Hess Club to exchange their take on current developments.
Although originally attempted at diverse locations, it became readily apparent that Houston was the natural epicenter of most activities relating to energy and related end-use subsectors key to the Roundtable’s participants. It’s a well-known fact that the 300-mile radius around Houston encompasses roughly one-third of consummate manufacturing, distribution, specification, installation and import/export activities that relate to the energy industry.
Like any organization that either proves or forsakes its relevance, the PVF Roundtable has caught fire in this decade — with PVF industry leaders from across the U.S. attending these meetings.
The Wholesaler PVF Hall of Fame presentation of new inductees has become an annual event at the May meeting of the Roundtable. The August meeting normally features Bob Tippee, editor of the Oil & Gas Journal, delivering his annual take on the travail and opportunities in the volatile energy sector.
Thanks to Ron Merrick, Fluor International executive and president of the Roundtable, I have the opportunity to deliver the “Beschloss Moment,” a 15-minute roundup of the current economy at each of the meetings.
With the beloved Sid Westbrook watching over his creation with pride, his dynamic son Danny became secretary-treasurer following the tragic and untimely death of Don Caffee, my business compatriot for 35 years. Even though his professional leadership role in the PVF Roundtable was only of two years duration, Don should be credited with providing the extra spark that launched the Roundtable into its present orbit.
The Roundtable also started partnering with The Wholesaler at the ASA Convention in Chicago in 2006, to present a panel of PVF industry spokesmen discoursing on the state of the industry.
Due to a conflict with a tightly packed asa agenda this year at the upcoming convention in Washington, D.C. (October 12-16), we were not able to schedule our Blue Ribbon Panel, although the Association had graciously offered us a room and time slot originally late Friday afternoon and, subsequently late Thursday. Our planning committee found the latter to be an overlap with a mass visit to Capitol Hill, which would have put us in conflict with a major asa function.
We look forward to renewing this series at the convention in 2010, and plan to implement a Town Hall format that will offer even greater interaction between those in attendance and on the panel.
Energy conference exudes guarded optimism
The May gathering of the PVF Roundtable — of which I have just been selected as board member emeritus — drew 170 manufacturers, distributors, turnkey contractors, specifiers and fabricators to Houston.
The key event of the evening was the induction of two leading manufacturers — Tom Fish of Anvil International and Randy Cowart of Powell Valve — and one outstanding distributor — Pat Adams of mks Pipe & Valve Company— into The Wholesaler PVF Hall of Fame. The theme running through the intense networking preceding the business meeting and introduction of new Hall of Fame inductees was guarded optimism regarding the increasing activity in power generation, as well as the expected comeback in oil and natural gas expansion by early next year.
Inventory-heavy master distributors that service conventional wholesalers and the national gamut of PVF specialists seemed to agree that an uptick in business was drawing more goods out of inventory than were being replenished. Among manufacturers, who admitted to substantial reduction from last year's record revenue pace, there were practically no plans for capital expansion, due to the low capacity utilization being used at this time.
One exception was a fast-growing energy industry specialty manufacturer who has become active in the Canadian oil sands projects. Welding Outlets Inc. president Sheryl Ryan Michalak, who had just returned from a business evaluation in the oil-rich Alberta tar sands region, related a strong outlook for further oil-producing projects next year. At present, she commented, current projects are being maintained. But future major development awaits expected demand comeback and price increase activity, she added.
This coincides with announced anticipation that 25% of America’s oil needs will be met from Canada’s tar sands projects within the next three years.
With India’s expansion facilitated by favorable political developments and the new Tata automobile producer, and China aggressively encompassing a greater percentage of its consumer sector into the modern arena, if slackening of American demand occurs, will be more than offset by the two dynamic Asian giants’ purchases.
Capital spending continues downward spiral
Despite the green shoots of recovery popping increasingly through the dark soil bed of recession, no such hope is emanating from capital spending, the real indicator of a solid business turnaround.
In fact, most companies are still in the process of cutting costs as they attempt to reduce production and overhead expenses to maintain meager profits, while demand is still in an embryonic recovery stage.
Latest statistics support this adverse reaction. After a long run of quarter annual gains, capital spending took a 20% plus dive in business outlays in 2008’s fourth quarter, and an even worse plunge of a high 30s percentage in this year’s first quarter.
The reduced spending outlays for a range of products from forklift trucks on the shop floor to computers in increasingly empty office space accounted for a major portion of the 6.1% annualized decline in first quarter gross domestic product. It’s estimated that the precipitous capital spending drop since the end of last year’s third quarter is the worst since the 1930s Depression days.
Hit hardest in the most recent quarter were expenditures for industrial machinery, which came close to a 50% drop on a year-to-year annualized basis. Even data processing equipment was not spared, dropping more than at the time of the technology bubble bust in 2001.
Also hit hard have been transportation equipment and construction machinery, reaching levels close to a 50% drop-off from a year ago.
Although credit availability has eased markedly since last fall, businesses are loath to tool up for expansion as they face an over capacity that will take a long time to absorb existing production capability.
Capacity utilization of America’s industrial plants fell to a record low 65.8% in March, far below the historical average of close to 80%. Not insubstantial as part of this current gloomy capital spending outlook is the U.S. Government’s warnings of higher taxes and a cutback in production incentives in the months and years to come.
First global electricity use decline since 1945
Global electricity usage, which had been playing catch-up early in this decade, will fall by 3.5% in 2009, according to the Paris-based International Energy Agency.
Even China, the world’s leading growth economy this year, will experience a 2% fall in electricity in comparison with 2008. This is in face of an 8% total economic expansion this year, as reported by Beijing’s officialdom. Russia, experiencing a major letdown, anticipates a severe electrical cutback of 10%. Simultaneously, countries in the Organization for Economic Cooperation & Development will experience a fall of almost 5%.
Three-quarters of the global decline in consumption is accounted for by industrial, rather than household demand, reflecting China's drop in industrial activity for export. India, which is on a solid uptick, is actually increasing its consumption by more than 1% this year.
Despite the volatile nature of oil demand, and that of other commodities during times of severe recession, a reversal in electrical usage has never occurred since the end of World War II. In fact, forecasts of electricity usage before the current local crisis had been projected at an increase of 32.5% between 2006 and 2015. World electricity increase actually grew by 25% between 2000 and 2006. In 2007, it rose 4.7%, and before the current financial crisis broke out, it had enough momentum to end the year with a 2.5% increase.
The International Energy Agency is on board with the renewable energy concept, but believes that plans in that direction by the world's G20 nations are totally inadequate. The iea is particularly disappointed that concern about greenhouse gas and co2 emissions by most developing nations is not even in the embryonic stage.
The Agency believes that United Nations renewable energy targets have no chance of being met under present conditions. It also predicted that a new oil supply squeeze will make itself felt by 2012. It cited a drop in availability, currently at two million barrels per day and another 4.2 million barrels per day delayed by at least 18 months.
March trade deficit continues shrinkage
The shrinking trade deficit ($27.6 billion in March), continued its remarkable downturn, as both imports and exports dropped precipitously when compared with the major deficit imbalance the previous year. This important statistic lags by one month, due to the difficulty in gathering all its components.
This trend is expected to continue as America’s industry and consumer sector, have gotten off the import bandwagon, while export generation has suffered from degenerating demand overseas.
However, the import factor, when compared to year-on-year, showed a downturn in imports ($55.9 billion) versus an exports reversal of less than half that amount ($26 billion).
The export component continues to hold up respectably when compared to the $2 trillion per annum multi-year peak level achieved a year ago. China ($14.2 billion) was tops on the list of import reduction, with the European Union also on the import deficit downward slope.
For the first three months, 2009 exports averaged $125 billion per month, while imports stayed in the $155 billion range.
The current trade deficit in the high $20 billion per month range, was far below the $60 billion monthly level experienced during America’s export boom of previous years in this decade. These current shrunken levels are expected to continue throughout 2009.
With the American consumer less dependent on overseas goods, the export sector is benefiting from the more bullish economic recoveries in China, Brazil, India and even Russia. Both America’s industrial sector and agriculture are benefiting from this turn of events.
The major import reversal during this period occurred in gasoline and other oil derivatives, which reflects an 8% demand reduction by America’s automotive sector.
PVF Hall of Fame Members
We’re very proud of those now enshrined in the Hall of Fame. However, the 2009 inductees — along with the entire roster of member — were inadvertently omitted in the May issue. The following comprise the current membership with the date of their induction.