The rate of recovery in the global low-voltage drives market will vary from industry to industry. It is forecast that some industries will take years to get back to their pre-pandemic levels. 

Omdia view

The global low-voltage (LV) drives market outlook has improved significantly in the past six months. Demand for LV drives rebounded in the third and fourth quarter of 2020, partly due to the resumption of work, as lockdown restrictions eased. The low-voltage drives market is now projected to decline at 8.5% in 2020, grow by 1.5% in 2021, and increase to 3.1% growth in 2022. However, there are still several challenges.

A patchy recovery is hindering a full rebound

The rate of recovery in the global LV drives market will vary from industry to industry. It is forecast that some industries will take years to get back to their pre-pandemic levels. The following graphic shows the estimated year that LV drives sales for different industry sectors will recover to pre-pandemic levels.

Figure 1: The estimated year that LV drives sales for different industry sectors will recover to pre-pandemic levels Figure 1: The estimated year that LV drives sales for different industry sectors will recover to pre-pandemic levels Source: Omdia

Boom in e-commerce drives recovery in trade, manufacturing, and export activities

The Covid-19 pandemic has had a profound impact on retailers and consumer behavior. There was a global shift to online shopping amid government-imposed lockdowns, which has contributed to a boom in the e-commerce sector. This shift is driving investment in logistics and warehouse construction as companies look to enhance the effectiveness of their operations.

Additionally, the recovery in global trade and export activities is expected to bring back demand for LV drives in related industries, such as conveyors and materials handling equipment. These industries are expected to return to pre-pandemic levels by mid-2021.

Omdia also expects a quick recovery for the commercial HVAC segment, with LV drive sales reaching pre-pandemic levels by 2022. This will be primarily driven by a solid rebound in manufacturing and export activities in the short-term. Rapid capacity expansion in the semiconductor and electronics industries, as well as data centers, will lead to more investment in LV drives used in the commercial HVAC market. 

However, unlike previous years, momentum from commercial construction activity is unlikely to be the driving force behind recovery in the commercial HVAC market. Drives sold into the commercial HVAC industry will not benefit from the rebound in global construction activity seen in Q3 and Q4 2020. This is because the major market behind this rebound - China - has already recovered to peak levels of construction activity and global construction spending is expected to decline until late 2021 as a result.

Market volatility persists in the heavy industries

The recovery in global oil prices has increased investor confidence, which is beneficial for LV drive sales into the refining and oil and gas sectors. However, oil producers are still cautious about investing in new facilities because the short-term risk of Covid-19 remains high, impacting travel activity. As a result, it is expected that global oil demand will remain depressed throughout the first half of 2021. Omdia expects LV drive sales into the oil and gas industry to decline by 16.7% in 2020 and pick up by 4.8% in 2021.

Figure 2: Global crude oil prices Figure 2: Global crude oil prices Source: IHS Markit

The long-term outlook and business opportunity for LV drives in the oil and gas sector will be determined by government policy, particularly those focused on sustainability. For instance, US President Biden cancelled the Keystone XL Pipeline on his first day in the office on January 2021. This will negatively impact investors’ confidence investing in the oil and gas sector, although the decision is yet to be finalized. 

Some major oil companies have also started to divest their oil holdings and explore and invest in renewable energy. For example, Shell is building a 100 megawatt (MW) electrolysis plant, scaling up from an existing 10 MW plant in Europe; BP and other European oil majors have recently focused on offshore wind assets, with BP signing a $1.1 billion deal with Norway’s Equinor late 2020 for a 50% stake in two U.S. offshore wind developments. This is a notable shift of investment from oil and gas to renewable energy and is expected to hinder the recovery of the oil and gas sector. As a result, LV drives sold into the oil and gas sector are not expected to recover to the pre-pandemic levels until after 2025.

Figure 3: Capital expenditure and low-voltage drives revenue growth in oil and gas sector Figure 3: Capital expenditure and low-voltage drives revenue growth in oil and gas sector Source: IHS Markit; Omdia

Like the oil and gas industry, a surge in commodity prices in the past six months is driving higher profit levels for mining companies. Mining companies like Rio Tinto and Zijin Mining have announced new investments and plans for capacity expansion, but the inadequate demand for metals and minerals is still likely to undermine market recovery in the near-term. Two key end markets (construction and automotive production) are still struggling to recover, negatively impacting the demand for metals and minerals.

This lack of demand, coupled with regulatory concern based on climate change, ensures that investors remain conservative when investing in the mining industry. Uncertainties in government policy specific to the mining sector, such as the dispute between China and Australia in seaborne metallurgical markets, keeps mining companies from investing in expanding operations over fears that the price premiums could evaporate without notice. As a result, the drives market will remain lackluster throughout the forecast period. Omdia does not expect the LV drive sales into the mining industry to return to pre-pandemic levels until after 2025.

In conclusion, the road ahead for the global LV drives market recovery is patchy. There are industries such as materials handling, water and wastewater, and commercial HVAC that have remained resilient amid the Covid-19 pandemic, but some of the brown field sectors like paper and textile machinery will need more than five years to recover to pre-pandemic levels. The rate of recovery in some of the heavy industries, such as oil and gas, and mining, will be impacted by government policy, but are expected to remain weak in the short-term due to weak end-user demand.

In Omdia’s ‘Low voltage drives market intelligence service’, we will continue to keep track the driving factors such as regional government regulations on energy efficiency, global economic conditions, and commodity markets. The latest market trends, forecasts, and analysis will be available in our next edition of the low-voltage drives report, due to publish in August 2021.

Appendix

Further reading

Machinery production market viewpoint service

Industrial automation equipment market viewpoint service

Chinese machinery invasion hinders European recovery

“Making Indonesia 4.0” – Unleashing opportunity in the industrial market

Biden to cancel $9bn Keystone XL pipeline's permit (March 2021)

Offshore Wind is at “inflection point” for Growth (March 2021)

Rio Tinto hikes investment in the Pilbara (March 2021)

Author

Joanne Goh, Senior Analyst, Manufacturing Technology

askananalyst@omdia.com