Changes in the Water Industry

This summary is taken from recent industry reports, the most important of which is the latest AWWA market status report delivered at the AWWA Trade Show and Conference in Atlanta this spring. The full report is available in print and PDF in the Business Development Department. Growth Expected to Continue For the last five years, growth in installed pipe for both potable and waste water has increased at about 2% per year. While part of this growth is attributed to population growth, most is driven by replacement. PE Penetration Accelerating The share of both new and replacement pipeline going to PE has been increasing. The best recent estimate has PE at 32% of new water pipelines and 37% of replacement. Forecasts are for this to grow to 35% and 41% respectively in the next three years. A Commodity No Longer As with oil, the days of cheap water are probably gone in the U.S. Demand for water has clearly outstripped available supply, meaning communities are having to develop new sources and the price of potable water continues to rise. Water Quality and Regulation Part of the increase in the cost of treatable water is new treatment standards. The grace period is about to expire on the last round of regulations and a full 40% of U.S. cities still do not meet the requirements and will soon face stiff DEQ (U.S. Department of Environmental Quality) fines. Most of those out of compliance are smaller communities ranging in population from 10,000 to 75,000. These cities tend to be further from water sources and residents tend to live on average further from the city centers. AWWA believes that State and Federal funding will be required to help bring these cities into compliance. If those funds do become available, AWWA expects a lot of activity in the sector. Since a significant part of the problem with current pipelines is contamination and loss of water due to corrosion and leaks, if grants become available to cover the extra costs, PE will be the product of choice.

Transportation and Distribution Most growth in PE installation over the last decade has been in distribution, mostly in the 4 to 8 pipe with used for connections from the lines to residences. While there is still considerable demand for molded butt fusion fittings in the distribution market, the trend is moving rapidly to electro-fusion. The problem with using PE on the transportation end is the need for fittings ranging from 18 up to 60. Pipe lengths are generally butt fused since electrofusion fittings are so expensive in those larger sizes. So the demand is for larger tees and 30 degree and 45 degree elbows and for some specialty configurations made to custom order. Again, corrosion and leaks are the fabricators ally in this business and demand for large size fabricated fittings is expected to grow at a 7% per year pace for the foreseeable future. Conclusions Fabricated fittings are not a new product, but the expected increase in demand places this product line in the growth stage of its life cycle. Margins should be strong, perhaps 75 85% until supply can catch up in about three years. Entry will be tempting but the costs and availability of the equipment should be a significant deterrent. The industry is attractive and Central is competing from a position of strength. This line has the potential to become a Star in our product portfolio both because of its potential revenue and profitability AND that this specialty product could help secure contracts that would include our electrofusion line. The key to success may be close relationships with utilities, high visibility at technical presentations, and strong field support for our customers.

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