Transcript NASPD Conference June 12-14, 2008 Past, Present and Future: A Distributor’s Perspective

NASPD Conference
June 12-14, 2008
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Past, Present and Future:
A Distributor’s Perspective
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Source: Dow Jones & Company
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Source: Dow Jones & Company
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Source: Dow Jones & Company
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HISTORICAL EXCHANGE RATE
• Over the last 10 years, the trade weighted average of the foreign exchange value of the U.S. Dollar against a subset of
the broad index currencies has declined more than 25%
― In 2000, the average trade weighted exchange rate was up 7.0%
― In 2007, the average trade weighted exchange rate was down 10.0%
― Year-to-date 2008, the average trade weighted exchange rate was down 3.3%
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Trade Weighted Exchange Rate
120
100
80
4/29/08
72.24
140
60
120
40
20
5/1/98
100
80
60
6/10/99
7/19/00
8/28/01
10/7/02
11/16/03
12/25/04
2/3/06
3/15/07
4/23/08
40
20
Trade Weighted Exchange Rate (Indexed to 1998=100)
Source: Board of Governors of the Federal
- Reserve System.
5/1/98
6/10/99
7/19/00
8/28/01
10/7/02
11/16/03
12/25/04
2/3/06
3/15/07
4/23/08
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WTI U.S. OIL PRICE ANALYSIS
Difference: 10 Years
WTI U.S. Oil Price: 10 Years
(5/1/98 – 4/29/08)
(5/1/98 – 4/29/08)
$40.00
$140.00
Market
$ 115.67
$100.00
Constant
$ 83.56
$80.00
$60.00
$40.00
$30.00
Difference ($/barrel)
Spot Price ($/barrel)
Difference
$ 32.11
$35.00
$120.00
$25.00
$20.00
$15.00
$10.00
$5.00
$-
$20.00
$(5.00)
$(10.00)
$5/1/98
12/30/99
8/29/01
WTI Market Price
4/29/03
12/27/04
8/27/06
4/26/08
5/1/98
12/30/99
4/29/03
12/27/04
8/27/06
4/26/08
Difference from Market
WTI (Constant Trade Weighted FX Rate)
Difference: 5 Years
WTI U.S. Oil Price: 5 Years
(5/1/03 – 4/29/08)
(5/1/03 – 4/29/08)
$140.00
$35.00
Market
$ 115.67
$100.00
Constant
$ 87.04
$80.00
$60.00
$40.00
$20.00
$30.00
Difference ($/barrel)
$120.00
Spot Price ($/barrel)
8/29/01
Difference
$ 28.63
$25.00
$20.00
$15.00
$10.00
$5.00
$-
$5/1/03
2/28/04 12/27/04 10/26/05 8/25/06
WTI Market Price
6/24/07
4/22/08
WTI (Constant Trade Weighted FX Rate)
Source: Energy Information Administration (EIA).
$(5.00)
5/1/03
2/28/04
12/27/04 10/26/05
8/25/06
6/24/07
4/22/08
Difference from Market
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Integration of Raw Material Suppliers
Iron Ore
Coking Coal
Global Trading Volume in 2006
780 million MT
Global Trading Volume in 2006
190 million MT
Xstrata 6%
Rio Tinto 6%
Others 24%
CVRD 38%
Anglo
American 9%
Others 33%
EVCC 15%
BHP 14%
Rio Tinto 24%
76% Shared by Top 3
BNA/BHP 31%
67% Shared by Top 5
Bargaining power of raw material suppliers have been increasing
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Summary
Results:
• The results of our 1Q08 Distributor survey suggest business remains
healthy at most distributors and process controls companies. Conditions in
the energy and power markets continue to be the strongest.
• However, the outlook has continued to deteriorate as a larger percentage
of respondents indicated that they expect either a slight or significant
deceleration in growth in 2008 while fewer expect accelerating growth
rates.
• Furthermore, inventory levels have been building and an increasing
proportion of respondents are focused on depleting current reserves.
Source: Robert W. Baird & Co. analysis
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Summary (con’t)
Markets:
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North American general industrial conditions continue to demonstrate the weaker trends that emerged
during the third quarter. We expect these conditions to continue through the remainder of 2008.
Oil & Gas and Power remain the strongest markets with the majority of respondents indicating conditions
are “still strong” or “improving” and expecting more growth ahead. The Power market in particular has
significant potential.
The Chemical market continues to improve and was described by a majority of participants as “still strong”
or “improving.”
The Municipal Water/Wastewater market remains healthy but the outlook may be less favorable. Similar
to 4Q07, more respondents expect the market to erode than improve in the next six months. The longterm need is undeniable, but spending in this end market could soften in the coming years as tax receipts
decelerate.
The Commercial Construction market moderated further this quarter but is largely considered “still
strong” or “improving.” While fewer respondents expect the market to erode in the next six months
compared to 4Q07, several leading indicators suggest flat to low single digit growth in 2008.
The Residential Housing market remains the primary concern. Despite the precipitous declines already
seen, respondents once again indicated that the Residential Construction market was most likely to erode
in the next six months. Importantly, it does not appear as though the market has bottomed.
Source: Robert W. Baird & Co. analysis
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What to Watch
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Fair, square, safe and legal
Cash and the availability of credit
Currency fluctuations and valuations
“Real” globalization trends
Consolidation of suppliers, distributors, customers
Logistics and the movement of goods and services
Opportunities for nimble niche organizations
Recruiting, teaching and keeping the next generation of distribution
professionals
• Using technology to improve productivity
• Manage risk
• “Don’t outrun your base”
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