High Retrofit Demand and Need for Integrated Solutions with Value-Added Services to Drive Growth in European ACS Market in the Pulp and Paper Sector

ONDON – The European automation and control solutions (ACS) market in the pulp and paper sector is nearing saturation. The maturity of the European ACS market in pulp and paper suggests that automation and control solution manufacturers should rethink their growth strategies in this sector in order to maintain profitability.

Frost & Sullivan (http://www.industrialautomation.frost.com/) finds that the European ACS Market in Pulp and Paper earned revenues of $1.22 billion in 2006 and estimates this to reach $1.39 billion in 2013.

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Pulp and paper makers’ conservatism towards adopting rapid technological advances has begun to fade. However, automation and control solution manufacturers need to be aware of the changing needs of end users and the diverse criteria on which they will evaluate their suppliers in the future.

Pulp and paper makers in Europe are under pressure to cut costs by removing process bottlenecks and to improve overall process efficiency. “The primary driver for growth in the European ACS market in the pulp and paper sector will be the growing need to improve the efficiency of existing pulp- and paper-making processes for better profitability,” notes Frost & Sullivan Research Analyst Ambika Kolangarakath. “The need for the effective use of raw materials such as fibre and energy will lead to continued investments by pulp and paper makers in automation architecture and control systems to streamline their operations.”

Meanwhile, ageing control solutions and technology obsolescence in automation architecture in most of the older mills will drive replacement demand in a large number of western European mills.

Most of the control solutions in the older mills are about 15 to 20 years old and have to be gradually replaced, since it will become increasingly difficult for end users to obtain hardware, software or manpower support for this antiquated technology. This is a positive development for automation suppliers, since very limited replacements have been made in their large installed bases in Europe to date.

Given the high levels of competition in this market, there is a growing need to add value to products, with an emphasis on comprehensive and integrated control solutions. “Currently there are several ACS product offerings with minimal differences in features and benefits,’ explains Kolangarakath. “These need to become less commoditised if drastic price reductions, intensifying competition and general business decline are to be addressed.”

A key restraint to revenue growth in this market is the negative price pressure arising from increasing commoditisation and declining differentiation in the vast range of products offered by suppliers. With intense competition contributing to low growth in the market, the major participants will need to focus on product differentiation though value-added features and functionality, along with differentiated services.

Meanwhile, small- to medium-sized suppliers that focus on single or niche solutions will have to expand their product portfolio or resort to mergers with other companies to supplement their offerings. This aspect will assume greater importance since most end users are increasingly looking to meet all or the majority of their control system needs from the lowest possible number of suppliers.