Industrials Industry M&A Update
If oil prices remain low in 2016, industrial equipment wholesalers serving the energy industries may seek to alter their inventory and/or marketing strategies toward other industrial end-use markets with stronger growth potential. Global oil prices, a demand indicator for industrial equipment wholesalers that serve energy markets, are expected to average $57 per barrel in 2016, according to a recent Wall Street Journal poll of 11 investment banks. A global oversupply of crude oil in 2016 is expected to keep prices low, which could hurt demand for oil field equipment. In recent earnings calls, several oilfield services companies reported the industry is using sidelined machinery for spare parts to keep the equipment that is still operating in proper working order, according to The Houston Chronicle. Parts salvaged from idle equipment include motors, transmissions, and pumps.
US manufacturing activity, a demand indicator for industrial supply wholesalers, grew for the 33rd consecutive month in September 2015, according for the Institute for Supply Management (ISM). However, manufacturers generally reported slowdowns in new orders, production, and employment. Of 18 manufacturing industries reporting to the ISM, seven reported growth in September, including printing and related support activities; textile mills; furniture and related products; food, beverage, and tobacco products; paper mills; and nonmetallic mineral products. Manufacturing industries reporting contraction in September included primary metals; apparel and allied products; petroleum and coal products; wood products; electrical equipment, appliances, and components; machinery; computer and electronic products; and transportation equipment. Low oil prices are creating concerns for some industries including primary metals and petroleum products. The strong dollar has affected procurement costs and exports, and there is growing concern about economic uncertainty in China.
- Total US manufacturers’ shipments, an indicator of demand for industrial supplies used in manufacturing operations, fell 4.2% year-to-date in November 2015 compared to the same period in 2014.
- Total US wholesale sales of durable goods, a potential measure of industrial demand, rose 1.5% in November 2015 compared to the same month in 2014.
Posted by John Hammett.