The HVAC&R industry’s biggest players are taking a cautious approach to business describing the current economic climate as flat with no signs of a turnaround before 2013.
Describing the current business outlook in Australia as “very uncertain”, ebm-papst A/NZ managing director, Simon Bradwell, said one of the biggest challenges currently facing the industry is trying to compete on price with imported products.
“Many companies are being hit badly by pricing pressure and a contraction of margins is causing liquidations and redundancies,” he said.
“The business cycle for HVACR is currently at a low point.”
To compete with imports, Bradwell said companies need to work closely with end users, regulators and other stakeholders to improve service and be more innovative.
Bitzer Australia managing director, Peter Gibson, said the Australian market in calendar year 2012 got off to a soft start for manufacturers of capital equipment.
Following this soft start, Gibson said stakeholders are looking hard at recovery plans.
As a result competition for upcoming projects is very high.
Asked about the biggest challenge facing industry and Gibson was quick to reply:
“Without a doubt the introduction of the new carbon levy presents the greatest challenge for the entire industry.
“Extraordinary price increases for refrigerants in the range of 300 to 600 per cent will necessitate major reviews in system design and the introduction of
new technologies.”
Gibson believes there will be a shift to smaller scale system designs that require
less refrigerant.
“Equally a greater focus on natural refrigerants is likely in coming months and years,” he said.
“It is an interesting time for local industry.” To meet these challenges, Gibson said Bitzer is working harder to keep ahead of technological trends and environmental engineering solutions.
With all of the main economic indicators pointing to flat trading conditions, it’s not surprising to find the industry’s biggest players are taking a cautious approach to trading for the rest of the year.
Business sentiment has been sliding since May, according the a National Australia Bank (NAB) survey of 300 companies.
However, Australia’s economic growth should stay around current levels until 2017, based on the results of BIS Shrapnel’s Long Term Forecasts Report (2012 – 2017), released at the end of July.
The report states that gross domestic product growth will remain around the current rate of just above three per cent for the next five years.
HVAC&R executives are less optimistic about near-term prospects.
Ziehl-Abegg Australia managing director, Michael Kelleher, said the current business outlook is “cautious at best and declining at worst”.
He said the lack of major and medium sized building projects planned over the next 12 months is cause for alarm.
“In my discussions with developers and small business, they state that the cautious attitude by banks has reached the stage where it is almost impossible to get a medium size project off the ground.,” Kelleher said.
“We are also taking a cautious approach but remain optimistic that Australian industry will adjust to the current financial climate and return with new, more energy efficient products and a more positive growth outlook.”
Kelleher said the two biggest challenges facing the HVAC&R industry is the cautious state of the investment market and implementation of the federal government’s carbon tax.
He said that in the fan industry, a lot of work has been done and is ongoing through the FMAANZ to meet energy efficient regulations.
“The challenge for industry will be learning to understand this new world we will be operating in and to meet these new environmental requirements in a cost efficient manner.”
In 30 years of attending industry trade shows and exhibitions, Kelleher said his experience at ARBS 2012 was certainly a first.
“Usually at these events conversations with industry colleagues usually start with an industry story or discussion about what’s new, but at ARBS this year everyone was talking about the political situation and the impact this is having on business,” he said.
Kelleher checked in with other industry veterans and found that they had
a similar experience.
“While I am sure the majority in our industry are a positive lot, we will need to adjust our business strategies to meet the current climate and turn our minds to a more positive approach,” he said.
Bitzer Australia managing director, Peter Gibson, said the Australian market in calendar year 2012 got off to a soft start for manufacturers of capital equipment.
Following this soft start, Gibson said stakeholders are looking hard at recovery plans. As a result, competition for upcoming projects is very high.
Asked about the biggest challenge facing industry, Gibson said that “without doubt, the introduction of the new carbon levy presents the greatest challenge for the entire industry”.
“Extraordinary price increases for refrigerants in the range of 300 to 600 per cent will necessitate major reviews in system design and the introduction of new technologies,” he said.
Gibson believes there will be a shift to smaller scale system designs that require less refrigerant.
“Equally, a greater focus on natural refrigerants is likely in coming months and years,” he said. “It will be an interesting time as the industry begins to better understand the future for this market.”
Gibson said Bitzer works hard to keep ahead of technological trends and environmental engineering solutions.
“For example, our new range of air cooled condensing units with EC high efficiency fans offer customers a new technology compared to standard fin and tube condensers,” he said.
“They leverage years of experience in automobile air conditioning applications but, now have been optimised for use in refrigeration systems and operate with less refrigerant charge compared to fin and tube versions.”
Air Change managing direct Steve Atherton said business is “flat at best” at the moment.
“We need to see significant improvements in the economy that will drive investment in the construction sector,” he said. “We need to make the adjustments necessary to handle the carbon levy and get on with the development of new refrigerants that are close to carbon neutral.”
Also describing the current business environment as “uncertain” is AIRAH CEO, Phil Wilkinson.
He pointed out that the economy in China seems to be softening and both Europe and the US are looking at double-dip recessions.
“By avoiding the major effects of the GFC in 2008, Australia proved that our economy isn’t as closely linked to these countries as it was in the past,” he said.
“There’s no doubt it’s a challenging business environment for many, and the Hastie collapse has had a knock-on effect throughout the HVAC&R industry.
“However, I’m cautiously optimistic that firms prepared to innovate will be able to ride things out in decent shape for when there is an upswing.”
Wilkinson said the transition to a low-emissions industry remains the biggest task facing everyone. He said it is more pressing than ever now that carbon pricing has been introduced.
In response to this challenge, Wilkinson said AIRAH is doing a lot of work behind the scenes liaising with government and fellow industry bodies.
“Our projects and initiatives are aligned with a low-emissions goal in mind,” he said.
While the levy is a concern, Wilkinson said it also provides an opportunity to retrain, focus on energy efficiency and improve maintenance.
“The HVAC&R industry has proven to be remarkably resilient in the past. I am confident we will deal with our present challenges in the same manner.”
He said other issues facing industry include the skills gap, OH&S and licensing issues, especially around natural refrigerants.
The sales and marketing manager of Rothenberger/Super Ego, Greg Collins, said the current business outlook is “flat and patchy” and is particularly soft in the more traditional markets.
He said there are opportunities for new products or service innovations as well as segments of the resources sector.
“The next six months is still a little uncertain due to conditions in Europe where the market is very soft – pretty much anything outside of Germany,” Collins said.
“Locally, Australia is fundamentally a lot better off in comparison to other countries, but we still haven’t seen the full impact of the carbon levy – this is still a bit of an unknown.”
He said he expected to see this multi-speed market settle into a regular pace in the future.
“Overall, we remain very optimistic and think long-term, focused on leading innovation, best practice local training and service as well as strong industry partnerships.”
Due to the sharp rise in the price of synthetic refrigerants, Collins said end users will have a low tolerance when it comes to paying twice when there are gas leaks.
This means new installations, servicing and repairs must be 100 per cent leak-free.
“Achieving this will require increased skill levels, the right tools, best practice work skills and commercial tolerance; in other words, no more cutting corners,” Collins said.
At the same time, he said the market will seek out alternate refrigerants but until they are mainstream, the industry will need to work hard to effectively contain current systems.
Panasonic marketing manager, Richard Tassone, was a bit more optimistic.
“Panasonic continues to grow its sales, as we expand our product line-up,” he said. “Retail sales are going well due to cool winter weather, and our energy rebate promotion is also proving quite popular with consumers.”
He said that in the specialist arena, mining and construction are driving the take-up of Panasonic's new VRF and packaged air product ranges.
Summit Matsu Chillers sales director, Daniel Rollston, was also positive about the next 12 months, saying the company is hiring and investing as per usual.
Despite this, Rollston admits that the manufacturing and building sectors are experiencing a downturn.
“These sectors seem slow and many contractors I talk to seem to be doing it tough at the moment,” he said.
The biggest challenges include the drive to use less power and the uncertainty around pricing as a result of the carbon tax, he said.
“I think the government has been particularly weak in supporting our industry with information, given that HVAC&R gets hit with a double whammy because we are large power users and have to deal with an enormous spike in refrigerant prices,” Rollston said.
“There also seems to be a skills shortage for young people who want a future in refrigeration manufacturing as the school system doesn’t seem to encourage this path enough.”
Rollston does identify some positives as a result of carbon pricing.
“I think that the carbon tax, and the focus that business will be placing on energy efficiency, could be the biggest stimulus to new equipment purchasing that we have seen in years,” he said.
“Companies who install new refrigeration plant benefit from increased power savings and also could be eligible for government funding for their project. There has never been a better time to make an investment in new refrigeration equipment.”
Rollston said Summit Matsu is fortunate as a niche manufacturer. “We are able to build new technology into our chillers much faster than multi nationals which may take years,” he said.
Fujitsu General deputy managing director, Philip Perham, said residential developments are forecast for moderate growth, 4.9 per cent in 2012/13 and 4.4 per cent in 2013/14.
“According to HIA data the outlook is strongest for Queensland, with HIA optimistic of a recovery from 2012 -13 and with new build forecasts expected to rise by 13.3 per cent,” he said.
Perham said rising electricity costs and the introduction of the carbon tax could influence product specification and will create an even greater demand for energy efficient models. He said there will also be a shift toward refrigerant types with lower global warming potential (GWP).
“With this in mind, Fujitsu General is looking to fast-track development of new models in order to meet expected demand in the near future,” Perham said. “With a growing need for greater design and installation flexibility, and indoor comfort in commercial environments, the Fujitsu General AIRSTAGE VR-II heat recovery system is ideal for a range of applications.”
The executive director of advocacy and business services at the Green Building Council of Australia, Robin Mellon, said the current environment is ideal for Green Star rating tools.
“Since Green Star was launched in 2003 more than 475 green building projects around Australia have achieved ratings, with a further 500 plus registered to achieve Green Star certification,” Mellon said.
A joint report by the Australian Property Institute, the Property Funds Association and the University of Western Sydney found that Green Star-rated office buildings are delivering a 12 per cent ‘green premium’ in value and a five per cent premium in rent.
Similarly, the most recent IPD Property Index has found that 4 Star Green Star-rated office buildings deliver a 10.8 per cent higher return on investment than non-Green Star buildings. Mellon said the HVAC&R industry faces a number of challenges in relation to sustainable design and construction.
“The first is designing and installing cost-effective systems that meet all the Green Star criteria,” he said. “Another challenge is to operate these new systems so that the desired performance outcomes are achieved.
“A further challenge is for the industry to operate, manage and upgrade existing systems to achieve good outcomes across all these categories.