Wärtsilä Corporation Interim Report Q1 2015

Market outlook

Based on the market situation during 2014 and the GDP forecasts for 2015, the market for liquid and gas fuelled power generation is expected to remain challenging. However, the trend towards distributed, flexible gas-fired power generation is continuing. The increasing deployment of intermittent renewable power, such as wind and solar, in many parts of the world will require flexible solutions to balance fluctuations in the grid. In OECD countries, slow economic growth continues to limit demand for new power plants. At the same time, customers are awaiting new electricity market rules which is creating pent up demand. Furthermore, the shift towards CO2-neutral generation and the consequential ramp down of older, largely coal-based generation will favour flexible, efficient power solutions. In the developing world, GDP growth remains supportive of investments in power generation capacity.

The outlook for the shipping and shipbuilding market environment remains cautious due to weaker market conditions in the dry bulk and offshore segments. Low oil prices continue to impact investments in exploration and development, limiting demand for offshore drilling and support vessels. Overcapacity continues to affect demand for conventional merchant vessels. However, increased scrapping together with a more balanced fleet growth support a gradual recovery in the freight market. The decline in oil prices presents opportunities in the markets for crude oil tankers and containerships, as lower bunkering costs are expected to have a positive impact on operating expenses for ship owners. The sentiment in the gas carrier market remains healthy; activity is however expected to revert to normal levels after strong ordering volumes in 2014. The outlook for cruise and ferry is positive and is backed by new entrants to the market, fleet renewals and increased passenger traffic from Asia. The importance of fuel efficiency and environmental regulations is clearly visible, driving interest in environmental solutions and gas as a marine fuel for the broader marine markets.

The overall service market outlook is cautiously positive with growth opportunities in selected regions and segments. An increase in the installed base of medium-speed engines and propulsion equipment offsets the slower service demand for older installations and uncertainty regarding short-term demand development in the merchant marine segment. The service demand for installations operating on oil based fuels is expected to grow as recent oil price developments have had a favourable impact on operating costs. Although the decline in oil prices has resulted in a cautious outlook for offshore service, the recent years’ growth in the offshore installed base partially compensates for a potential decline in service volumes. The service outlook for gas fuelled vessels remains favourable. Demand for services in the power plant segment continues to be good with an especially positive outlook in the Middle East and Africa. Customers in both the marine and power plant markets continue to show healthy interest in long-term service agreements.

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