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Energy sector drives pipe and tube demand: Service center execs

Keywords: Tags  Center Piece, steel tube and pipe market, service center market, energy market, David H. Hannah, AMM Staff

A number of factors affect how service centers tailor their approaches to customers, the market in general and the establishment of best business practices.

When it comes to prices, for example, steel pipe and tube have followed separate paths in recent months, with energy tubulars generally recording gains while non-energy pipe and tube tags continue to suffer.

On a more general front, some service center executives said the daily headlines, though accurate on unemployment and the lack of consumer confidence, are much gloomier than actual demand for metals would indicate. In fact, 2012 could be a strong year for pipe and tube business.

In non-energy products, the exception continues to be specialty items, such as cold-drawn seamless mechanical tubing, which have maintained solid prices and long lead times thanks to limited capacity and steady demand from the industrial and heavy equipment markets, according to buyer sources.

On the energy side, while commodity-grade line pipe and oil country tubular goods (OCTG) may have experienced small price moves up or down, alloy material is continuing its upward price trend as strong demand from shale plays drives drilling activity.

Distributors have a variety of opinions on how those price increases might play out on their side of the industry. One Midwest service center source argued that any increase might be hard to push through, given continued short lead times, especially from tube mills.

Another service center source largely agreed, saying that it might prove more difficult for mills to put through price increases early in 2012 than it did during the same period last year. Still, he argued, prices were likely to firm up again this year.

On the energy front, one distributor said it was still too early to say whether announced price increases for OCTG would be collected for at least a few more weeks. “The announcements at least create a sense that prices could firm up,” he said, adding that any gains might prove difficult to maintain without raw material prices rising as well. OCTG mills “planted the seed of possible price stabilization, but it will take a lot of nurturing for it to grow up,” he said.

Hollow structural section (HSS) buyers expect prices to increase in 2012, but just how long that trend will last remains to be seen, with some predicting that the run-up could lose steam by the end of the first quarter. The expectation of rising HSS tags comes as tubing mills continue to see prices for their main input materialÑsteel coilÑpick up speed. Coil mills, which produce the substrate used to make welded tubular products such as HSS, have been relatively firm about holding the line on price hikes, forcing tube mills to try to do the same, sources said.

“You are going to have peopleÑsome flat-rolled, some tubing, some barÑthat will actually see their prices go down in the first quarter while everybody else is seeing prices go up,” another distributor said. “It’s a strange situation.”

A third service center source said that the coil and subsequent HSS pricing run-ups could be short-lived, predicting a repeat of 2011, when prices jumped early in the year before swooning in the summer months.

He said that when mills came back from the end-of-year holiday, “some of them said, ‘All the rollings are booked for January; you’d better get in now if you want to make February.’” That will help any February increases stick, he said, and in turn that should make it possible to increase prices in March as well.

But the outlook beyond March is iffy, the third service center source said. “(Mills) will get you for (a possible) March increase . . . but then it’s the same game,” he said. “By that point, the stocking season is over. They’ll try to get increases in April and May, but then some (mills) will say, ‘Hey, I don’t need the increase. I might even lower your price. Just give me the business.’”

Meanwhile, confidence in service center business is spilling out beyond U.S. borders. Chicago-based Ryerson Inc. has opened a new 80,500-square-foot facility at one of the largest industrial parks in Tijuana, Mexico, as it pushes to provide full-service metals distribution and processing services to major markets in that country.

The facility, Ryerson’s second service center in Mexico, will supply bar, tubing, coil and plate in carbon, aluminum and stainless steel to customers in the Tijuana region, as well as Ensenada, Mexicali, Rosarito and Tecate. Processing capabilities at the new location will include cut-to-length, laser fabrication and state-of-the-art bar-cutting equipment. Officials said the facility will provide same-day delivery and same-day will-call service with its warehouse operations and an onsite sales team.

“As Ryerson’s U.S. customer base continues to invest in Mexico, we intend to support that growth, as well as the growth of Mexican-based manufacturers,” Phil Wylie, president of Ryerson’s Southwest region, said in a statement. Ryerson also operates a 56,000-square-foot facility in Monterrey.

Reliance Steel & Aluminum Co. chairman and chief executive officer David H. Hannah said he believes that the energy, aerospace and defense, semiconductors and electronics, and heavy equipment end markets will grow fairly strong on their nascent recovery.

“We think aerospace will be quite a bit better. The build rates are improving on commercial lines like the (Boeing Co.) Dreamliner and (Airbus SAS) A380 that were bogged down in certifications and manufacturing processes. Including defense, it’s very positive,” Hannah said about the Los Angeles-based company’s outlook.

“Energy is probably the brightest spot (and) we think it has legs into the future,” he added, citing developing extraction opportunities such as fracking, horizontal drilling and tar sand sites in Canada. “We hope we will get some new activity on deep-water drilling.”

Olympic Steel Inc. chairman and chief executive officer Michael D. Siegal, who projects a 5-percent increase in steel demand and larger market-share growth for the Cleveland-based company in 2012, echoed Hannah’s sentiments, adding that media headlines don’t accurately reflect the metals market.

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