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Price shift, energy costs cloud pipe mart future

Keywords: Tags  steel tube, steel pipe, price increases, HSS, A53, grade B tubing, OCTG, line pipe oil

TORONTO — The pipe and tube market appeared to be in a holding pattern Tuesday as the impact of increases on non-energy-related tubulars remained in doubt.

At the same time, concerns were mounting in the long-robust energy tubulars sector about a declining drill rig count and natural gas prices, which fell below $2 per million British thermal units (mmBTUs) Tuesday, a level that industry observers said could make many shale gas plays unprofitable.

There appeared to be little consensus on the overall health of the pipe and tube markets, or even regarding prices in general. But, as previously, energy-sector players generally remained more optimistic than those more heavily reliant on construction activity.

For domestic hollow structural sections (HSS), a tubing product used in the construction industry, prices were said to be at about $980 per ton ($49 per hundredweight) for April, down $10 from $990 per ton ($49.50 per cwt) in March.

The modest decrease came despite tube mills announcing price increases of $30 per ton ($1.50 per cwt) in recent days (AMM, April 17).

It wasn’t immediately clear whether those increases might serve to lift prices or merely keep them from falling further. Most market sources contacted by AMM suggested the latter might be the case, with some continuing to question whether the market could credibly support the full increases, given softness in demand and abundant supply of both coil—the substrate used to make welded tubulars such as HSS—and HSS itself.

ASTM A53 tubulars also appeared to be displaying roughly the same trend, with prices for popular sizes of grade B material slipping to $1,010 per ton ($50.50 per cwt) from $1,025 per ton ($51.25 per cwt) last month. The dip comes at the same time that pipe mills have also announced price increases.

One mill source predicted that prices would stay neutral or perhaps move downward given "sluggish" demand in the residential and commercial construction markets. Meanwhile, lower scrap prices and overcapacity in sheet production should "keep a lid on any significant price increases in the next three to six months," he said.

But a second mill source, whose company makes energy tubulars, had a very different take on the market, saying his company was seeing "very strong" lead times and firming demand both at the mill and distribution levels thanks to a host of new line pipe projects moving forward. He predicted the trend could lead to higher prices for higher-strength line pipe.

Natural gas prices could be "depressed," the second mill source said, but the energy industry is "making the switch" to oil drilling thanks to oil prices that appear set to remain at $100 per barrel or higher. High oil prices should keep demand for both oil country tubular goods (OCTG) and line pipe strong at least through the summer months, he said.

But not everyone in the energy sector was so sanguine. One distributor contended that South Korean mills were "destroying" the domestic OCTG market with what he characterized as "dumping."

South Korea was licensed to ship 61,264 tonnes of OCTG to the United States in March, according to license data compiled by the U.S. Commerce Department’s Import Administration division, representing 20.1 percent of the 305,073 tonnes licensed for the month. While the total for South Korea, the largest overseas suppliers of OCTG to the United States by volume, marked a 6.3-percent decline from the 65,381 tonnes imported in February, it was up nearly 19 percent from the 51,497 tonnes imported in March 2011, according to Census Bureau data.

Still, not everyone thinks that imports from South Korea are hurting the entire domestic OCTG market. Competition between some domestic mills and imports might be fierce in less value-added sectors, where some domestic mills "get down and dirty and compete with imports," one trader said. But domestic OCTG mills generally are doing well, especially when it comes to higher-grade material, he said.

"Everybody I talk to says their business is OK. Nothing is really booming. The oil country guys are doing a little better (than non-energy customers). But they’re complaining about margins not being what they had been," he said.

The trader said he was somewhat concerned about a "lull" in the rig count, given "catastrophically low" natural gas prices.

There were 1,950 rotary rigs operating in the United States for the week ended April 13, a decline of 29 rigs compared with the previous week, according to data from Baker Hughes Inc. The oil rig count shed seven rigs while the gas rig count dropped 23 rigs, the Houston-based oilfield services provider said. All major energy-producing states recorded either declines or an unchanged rig count during the period.

The trader cautioned against reading too much into data from any particular week, noting that the rig count could gain 15 rigs this week. But even if it did, "right now, the trend is clearly down, and that’s a little disconcerting," he added.

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