Market size and end-user segments
In 2009, the global welding and cutting industry had total revenue estimated at US$13 billion, divided approximately equally between welding consumables and welding and cutting equipment. In addition, the total market for welding robots and associated automation products, in which ESAB does not participate, amounted to US$3 billion.
The major global end-user segments are energy sector (25.5% of industry revenue), infrastructure construction (18%), transport (14%), shipping (9%) and other (33.5%).
Demand for welding and cutting products is determined largely by the consumption of steel and, to a lesser but growing extent, of other metals, such as aluminium and advanced alloys.
China is the largest producer and consumer of steel but accounts for only around 3 per cent of ESAB's revenues. Accordingly, ESAB management typically considers the demand environment for ESAB products by reviewing worldwide production and consumption of steel excluding China.
The most recent estimate by the World Steel Association ('WSA') is that, excluding China, worldwide consumption of steel in 2009 was 578 mmt (2008: 766 mmt), a reduction of 25 per cent which is unprecedented. All major regions suffered significant falls, with EU (27) and the USA down by 35 per cent and 42 per cent respectively. Apart from China, where consumption is estimated to have increased by 25 per cent to 542 mmt (representing 48 per cent of worldwide steel consumption) and India, no major country recorded an increase in consumption.
The WSA's most recent forecast (published in April 2010) is that steel consumption in 2010 will increase by 10.7 per cent and world steel demand will exceed pre-crisis levels of 2007.
Consumption in EU (27) and the USA is expected to increase by 14 per cent and 27 per cent respectively compared to 2009. By contrast, the growth of steel consumption in China is forecast to slow to 7 per cent.
ESAB expects that, as a general rule, any recovery in steel consumption would lead to a similar percentage increase in the demand for welding consumables. On the basis of the WSA forecasts, ESAB would also expect that demand for standard welding equipment would start to show generalised signs of recovery during 2010. The market for cutting equipment is seen as longer-cycle and is expected to remain weak beyond 2010. Demand for engineered automation equipment from the oil and gas, nuclear and renewables segments of the energy industry will reflect the long-term dynamics of rising energy demand.
Competitive environment
Globally, ESAB is the leading supplier of welding consumables. It is the only worldwide, full service welding and cutting company and is also the clear industry leader outside North America where it ranks behind the two market leaders.ESAB operates in a competitive environment, consisting of a relatively small number of companies that operate on a multinational basis and a much larger number of smaller companies which operate in regional or product niches.
ESAB estimates that it has a 12 per cent share, by value, of the available global welding and cutting market. ESAB believes that, despite the turbulence seen in its Western European and North American markets in 2009, it at least maintained its global market share due to its continued efforts to enhance customer service, production facilities and product development, and as certain competitors were financially or operationally less well positioned to respond to the challenges presented by the economic and financial conditions prevailing during the year.
Over the longer term, ESAB expects to maintain and progressively strengthen its global market share, despite the potential threat of low cost manufacturers looking to increase their shares of markets in which ESAB has an established position, due to a number of factors including
- its brand;
- its industry-leading technology;
- its extensive product portfolio in both consumables and equipment;
- the governmental and other certifications it possesses for many different specialist and demanding applications;
- its manufacturing facilities which are generally modern and located in low cost areas;
- its well-established and wide-ranging distribution network and supply chain; and
- the financial strength of Charter.
ESAB aims to be a consolidator in the relatively fragmented worldwide welding industry and will look to make acquisitions which build its geographic strength, increase its presence in markets where it is currently under-represented or give access to new technologies, provided that the terms of the acquisition are expected to be value accretive for Charter shareholders.