Pumping China – Domestic gear pump market boom or bust?

This article is based on a GCiS multi-client report: China Hydraulic Gear Pumps Market Research Report

The purpose of this article is to gauge the potential growth of China’s hydraulic gear pump market and propose that there are still significant potential opportunities for businesses to thrive in this industry sector. To answer this, the article will focus on 3 main aspects, the market trend, existing competition and driving vs. inhibiting forces.

 

Since the invention of the first hydraulic gear pump in the 1600s, it has been driving the world around us as we know it, from paints to peanut butter to pulp and more. Hydraulic gear pumps operate by creating pressure through the meshing of rotating gear teeth, which forces fluid around the gears to pressurize around the outlet area and push fluids through a displacement method.

There are two main variations of target gear pump products in this article:

  • External Hydraulic Gear Pumps use two identical gears rotating against each other – one gear is driven by a motor and it in turn drives the supplementary gear. As the gears rotate, the changing size of the chambers created by the meshing and unmeshing of the gear teeth provides the pumping action. Because of their low cost and dirt tolerance, external hydraulic gear pumps are commonly used in constant flow and constant pressure applications on mobile equipment.
  • Internal Hydraulic Gear Pumps use an external rotating ring with internal gear teeth that mesh with a pinion as it rotates. When the gears rotate, the pinion teeth enter the gaps between the internal gear teeth and displace the pressurized fluid. The gear chambers can be sealed by gear meshing and/or the filler piece. Because of the design differences, internal hydraulic gear pumps have longer lifespan and are more expensive than external hydraulic gear pumps. For the same reason, internal hydraulic gear pumps offer delivery with a relatively low flow pulsation, as well as low intrinsic noise and sound emission. This makes internal hydraulic gear pumps the best choice for applications where low noise level is one of the important considerations.

A Brief Look at the China Market

The Chinese market for hydraulic gear pumps had experienced a year-on-year increase of roughly 5% in the past few years. The external and internal hydraulic gear pump segments are relatively distinct in their focus on the different application sectors, with very little overlap. External pumps are more widely used in the construction machinery, agricultural machinery, mining equipment and automotive sector, mainly due to its relatively higher dirt tolerance and lower pricing. Internal hydraulic gear pumps on the other hand are more suited for applications where low-noise level plays an important role in the machinery’s requirement.

In terms of revenue, currently the internal gear pump market is approximately a quarter the size (20% of total market) of the external gear pump market, but its total market sales volume is even lower, accounting for only 4% of market share. This is largely due to the higher technological requirements of the internal gear pumps, which many domestic suppliers are still lacking in technology, therefore end-users primarily source their internal gear pumps from foreign suppliers with noticeably higher prices, which in turn deters many potential end-users from using this product.

Figure 1 : Hydraulic Gear Pump Revenue Breakdown

Hydraulic Gear Pump Revenue Breakdown - GCiS China Market Research

Source: GCiS

Market Presence of Competition

The China hydraulic gear pump market currently has over 200 suppliers in total, but only around 15 of these suppliers are present in the internal gear pump market. On average, foreign companies charge relatively higher prices than their domestic counterparts on the basis of higher technology of their products, and pushed even higher as a result of additional import and transportation costs. Additionally, essentially all of the foreign companies import their products into China. It may be that the internal gear pump market would have more opportunities due to its higher growth rate and also limited competition, but the market is also more concentrated and has relatively higher technological entry barriers, therefore whether a company can seize the opportunities in this sector will primarily rely on their technological innovation capabilities and the ability to gain market presence. For a domestic company that can achieve the technology level of foreign companies or foreign companies that can manufacture domestically without compromising its technological knowledge and product quality, this market could present golden opportunities for such a company.

Potential Opportunities and Inhibitors

Regarding the growth of this industry, the downstream markets have seen decreased growth and even shrinkage in some areas in recent years. Additionally the prevalence of poor-quality and fake products will continue to damage consumer’s confidence in the target products and act as a significant inhibitor to this industry’s growth. On the other hand, due to the higher volumetric efficiency of internal hydraulic gear pumps relative to plunger pumps, which is commonly used in machine tools, there is likely to be large substitution effects between these two products in the next few years. However, at the same time gear pumps in general have lower volumetric efficiency compared to piston and vane pumps, which may see substitution effect away from the gear pumps respectively. One advantage though is that gear pumps with similar level of displacements tend to be relatively cheaper thus slightly offsetting this substitution effect, but a disadvantage is that it also tends to wear out more quickly and are generally not economical to repair. It is hard to determine whether these substitution effects will have an overall increase or decrease effect on the China gear pump market, but one main deciding factor that will help to drive the growth of this market is the supporting government policies, such as the subsidies provided to the agricultural machinery industry, which will encourage people to replace both old machines and old components. Overall, GCiS estimates that the hydraulic gear pump market in China can expect a 4.9% growth over the next 5 years, primarily driven by the growth of internal gear pumps sector.

Summary

There are higher technological barriers in the internal gear pump market sector making it relatively concentrated, and new companies looking to enter this sector will likely need to invest heavily in research & development to establish a solid market presence. Overall, this sector is expected to experience rapid growth in the near future, providing more opportunities for companies that have the capabilities to compete in it. As for the external hydraulic gear pump market, there are growth opportunities here as well, but given the higher number of competitors in this sector, companies looking to enter this market will have to assess their own technical competency to decide which sector would be most appropriate to their business model. Such as the lack of high quality products from domestic manufacturers in the China market is allowing foreign companies to earn high premiums from external hydraulic gear pump products with high working reliability and high efficiency in extreme circumstances. Overall, the hydraulic gear pump market as a whole is expected to experience slight growth in the near future, and together with the backing of government policies, it is expected to present some opportunities for companies to grow in the industry, especially the internal gear pump market. However the market remains relatively competitive and companies will have to consistently invest into researching better products to retain their market position. GCiS does not expect the China gear pump market to thrive in the near future, but it will continue to grow with the country’s economy, and there may be potential opportunities for companies that are willing to invest in R&D of more advanced gear pumps.