What’s in store for 2005
The global village came of age in 2004 and “The
China Price” became a household term known among
US and European cable harness makers and wire fabricators
as the price they must meet. Chinese producers in their
quest for cheaper labor were investing in Vietnam and
scouting for opportunities in Africa. Singapore saw Tata
Steel takeover Natsteel and Vietnamese cable exports
grew at a rate of 37% in the first 6 month of 2004. A
growth rate is difficult to sustain as volumes increase
China embarked on an acquisition and
investment spree buying up resource companies and forming
joint ventures to secure cook supplies to its booming
industry. For 2005 the China market is likely to continue
its rapid transformation to a modern consumer driven
society sustained by a dynamic manufacturing industry
that now looks outward to reinvest its large trade surplus
with the rest of the world.
While China’s steel imports helped sustain the
world’s steel industry and firm up prices the exit
of 2004 saw China become a net exporter of steel. The
implications of this are yet to be seen as more steel
capacity is brought on stream. Generally speaking flat
products account for most of the expansion as many steel
mills not least in China and India have chosen to expand
flat steel capacity over lower priced long products such
as rod.
It is generally accepted that Chinese
industry will continue to have an interest in forming
joint ventures to gain technical process know how such
as the many tire cord plants now under construction.
However it is also reasonable to expect that the Chinese
industry will be more selective and insist on a higher
Chinese content of the machinery portion as the local
equipment industry now are quite developed and well capable
of providing much of the basic machines needed. To ensure
a future piece of the action equipment suppliers such
as Nextrom now has manufacturing subsidiaries in China.
Corning was recently cleared from dumping allegations
but as the domestic Chinese market gets saturated it
is reasonable to expect that local suppliers get increasingly
concern about import competition.
Chinese growth is generating a voracious appetite for
Australian commodities. Economists say economic activity
in China has reached a stage where its contribution to
world growth is more significant than that of the United
States. It is a smaller economy and because it's growing
so strongly it's actually more important than America
is, some experts say. Australia is particularly exposed
to the rapid industrialization of China.
This results in very strong demand for things like copper,
oil and energy in general such as coal.
China’s rival as the world’s industrial
powerhouse is of course India. The irony is that India’s
billion dollar knight in shining armor steel magnet Lakshmi
Mittal who after his Mittal Steel’s most recentacquisition
Has emerged as world's largest and probably best-managed
steel producer yet has no presence in India.
Despite the turmoil in Iraq and the Palestinian territories,
the Middle East was the second fastest growing region
in the world after China last year. A combination of
high oil prices, low interest rates, ample liquidity
in the banking system and expansionary government budgets
were the key driving forces for the region's stellar
economic growth rate of around 6 percent in 2004, compared
to China's 9.4 percent, the U.S.'s 4 percent, and a world
average of 5 percent. The region's strong economic growth
looks set to continue this year as well, although at
a slightly lower rate than in 2004.
Looking on various segment of the industry fiber optic
long haul cable demand is still weak, while the fiber
optic cable access and premises markets should continue
to thaw in 2005. Vendors and forecasters however expect
winter temperatures will remain in place over the long-haul
(LH) cabling landscape next year-and probably even longer.
No major new deployments are on the horizon, particularly
now that China has completed most of its build-out. That
leaves cabling companies fighting for scraps while waiting
for the current ice age to pass.
Speaking at the 2004 Newport Conference
on Fiber optics Markets in October, Patrick Fay of KMI
Research noted that while the U.S. long-distance market
will experience a 37% compound annual growth rate between
2003 and 2009, the next few years will continue to challenge
fiber and cable vendors. He later explained that while
the 37% sounds promising, that apparently strong rate
results more from a very low starting point in ’03
than from expectations of large long-distance construction
programs.
KMI estimates that 150,000 km of cabled
fiber was installed in the United States last year-less
than 2% of the 9.8 million fiber-km installed during
the peak year of 2000. The growth expected in the next
few years will consist of some new intercity routes rather
than nationwide programs. Some of the new routes may
include upgrades or overlays of older cable routes-AT&T,
MCI, and Sprint have routes dating back to the mid-1980s,
for example.
The outlook appears even worse internationally, where
LH applications will barely end up on the plus side over
the next five years. As in the U.S., there will be a
smaller number of new long-distance construction projects.
Most of this activity will occur in developing markets
where there has been less previous activity.
The view from the vendor side isn’t any better. “We
know of about 1,500-2,000 miles of actual projects that
are going to be either new long-haul or troubled long-haul,” says
Greg Williams, director of marketing at Draka Comteq
USA ( Claremont, NC), of the U.S. market in 2005. “If
we’ve got visibility of about 2,000 miles of projects
right now, I would say the market next year is probably
not going to be more than 5,000-6,000 miles.”
The market may be sleeping, but the fiber and cabling
companies remain awake in the labs, readying new products
for when demand rebounds.
The power cable market looks more promising.
It is absolutely essential to increase US electrical
transmission capacity and the pent up demand for power
cables is set to explode once regulatory obstacles that
stifle construction are removed. Property rights are
absolute and it is possible that the lights have to go
out for good before power transmission corridors can
be negotiated and agreed upon one frustrated power company
official said.
The European cable market for infrastructure
is expected to continue to expand, fueled by strong demand
for high-voltage and umbilical cables and satisfactory
growth in sales of medium and low-voltage cables. The
European building cable market, in contrast to that in
North America was uneven , primarily due to the sluggish
business environment in Germany.
There is reason for concern in Europe
that the economy may contract. A strong Euro or rather
a weak dollar have put a damper on the prospect of a
continued recovery. Nexans has won a contract worth around
Euros 15 million to manufacture and install the world’s first 420kV
XLPE (cross-linked polyethylene) submarine power cable
for the ongoing development of the Ormen Lange gas field
on the Norwegian continental shelf. The customer is Statnett,
Norway’s state-owned transmission system operator.
US Steel wire producers (those left) are smiling again
as the falling dollar provides an effective floor price
and the expiry of temporary steel tariffs eased rod prices
and hence helped restore profit in the secondary steel
processing industry.
The turn around that are now seems to be well underway
in most sectors of the wire and cable industry came too
late for some equipment suppliers both in North America
and Europe and the mergers and acquisitions that took
place in 2003 and 2004 is likely to continue in 2005.
Ability to quickly adjust to reduced order inflow from
traditional markets seems to have been the criteria for
survival.
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