IGAS AI-Orchestrator™ by RapidKnowHow
Independent Board Intelligence for Industrial Gas Volatility & ROCE Governance
Executive Signal
Industrial Gas 2026 is not a volume cycle.
It is a capital discipline cycle.
The real risk to European Industrial Gas companies is not demand decline.
It is ROCE erosion through weak Pass-Through Effectiveness (PTE).
If portfolio-weighted PTE drops below 0.78,
a +15% energy shock can reduce ROCE below 16% within two quarters.
Most Boards do not see this early enough.
What Is Pass-Through Effectiveness (PTE)?
PTE measures how much of a cost increase is actually recovered through contract indexation.
Formula:
PTE = Recovered Cost Increase ÷ Actual Cost Increase
If PTE = 1.0 → full protection
If PTE = 0.8 → margin erosion begins
If PTE < 0.7 → structural ROCE compression
This is the hidden KPI of Industrial Gas 2026.
Why Merchant Exposure Is the Volatility Amplifier
Industrial Gas portfolios typically consist of:
- On-Site
- Merchant Bulk
- Packaged
- Healthcare
- Specialty
On-Site contracts are usually protected.
Merchant exposure is not.
Merchant risk escalates when:
- Utilization < 80%
- Repricing lag > 90 days
- Energy caps limit α < 0.7
- Inventory days > 55
If two of these occur simultaneously,
margin compression is already underway.
The Energy Shock Simulation
Assume:
Energy +15%
Logistics +10%
For a €4bn revenue Industrial Gas operator,
exposure may reach €90–120m annually.
If PTE = 0.70,
EBIT loss can compress ROCE by 2–4 percentage points.
This is not a theoretical scenario.
It is mathematically inevitable under weak index governance.
The 2026 Consolidation Window
Regional players with:
- Merchant share > 30%
- PTE < 0.75
- Liquidity buffers < 6 months OPEX
enter structural vulnerability.
Volatility separates:
Volatility absorbers (high PTE, diversified mix)
from
Volatility amplifiers (merchant-heavy, weak indexation)
The gap widens 2026–2028.
The Board-Level Question
Before the next energy spike, Boards should ask:
- What is our portfolio-weighted PTE?
- What happens to ROCE if energy rises +20%?
- Where do we have capped energy clauses?
- How exposed are we in merchant under weak utilization?
- Are we allocating capital under a volatility regime — or a growth regime?
If these answers are not visible within minutes,
governance clarity is insufficient.
Strategic Conclusion
Industrial Gas 2026 is not about building more capacity.
It is about governing volatility better than competitors.
Pass-Through discipline now determines competitive positioning.
The next energy shock will not create winners.
It will reveal them. – Josef David
IGAS AI-Orchestrator™
by RapidKnowHow
Independent Board Intelligence for Industrial Gas Volatility & ROCE Governance
