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2014 Outlook: Steel Tube & Pipe

Dec 31, 2013 | 08:00 PM |

Most pipe and tube players expect stable to positive results in 2014, with few expectations of a down market, according to an AMM survey.

One analyst expects a generally flat market, with the possibility of a small upside in most products depending on market developments, following strong demand growth since the recession. “In all the (pipe and tube) sections ... we could quote Bill Clinton: ‘It’s the economy, stupid.’ It’s finally caught up with the pipe and tube market,” said Paul Vivian, principal of St. Louis-based steel tube and pipe research company Preston Publishing Co.

“After having a very good recovery after the recession, the industry has gotten mired in the lack of economic growth,” Vivian said. “It would have been foolish for us to think this market could continue to recover and have very prosperous years on a year-over-year basis while the economy continues to bounce around.”

In terms of product-specific outlooks, there is positive sentiment on hollow structural sections (HSS) demand, which has been buoyed, for example, by new applications for the product in the solar industry as well as a steady pickup in nonresidential construction.

“(This year) will be better than 2013. We see that (trend to new applications) continuing and we see increased demand in nonresidential construction,” Barry Zekelman, executive chairman and chief executive officer of Chicago-based JMC Steel Group Inc., said. “In general, the market’s improving and we see a pretty good volume (in 2014). 2008 was the largest (shipment) year on record and we’re going to be just short of that (in 2013).”

However, as in some other pipe and tube markets, HSS imports are a concern. “The only issues that we have, that are a problem to us, are that we see dumped imports coming from (South) Korea, Turkey and Mexico. It is absolutely unbelievable to us that (these countries) can ship tubing here for the price that we pay for hot-rolled coil,” Zekelman said.

While HSS demand is seen positively, some market players are less optimistic on the other pipe and tube market tied largely to the construction industry—standard pipe.

“I don’t think 2014 is going to be much better than 2013, and 2013 wasn’t that good,” Gerald Merfish, chief executive officer of Houston-based Merfish Pipe Holdings LLC, said. “Standard pipe prices have been falling for two consecutive years, the architecture billings index is wandering around between growth and nongrowth, and there is an oversupply of standard pipe. You tell me what kind of market that’s going to be,” although he noted that pricing at least should be better this year. “Import pricing should be more stable, so we won’t be chasing our tail as much. Domestic standard pipe prices are increasing as a result of the domestic hot-rolled coil increases, so that helps.”

Vivian believes that both markets are unlikely to see big changes in 2014. “A big part of what drives both of these products is whatever forecast you believe for construction, which brings us back to our opening statement: ‘It’s the economy, stupid.’ While we believe construction spending will improve, we believe if you were plotting 2013 and 2014 you would have to get really close to the bottom to see an upward trend in that graph,” he said.

In energy tubulars, the outcome of a trade complaint filed by domestic mills in early July might well determine the direction of oil country tubular goods (OCTG) pricing next year.

“If (South) Korea goes away, if they get large (duty) margins, then we’re looking at a very tight OCTG market, and I think prices are going to increase because drilling is not going to stop,” one trader said.

There was some downside seen due to increasing supply from newly announced projects, although this is expected to be somewhat offset by stronger demand.

“It’s a mix of strong demand—we continue to see strong demand—but maybe a little too much supply coming into the market,” Kurt Minnich, manager of Tulsa, Okla.-based Pipe Logix LLC, said, adding that OCTG prices might contract about 2 to 3 percent this year compared with a 9-percent reduction forecast for 2013. He acknowledged that bigger-than-expected duty margins from the trade case could provide some upside. 

Meanwhile, demand is expected to increase due to improved drilling efficiencies.

“We have picked up some (drilling) efficiency. We expect that we will drill more wells, and we will drill it with the same number of rigs,” Vivian said. “We’re also expecting a better year in terms of tonnage consumption, and the reason is that we continue to see more pipe and heavier pipe put down in every hole.”

In general, the outlook for line pipe is less positive due in part to the possible effects of the OCTG dumping case pushing foreign mills into selling line pipe and because new OCTG mills initially might start getting into the line pipe market.

“Where are all these new domestic pipe mills that have been announced going to cut their teeth and get their tons? They might well cut their teeth in the line pipe business as (it) will be easier to gain a foothold (there) compared to starting with OCTG,” Merfish said.

Demand, meanwhile, is unlikely to surprise on the upside.

“The line pipe market has traditionally been driven by the gas market, and in the absence of exploration  ing for natural gas it’s tough to get excited about line pipe,” Minnich said, although Vivian pointed to some possible upside from increasing offshore demand. 

The ongoing delay in permitting TransCanada Corp.’s proposed Keystone XL pipeline is not helping the large-diameter line pipe market. “People think that if they get involved in one of these big projects and there happens to be a couple of grasshoppers in the way, the President is going to get out his magic wand and stop it,” Vivian said.

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