Will 2014 be the year for the hydronics market?

CHICAGO — Just in time for Christmas, Time magazine’s business section gave us an early present when it ran the story, “Why The Home Building Industry is About To Take Off” (http://ti.me/1cTTnWD). The article noted that seasonally adjusted housing starts in November 2013 topped a million units and quoted a Goldman Sachs analyst who said housing construction could add 300,000 to 500,000 jobs in 2014.

For makers of hydronic heating equipment and the contractors who install it, that is news that’s every bit as good as this past December’s nationwide deep freeze. The hydronics market remains essentially a residential market, and anything that boosts residential construction is good news.

Time’s report simply echoed what we here at CONTRACTOR had already heard a few weeks ago from Dale Stroud, Uponor’s senior director of marketing/offerings. In a statistics-heavy PowerPoint presentation, Stroud showed how all of the economic indicators are on the upswing. Among them, housing starts are up; available inventory of new and existing homes is down; measures of builder optimism are up; housing prices are up; non-residential construction put-in-place is up; the Architectural Billing Index, a 9-12 month leading indicator, up; construction employment up; consumer confidence up; the Remodeling Market Index up; and North American PEX pipe sales up.

Taco Inc. President Johnny White Jr. is expecting a decent year, but not a boom year. The recent apparent unsnarling of the gridlock in Washington is the key to 2014 being a good year.

“With greater stability in D.C., there’s overall greater confidence in the business and consumer markets,” White said. “This will help drive private sector spending and investment in efficiency upgrades, building systems, retrofit work and construction.  Building owners and investors who were standing on the sidelines frozen by the uncertainty may now be ready to jump back into the market in 2014.”

Taco is expecting modest gains in both residential and commercial U.S. and Canadian markets.

“I just don’t see us returning to those boom years any time soon,” said White. “I think this slow yet steady pace is the new normal. In 2013, we saw strong growth in multifamily construction and the hospitality business. For 2014, we hope and expect to see an increase in single-family home construction, retrofit business and the institutional segment.”

White said a continuing push for energy efficiency and LEED certifications is a sales driver. Bill Root, general manager, Laars Heating Systems Co., agreed with that.

“There's an upward trend in residential units driven especially by the mod-con category in 2013,” Root said. “We expect to see this trend continue in 2014, although perhaps not at the robust rate seen in 2013. Also, the large number of standard replacement unit orders seen as a result of Hurricane Sandy has tapered significantly, and we expect this sector to see only modest growth. To a great extent, the commercial market mirrors the residential market, with gradual movement upwards, with most growth occurring in the high efficiency category.”

Seconding the motion was Chuck O'Donnell, director of marketing, Laars Heating Systems Co., who noted, “The volume water heater business is also following the trend toward high-efficiency equipment as building owners work to reduce operating costs.”

Mark Handzel, vice president, product regulatory affairs, and director, HVAC commercial buildings, for Xylem’s Bell & Gossett unit, said his company is optimistic about the commercial building market.

"New construction opportunities are slowly recovering, with key buildings like educational and healthcare structures still languishing near all-time lows but other buildings like multi-family housing structures and hotels leading the recovery,” Handzel said. “We expect that continued focus on energy efficiency will drive more building designers to use hydronic heating and cooling and the focus on energy savings will create new opportunities for additional building systems requiring efficient pumps, valves and heat exchangers."

Dalyn Cantrell, Viega’s vice president of marketing, said that integrated high-efficiency HVAC systems that include hydronics would help the hydronic equipment market.

“Viega is expecting upward trends in the hydronic portion of our business for 2014, especially in the commercial segment,” Cantrell said. “We are realigning our product mix so that we are able to focus on the positive growth that is forecast for commercial building construction. Residential construction is also trending positively, and that will also have a positive impact on our hydronic radiant heating business. Hydronic heating plays a very important role in the higher efficiency, integrated HVAC systems that are becoming more popular worldwide.”

The residential market will always be the dominate sector of boiler sales, mainly due to the percentage difference of existing installations and the declining numbers of commercial and industrial new buildings requiring boilers, said Brian L. Fenske, specialty channel sales manager for Navien America Inc. Many of those sales will be high-efficiency boilers because of a number of advantages — they’re smaller, lighter, and easier to vent, in addition to using less fuel.

“High-efficiency condensing boilers and the consumer interest and sales will continue to grow exponentially for the years to come,” said Fenske. “This is driven by tax credits, local rebates, and the interest in upgrading to high-efficiency by the consumer. The installing contractor base is becoming more comfortable and skilled with the high-efficiency applications available, applying properly the expanding boiler product offerings, and generally selling systems that offer both better efficiency and premium comfort.

“One point I should mention,” Fenske continued. “Lighter weight, smaller, wall-hung boilers not only save space and can offer a cleaner looking install in many cases, and contractors like the ease of the install. Avoiding the extra labor of heavy replacement equipment, inexpensive sidewall venting, combination boiler options, among many other compact boiler benefits offers the contractor cost-competitive options, versus a standard cast iron replacement.”

With the housing market still recovering Bosch continues to see retrofits and replacement of equipment like boilers and combi units as dominant for another year, a spokesman said. The hydronics market continues to experience conversions from oil to gas for a number of reasons, including greater price stability of gas over oil, promotion of oil to gas conversions by utilities (as in Connecticut and New York), and the simple convenience of accessing gas from the street as opposed to monitoring the oil tank’s level and purchasing replacement gallons in volume, the company said. However, there remains a market for oil, especially in the Northeast in areas not served by gas, and Bosch said it will continue to serve that market with oil-fired products. 

Bosch also said it sees a continuing shift to energy-saving boilers like condensing models and combi-boilers. At the same time, the Bosch spokesman noted, the company realizes that where utility and other rebates don’t exist, the cast iron replacement 80%-plus efficiency product offerings will continue to sell, especially for older homes with chimneys and where direct-vent applications may not be possible or feasible.

Bosch also predicts a continuing shift to condensing boilers in commercial installations.

Finally, although this isn’t strictly about the hydronic heating market, here’s one more piece of good news. Air Conditioning Contractors of America released its December 2013 Contractor Comfort Index (CCI) that shows that contractors are closing out 2013 with a positive outlook on short-term growth. ACCA began measuring contractor attitudes toward short-term economic growth with the CCI in February 2010.

For December 2013 the CCI is up to 67. Twelve months ago it was 52. Here’s to a profitable 2014.