Industrial generator market projected to rebound

IHS Markit expects generator suppliers expect to recoup margins from 2018-2020 as average selling prices maintain steady growth throughout the time period after the industry contracted in 2016.

01/17/2017


IHS Markit expects generator suppliers expect to recoup margins from 2018-2020 as average selling prices maintain steady growth throughout the time period after the industry contracted in 2016. Courtesy: IHS MarkitThe average selling prices of low- and medium-power generators contracted in all regions in 2016. This contraction was a result of low demand, low input costs, and constrained global capital expenditure. Premium suppliers have been hit the hardest by the recent dip in selling prices by relinquishing hard-earned margins to stay price competitive and maintain market share.

From an input perspective, commodity prices recovered from their subsequent plunge in early 2016. Intermediate component and material costs are now at record year-over-year increases for the first time since late 2013. This change is likely to lead suppliers to attempt to lift prices, most likely beginning in mid-2017. IHS Markit expects generator suppliers expect to recoup margins from 2018-2020 as average selling prices maintain steady growth throughout the time period.

According to research from the IHS Markit Generators Research Package, average selling prices are expected to stabilize in 2017. However, generator suppliers are finding other ways to add value in place of reducing overall selling prices. By providing a lengthier warranty than that of the competition, a generator supplier will be able to win orders through promoting reliability to the purchaser, though while also assuming some risk given the lengthier period of the warranty.

Additionally, generator suppliers are adding value to their products by engineering ways in which products are easier to maintain and install. One example of this method is the manufacturing of skid plates that are designed to be installed in a number of applications. A more universal generator skid plate provides an easier install process to the end-user compared with traditional skid plates which are manufacturer specific.

Despite average selling prices for low- and medium-power generators sliding to a five-year low in 2016, generator suppliers are remaining resilient and developing strategies like those mentioned in the previous paragraph to maintain market share. The market outlook for average selling prices becomes more favorable to suppliers beginning in 2017 as global capital expenditure is expected to increase.

Matt Tolley is an analyst for IHS Markit. IHS Markit is a CFE Media content partner. Edited by Chris Vavra, production editor, CFE Media, cvavra@cfemedia.com.

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