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Assessment of China's Market for Screw Pumps

Twin Screw Pump Market – the Optimal Choice for Screw Pump Makers in China
The Chinese market for screw pumps is growing strongly, with particularly strong opportunities in the twin screw pump market segment.

Screw pumps play a fundamental role in various aspects of everyday life; from sewage and waste water treatment to the extraction and processing of raw materials and manufacturing of finished products, the applications of these pumps are almost endless. Sales of these pumps are also growing rapidly in China, and not only because of the country’s overall economic growth. In terms of revenue, screw pumps only account for 7.5% of the Chinese pump market compared to around 11% internationally, suggesting that there is still plenty of room for future growth. Based on recent research by GCiS China Strategic Research, twin-screw pumps appear to have particularly strong prospects in the near future, not only for existing suppliers but also for potential new market entrants.

 

Single Screw Pumps – An Attractive Market for Existing Foreign Suppliers

A single screw pump contains one screw that rotates within a stationary stator. This type of screw pump can handle a variety of fluid characteristics, including high levels of solids, corrosives and fluids with variable viscosities, making them particularly attractive for the urban water treatment industry, which alone accounts for almost a third of total sector revenues.

Figure 1: End-user Industry Revenue Breakdown – Single Screw Pumps

End-user Industry Revenue Breakdown – Single Screw Pumps - GCiS China Market Research
Source: GCiS

NETZSCH, the largest single screw pump supplier, saw its Chinese single screw pump revenues an increase by 20% in 2012 and expects continued rapid growth in the future, mainly driven by the increased demand for single screw pumps from the urban water treatment industry. Due to the increasing urbanization and concerns about environmental protection, the urban water treatment industry is expected to see turbocharged growth in the coming years. It is noteworthy that the domestic Chinese suppliers’ market share is low in this application. According to GCiS’s research, revenues in this market are expected to have a higher CAGR than for other kinds of screw pumps between 2013 and 2017.

However, the increasing share of sales to the water treatment industry is also having a negative effect on profit margins. To quote one major foreign supplier, “If we earn RMB 40 per unit from screw pump sales to the urban water treatment industry, we can earn around RMB 60 from sales to the food & beverage industry, and at least RMB 80 per unit from sales to the oil exploration & extraction and the petrochemical industries”. Profits, therefore, are increasing at a slower rate than revenues or unit sales, and the total increase in absolute terms is likely to be lower than those of twin screw pumps, whose largest application is in the oil exploration & extraction industry. In addition, the number of companies in China’s single screw pump market is larger than other types of screw pumps, indicating more intense competition and likely lower profit margins.

Foreign companies as a group account for around 60% of this market, higher than markets for both single and three screw pumps. These foreign companies attach great importance to building a strong brand, which means that their products are perceived as distinctive. Products made by potential players cannot perfectly replace those made by incumbent players. This makes it hard for new entrants to gain consumer acceptance. Potential new players may have to invest to attract customers away from existing suppliers; otherwise customers may rationally stick with their current brands that offer satisfactory products. All the factors mentioned above mean that the single screw pump market in China is an attractive market for a foreign supplier who already produces single screw pumps used in urban water treatment industry and with a strong reputation, however new entrants may find it hard to penetrate the market.

 

Twin Screw Pumps – The Most Promising Market for both Existing and Potential Suppliers

A twin screw pump has two intermeshing screws placed parallel to one another with small gaps in between so that there is no direct contact between the two screws, thus allowing for better performance in pumping of non-lubricating, corrosive or even contaminated fluids. Compared to the market for single screw pumps, China’s twin screw pump market not only expanded more quickly in 2012 but was also larger to begin with, which highlights its superior growth prospects. GCiS expects high growth potential for this market in the near future and considers this market to be the optimal choice for both current players and new entrants.

Profits of the twin screw pumps will grow faster than other types of screw pumps, because their biggest end-user customers from this industry – the oil exploration & extraction industry – place the most emphasis on product quality rather than price, and are therefore willing to pay premium prices for the best products.

Figure 2: End-user Industry Revenue Breakdown – Twin Screw Pumps

End-user Industry Revenue Breakdown – Twin Screw Pumps - GCiS China Market Research
Source: GCiS

As a result of the increasing demand for oil in China and the government’s determination to reduce its dependency on imported oil, a majority of the suppliers interviewed by GCiS rated the oil exploration & extraction application industry highly in terms of its growth prospects. Furthermore, the outlook for the total output of twin screw pumps is looking positive over next few years as a growing number these pumps are likely to be exported to oil-rich Middle Eastern countries, some of which are currently under U.S. sanctions. Chinese suppliers will be able to take advantage of the absence of US competitors to increase their sales.

Based on the above factors, the development of twin screw pumps would be a top priority for both current players and newcomers in China’s screw pump market over the next few years.

 

Three Screw Pumps – a Choice for New Entrants but not for Current Players

A three screw pump has a centrally-located primary screw intermeshing with two secondary screws on each side, with the central screw driving the two outer idler rotors. These pumps have higher efficiencies and higher pressure capabilities than other types of screw pumps, making them ideal for using clean, lubricating fluids. The technical barriers for these pumps are relatively low and might be attractive to new entrants. However, the market for three screw pumps is not the ideal choice for current players in this market.

The majority of three screw pumps’ revenues come from the power and the metallurgy industries. However the expected continuation of slow growth and cost-cutting plans in these two industries suggests poor growth prospects for the three screw pump market in the coming years. In addition, customers who pay more attention to prices rather than operation stability may choose the cheaper gear pumps as an alternative to the three screw pumps. As a result, some suppliers, such as RedScrew Pump, have shifted their manufacturing focus from three screw pumps to other types of screw pumps.

Figure 3: End-user Industry Revenue Breakdown – Three Screw Pumps

End-user Industry Revenue Breakdown – Three Screw Pumps - GCiS China Market Research
Source: GCiS

Additionally, prices of three screw pumps are expected to face downward pressure, mainly due to this falling demand which is likely to lead to falling profit margins. The relatively low utilization rate implies that competition in this market will be a lot more intense in the near future.

 

Overall, twin screw pumps will be the most attractive choice for both existing and potential players in China’s screw pump market in coming years due to their relatively high growth potential, large market size, high profit margins and a small number of active suppliers. In regards to the single screw pump market, current foreign suppliers have already established significant dominance in this market and will be able to continue to capture additional profits with little efforts. However, this market has lower prospects than the twin screw pumps market due to its relatively low profit margins and the large number of suppliers, therefore any additional profit is likely to be limited. The three screw pump market is expected to grow the slowest relative to single screw pumps and twin screw pumps; its profit margins are very likely to decrease as a result of downward pricing trends, making current players shift their focus towards other types of pumps.

 

About GCiS China Strategic Research

GCiS (www.GCiS.com.cn) is a China-based market research and advisory firm focused on business to business markets. Since 1997, GCiS has been working with leading multinationals in sectors ranging from technology to industrial markets, medical, chemicals, resources, building and constructions and a few others.


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