The McIlvaine Company

Air Pollution Market Soars, But Investment Opportunities Are Few


Source: The McIlvaine Company

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For the first time in 30 years the air pollution industry is making money, in fact lots of money.  But investors will find it difficult to take advantage of this creation of wealth according to Air Pollution Management , an online report on the air pollution control market published by the McIlvaine Company, Northfield , IL .

On the average the world air pollution industry lost money from 1980 to 2003.  However the market rebounded in 2004 when world air pollution control industry profits were estimated by McIlvaine at $3.2 billion.  Profits are forecast to grow to $21 billion in 2015 with $3 billion generated from the supply of systems, $11 billion from the supply of products, and $7 billion from the supply of services.

The primary profit engine will be the power industry which will account for $13 billion or 62 percent of the total profits.  The biggest single market will be China .  The biggest product category will be scrubbers for power plants.   China will spend $5 billion/yr for scrubbers over the next 5 years.  By 2010 China will then have more installed scrubber capacity than the U.S. and Germany combined (the next two largest users).

There are a number of barriers for individual investors.  First, much of the profit will be generated by large companies such as Alstom, McDermott, GE, and Siemens.  But air pollution control is such a small percentage of the total profits for these companies, there will be little impact on stock prices from the air pollution control activities.

Another barrier is the industrial focus of some of the public companies where air pollution control is a significant segment.  Companies such as Donaldson, Clarcor, CECO, and Met Pro will not benefit from the huge surge in power plant air pollution control activity.

Another barrier is the small size of many of the companies.  Suppliers of components are typically private companies with sales of less than $40 million per year.  One exception is Koch which supplies mist eliminators and ammonia.  Koch is a very large private company.  Air pollution control is therefore a small segment.

There are some opportunities for individual investors.  Marsulex just received a $60 million scrubber order.  It is a major participant in the Chinese market.  In addition to conventional scrubber systems, it offers a system to convert the sulfur to ammonium sulfate fertilizer.  The EBITA on a potential long term build-own-operate contract was estimated at $150 million.

Another possibility is MFRI.  The company is the second largest producer of dust collector bags in the U.S. (GE BHA is #1).  Many new and existing power plants will use baghouses rather than precipitators.

Fueltech is another publicly traded company in air pollution control.  With annual revenues of $70 million, it is pursuing the NO x control market.

ADA-ES has received more than $20 million in investment through private and then public offerings.  It is pursuing the market for mercury control.  It has an aggressive growth plan that would greatly increase its present annual revenues of only $14 million/yr.

If more stringent mercury rules are adopted and activated carbon becomes the most popular choice for mercury capture, then the ADA-ES could be a leader.  On the other hand, if the present Clean Air Mercury rule is not struck down or if another option such as chemical oxidation prior to scrubbing becomes the popular choice, then the anticipated revenue growth will be difficult to achieve.

ADA-ES or another company could also begin to roll-up other small companies to create a significant presence in the industry.  Allied and Babcock Power are privately held companies which could also serve as the base for multiple acquisitions.

In addition to companies making the basic air pollution control equipment, it would also be possible to acquire companies making dampers, nozzles, pumps, burners, and electrical controls used in air pollution control.

Siemens may pre-empt other would be conglomerates.  The purchase of Wheelabrator provided them with the system capabilities.  The acquisition of USFilter provides them with the scrubber wastewater treatment technology.  Within the last few months they have acquired Advanced Burner Technologies (a manufacturer of low NO x burners) and Kuehnle, Kopp, and Kausch, a major supplier of air pollution control fans.

GE is also pursuing the market with the purchase of BHA, Enertech, EER, Betz, Ionics, Osmonics, and Zenon.

Euro Tech Holdings Company Limited has acquired a 20 percent equity interest in Zhejiang Jia Huan Electronic Co. Ltd., a company making electrical controls for electrostatic precipitators.  Because of the size of the Chinese market, acquisitions in this country are attractive.

Air Pollution Management also includes periodic web/phone discussions.  The next “ Air Pollution Investment Opportunities ” discussion will be December 7, 2006.

For more information on Air Pollution Management and the discussions, click on:

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