Steady But Sure

Manufacturers chime in on state of the water and wastewater industry

As 2004 comes to a close, WWD recently interviewed a number of executives representing a wide variety of equipment manufacturers serving the water and wastewater industry in order to get their feedback on the status of the marketplace this past year.

Additionally, WWD asked those interviewed for their comments on what the industry can expect in 2005.

Assessing the current status of the water and wastewater industry, the overall consensus of the manufacturers felt the marketplace ranks from fair to good regardless of the lack of funding that is apparent.

“Current status is fair,” said Fritz Egger, director of marketing for JWC Environmental. “According to best estimates, the equipment market is plodding along at an approximate 3% annual growth rate. We all know that U.S. infrastructure needs are great, but the funds simply aren’t there.”

Egger went on to mention the EPA estimated last year that over 15% of State Revolving Loans Funds (SRF) are being spent on storm overflows. He added that reported equipment purchases in this segment remain very low despite the funding.

James Vecchio, marketing manager of municipal business for Koch Membrane Systems agreed with Egger’s assessment of the industry as “fair” adding “capital spending for water and wastewater process equipment seems to be soft this year.” So what has caused the level of spending on water and wastewater equipment purchases to be off in comparison to years past? This may be due, in part, to the priority that has been placed on improving security, as well as the economic instability of the past few years.

However, industry manufacturers are expecting to see positive growth for both the industrial and municipal sides in 2005, as well as the water and wastewater marketplace outside of the U.S., in the near future.

“Along with the global economic improvement over the past 18 months, we have seen increased demand from industrial clients and many of the key export markets,” said Tom Mills, vice president, Severn Trent Services. Mills added that the better employment figures and corporate earnings that have been reported in recent months have not yet trickled down to the U.S. municipal budget level where current spending is limited and strictly controlled—but the potential remains.

“The municipal business continues to show good growth after only a slight slow-down related to the events of September 11, 2001,” said Andy Seidel, former chief executive officer for USFilter (USFilter announced Seidel’s departure from the company shortly after this interview was conducted). “The strongest international growth is clearly centered around China, although the entire Pacific Rim is an active water/wastewater market.”

Which raised the question: In the overall scheme of the business world, how does the water and wastewater industry’s rate of growth compare?

“Certainly, one can state that there have been better times over the past 30 years,” said Ken George, vice president-operations for ITT Sanitaire. “However, on a macroeconomic basis and, when compared to the state of other North American industries, the water and wastewater sector continues to show the steady 3-4% growth in demand for environmental solutions.”

According to George, the key strategic drivers such as population growth; environmental regulation; aging of infrastructure—upgrades and maintenance of existing systems; increasing scarcity of usable water; and a common desire for improved environmental conditions for our waterways, are still present and remain strong.

T. David Chinn, vice president of strategic business development for ZENON Environmental, Inc., also highlighted the importance of the global water supply by adding “an adequate, healthy supply of water is the fuel for the economic engines of the future.”

Walking the line

In retrospect, the current status of the water and wastewater industry is about the same as many of the industry’s manufacturers expected when reviewing their 2004 market predictions. However, there seemed to be a few surprises along the way.

“I believe that in the first quarter the industry experienced a slight anomaly that had not been seen since the late 1970s,” said ITT’s George. “Projects that were in the design pipeline were delayed from tendering and many of those that did bid experienced a delay in award.”

According to George, there have been a number of reasons cited for this occurrence including the general state of the industrial economy; increases in raw material costs that were impacting negatively on the consultant’s estimate versus the expected bid price; a need to focus efforts on security issues; and the overall funding problems.

“These seemed to work themselves out by May and the market has been relatively robust since then,” he added. Responding to the growth surge that was evident toward the latter part of 2003, the water and wastewater marketplace appeared to level off and hold relatively steady with an eye toward slow growth in 2004 and a slight sign of progress.

“I have not been surprised by what is happening in the market but do not believe there is a long-term problem for the industry,” said Koch’s Vecchio.

USFilter’s Seidel concurred adding “the pace of business remains generally on track with what we had forecast at the beginning of 2004.”

A look into the future

As the saying goes, “the more things change, the more they stay the same.” That certainly applies to the water and wastewater industry in these days of economic consciousness, consolidation, emerging technologies and ever-changing product lines tightening competition for the available dollar, not to mention a host of other issues.

But, realistically, what effect may these applicable factors have on the industry in 2005?

“We expect 2005 to be similar to 2004 with slow but steady improvement in most markets,” said Severn-Trent’s Mills. “Undeniable drivers such as aging infrastructures and excessive water demand in some of the more arid regions aren’t going away and progressive companies and communities that value project spending over a life cycle will invest today. Interest rates remain low and competition is fierce—it is a good buying scenario.”

Of course, funding plays an integral role in determining whether or not 2005 may be deemed a success by the manufactures. “A key issue is the 2005 budget, specifically in terms of SRF funds,” said JWC’s Egger. “The current Senate version calls for $1.35 billion while the House version features a reduction to $850 million. Passage of the House’s version and the corresponding reduction in SRF funds would be a body blow to our industry.”

Mike Ulizio, president of the F.B. Leopold Co., Inc., also commented on how funding can determine a successful 2005. “Prospective projects for 2005 in our tracking systems appear to be at or slightly ahead of this time last year, which would indicate a steady pace of work through the next year. Given, of course, that world events or a sudden lack of funding doesn’t alter the utilities ability to move forward on planned projects,” he said.

“We see a significant increase in the number of new projects underway, at the same time that bidding on many jobs has been on hold due to funding issues,” added Vecchio. “There appears to be a pent-up demand that bodes well for 2005, and we expect that the strong overall economy will result in more money being made available next year for capital improvements.”

Despite the concerns funding may have in determining success in 2005, various niche segments of the water and wastewater industry are poised to increase in popularity and continue their emergence into both the industrial and municipal areas of the industry.

Specific accelerated interest and growth may include membrane bioreactor technology, desalination, ozone and UV technology for disinfection and oxidation applications, involving the general area of water reuse.

As the industry appears to be trending toward interest in products related to improving water and wastewater treatment, there is also a continued focus on solving the problems related to scarce or depleted water resources.

“We feel particular positive about the biological treatment and filtration market, especially as it is related to reuse,” said Robert Wimmer, president and CEO of Aqua-Aerobic Systems, Inc. Projected water shortages are forcing users to look at reuse options, Wimmer noted, adding that his company has seen significant interest in water reuse seminars they’ve conducted.

As the nation’s 54,000+ public water suppliers are expected to meet more stringent water quality standards, the related technologies should become more prevalent specifically the technology involving water reuse.

“In order to reduce pressure on water supplies, many communities are looking at wastewater effluent as a beneficial resource,” said ZENON’s Chinn. “Using advanced treatment, wastewater treatment plants can now produce a high quality effluent which can be used in place of potable water for irrigation, environmental stream restoration and industrial uses.”

Further, the number of applications involving membranes appears to be increasing dramatically.

“MBR’s appear to be very hot, and will be the big growth area next year and for many years to come,” said Koch’s Vecchio. As the popularity of membrane-related technology surges in 2005, the long-term benefits of incorporating this technology into a water or wastewater system are certain to become more evident.

“The cost of membrane systems for reliable suppliers has now come down to a point where they easily compete with conventional water systems when the added benefits such as reduced footprint, better water quality and better automation are included in the evaluations,” said USFilter’s Seidel.

Tim Gregorski is editorial director of WWD.

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