NEWS RELEASE                                   AUGUST 2004

Three Big Growth Areas in Air and Water Purification Will Quadruple to $223 Billion by 2015

GE just acquired BHA. Siemens just acquired USFilter. Dow Chemical announced a doubling of its membrane production capacity. Honeywell announced a partnership with the American Lung Association. These actions by major global companies will help them take advantage of three big growth areas in air and water purification.  They are:

1.  Power plant air pollution control

2.  Ultra pure air

3.  Membrane filtration

In the broader sense, air and liquid purification revenues are close to $1.5 trillion per year or 3 percent of the $50 trillion world GDP. This general market is growing at a rate faster than GDP. But within this market the three big growth segments are each growing at double-digit rates. They presently represent less than 4 percent of the total market ($54 billon), but sales in this combined sector, will exceed $223 billion by 2015. The McIlvaine Company reached this conclusion by comparing and aggregating data from three of its current market reports.

World Yearly Expenditures $ Billions

                                                                        2004                 2015

Power Plant Air Pollution Control                       35                   150

Membrane Filtration                                             7                     37

Ultrapure Air                                                      12                     36 

Total                                                                  54                   223                                           

Power Plant Air Pollution Control:  Power plants in the U.S. have avoided major air pollution expenditures due to a “grandfathering” clause in the 1970 Clean Air Act. Now that protection is being eliminated. The result is a huge sudden market. The U.S. Interstate Clean Air Rule (CAIR) will take effect early next year, and by 2010 will have generated the largest air pollution investment of any rule in the history of the world. 

Grandfathered power plants are paying as little as 3 mils/kWh for pollution control. Various new regulations will increase this to nearly 15 mils/kWh. The U.S. fossil-fired plants will soon be generating over 3 trillion kWh of electricity yearly. This will boost air pollution yearly expenditures by 2013 to $45 billion up from $11 billion presently.

China is also investing heavily in power plant air pollution control equipment. Europe has already made a big investment, but it too will be investing still more. The high price of natural gas in the U.S. and elsewhere has made investment in new coal plants more attractive than gas turbines. The result will be world expenditures for power plant air pollution control of $150 billion yearly by 2013.

Capital investments will be significant. The CAIR rule will cause a $15 billion expenditure for SO₂ scrubbers and an additional $5 billion for NO_x control catalyst systems. System suppliers such as Alstom, Babcock & Wilcox, and Babcock Power are already seeing a surge of orders.

Despite the large capital outlays, the biggest costs are in operation and maintenance. Thus, companies supplying materials, service, and repair parts will benefit substantially. BHA is one of the largest service and parts suppliers in the air pollution business. The acquisition of this company by GE positions it as a market leader. Those companies offering outsourcing generate the largest potential revenues. Marsulex estimates the EBITA on just one medium sized power plant contract (including the sale of ammonium sulfate) at $150 million over the life of the plant.

Power plants will necessarily be in the chemicals business. They will be buying lime, catalyst, limestone, ammonia, and some other chemicals. They will be selling gypsum, fly ash, sulfuric acid, and ammonium sulfate. So revenues of companies such as L’Hoist, Mitsubishi, Haldor Topsoe, Carmuse, Koch, Terra, and LaFarge will be positively impacted.

This trend toward investment in coal-fired power plant pollution control will have both winners and losers. Donaldson has expanded sales of air filters for gas turbines to over $150 million/yr.  his business will not grow at the same pace over the next decade. However, since this is less than 20 percent of Donaldson’s total business and management has anticipated slower markets, there will be no major impact on profits.

Membrane Filtration:  Membrane filtration is the key to solving the world’s water problems. The World Bank says that today 300 million people live in areas of serious to severe water shortage and 25 years from now it will be three billion. The Southwest U.S. is in a serious drought. Texas and California are moving ahead with major programs to desalinate seawater using reverse osmosis membranes. Many sources of drinking water are contaminated. Membrane filtration can remove bacteria and viruses. Membranes can make wastewater reusable.

In 2003 there was a huge increase in the installed membrane capacity. The costs for owning and operating membrane systems around-the-world will jump from just $7 billion/yr. in 2004 to $37 billion/yr. in 2015.  Siemens/USFilter and Zenon have been a major supplier of systems to purify drinking and wastewater. Ionics, GE Water, ITT, Pall, and Dow Chemical are market leaders in desalination and reverse osmosis technology.

The larger water treatment market will not grow as fast as the membrane segment. Vivendi and Suez Lyonaisse, who formerly derived their primary revenues from operation of public water treatment facilities, acquired companies in vastly different water-related markets and in effect defined a new combined market with annual revenues of $655 billion. However, Vivendi has sold USFilter to Siemens, and Suez has sold Nalco to investors. This broader market includes the treatment and distribution of public water supplies; the collection, treatment and discharge of municipal wastewater; the treatment of industrial water and wastewater, and the treatment of process water and other fluids. This broader market is 1.4 percent of the world's gross domestic product.

Water is the workhorse of industry. It is the universal solvent. Water is also the most important substance used in the generation of electricity. Expensive water treatment is needed in the steam cycle.

In the United States, drinking water is cheap. It usually costs between 50 cents and $2.00 per 1,000 gallons, depending on where one lives. Milk, soft drinks, orange juice, and bottled water can cost up to several thousand dollars for 1,000 gallons, and liquor costs tens of thousands of dollars for the same quantity.

The average American uses between 50 and 150 gallons of water each day, 29 percent for flushing the toilet; 39 percent for bathing, laundry, and dish washing; 30 percent for swimming pools and watering lawns and gardens; and a mere 1.5 percent for drinking and cooking. Only 0.5 percent is actually used for drinking.

In the United States, about 450 billion gallons of water are withdrawn from the earth every day. That translates into 2,000 gallons for every person in the country. Most of this water goes to industry (58 percent), but much of it is reused. The next biggest use is irrigation. Industry's consumption throughout the United States is eight percent of the total; the public sector consumes about 4.5 percent of the total; commercial uses such as car washes, laundries, etc. account for 2.5 percent; and rural consumption amounts to only four percent.

Ultrapure Air

People with allergies, health workers attempting to avoid SARS, and soldiers who need to be protected from bio and chemical weapons all require ultrapure air. Even the average homeowner has indicated his willingness to pay a significant amount for insuring that clean air circulates in his home.

Honeywell has determined that purchasers of new homes would be willing to pay $1,000 or more for clean air systems which would meet criteria set by the American Lung Association. 3M has convinced many homeowners to spend five times as much for a better furnace air filter.

Industry is going to be increasing its ultrapure air requirements at double-digit rates. Semiconductor, flat panel display, and other electronic manufacturers need air 500,000 times cleaner than the air in the typical home.

Homeland Security could generate hundreds of millions of dollars in revenues for firms providing building protection air systems. Hospitals need to make massive investments in air filtration systems to reduce infection rates and to have some means for patient protection in case of a bioterrorism event.

Clarcor, Flanders, Camfil, Donaldson, 3M, Honeywell, Fedders, and AAF are all major players in this segment. It is also a growing market for filtration media suppliers such as Kimberly Clark, BBA, Lydall, Hollingsworth & Vose, and Johns Manville. 

A number of smaller companies in related areas have very high growth potential. For example, Asyst Technologies makes the automation equipment which facilitates construction of contained environments and allows personnel to remain outside. This eliminates the personnel contamination. Those companies designing pure air systems, which minimize the amount of air to be treated while maximizing the purity of the air in the working environment, have growth potential even greater than the segment as a whole.

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