You dont have to drill deep to hit a
pocket of doubt in the North American steel tube and pipe
sector. Growing concerns over the rig count, natural gas
prices, foreign competition and a still-stagnant construction
market have made many players in the market less optimistic
than they were at the beginning of the year.
Everybody I talk to says their business is OK.
Nothing is really booming. The oil country (tubular goods) guys
are doing a little better (than non-energy customers),
one distributor source said. But theyre complaining
about margins not being what they had been.
One trader said he was somewhat concerned about a
lull in the rig count, given catastrophically
low natural gas prices.
The pipe and tube market appeared to be in a holding
pattern in April and early May as the impact of price increases
on non-energy-related tubulars remained in doubt. At the same
time, concerns have mounted in the long-robust energy tubulars
sector over the drill rig count and declining natural gas
prices, which fell below $2 per million British thermal units
(mmBtus) in mid-April, a level 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 prices in general.
But energy-sector players generally remained more optimistic
than those more heavily reliant on construction
It wasnt immediately clear whether price
increases on non-energy tubulars would be successful or merely
keep them from falling further. Most market sources suggested
the latter might be the case, with some continuing to question
whether the market could credibly support more price increases,
given softness in demand and an abundant supply of
coilthe substrate used to make welded tubularsas
well as hollow structural sections, which are consumed largely
by the construction industry.
One mill source predicted that prices would stay
neutral or perhaps move downward, given sluggish demand in the
residential and commercial construction sectors. 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 at
both 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 a switch to oil
drilling thanks to oil prices that appear set to remain at $100
per barrel or higher, which should keep demand for both oil
country tubular goods (OCTG) and line pipe strong, at least
through the summer months.
But not everyone in the energy sector was so sanguine.
One distributor source contended that South Korean mills were
destroying the domestic OCTG market with what he
characterized as dumping.
South Korea, the largest overseas supplier of OCTG to
the United States by volume, was licensed to ship 70,048 tonnes
of OCTG to the United States in April, accounting for 23.3
percent of the 300,723-tonne total, according to the latest
license data compiled by the U.S. Commerce Departments
Import Administration, up 25.6 percent from imports of 55,751
tonnes the previous month and 26.4 percent ahead of 55,399
tonnes imported in April 2011.
Still, not everyone thinks that imports from Korea are
hurting the domestic OCTG market as a whole. 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
There were 1,974 rotary rigs operating in the United
States in mid-May, up 24 from a month earlier, according to
Houston-based oilfield services provider Baker Hughes Inc. But
the oil rig count climbed by 40 while the gas rig count dropped
by 26 in the same comparison.
The trader cautioned against reading too much into
data from any particular week, noting that the rig count could
gain 15 rigs in a given week. But even if it did, right
now the trend is clearly down, and thats a little
disconcerting, he added.
There are questions on other fronts, as well. While
there are signs that construction activity is improving,
landing new business remains a struggle, according to
executives at Insteel Industries Inc.
Its still a real food fight out there as
everyone scrambles for available orders. I wish I could tell
you there has been a significant improvement, but unfortunately
thats just not the case, Insteel president and
chief executive officer H.O. Woltz III told analysts during a
quarterly earnings conference call. The result has been
subsistence-level spreads between wire rod costs and selling
prices for finished goods, Woltz said. Mount Airy, N.C.-based
Insteel buys wire rod to make downstream products, such as PC
strand and welded-wire reinforcements.
One silver lining in the current situation could be
the potential for additional acquisitions, Woltz said, noting
that Insteel was very capable of such activity.
However, he stopped short of citing any specific acquisition
But some additional viewpoints at the start of the
second quarter opened room for more optimism. U.S. Steel Corp.
expected its tubular division to log another strong performance
in the second quarter on the back of a possible increase in
drilling in the Gulf of Mexico and continued shale resource
development, its top executive said.
It would seem theres some pretty good
expectation of increased activity in the Gulf of Mexico,
particularly (in) the deep water, John P. Surma, chairman
and chief executive officer of the Pittsburgh-based steelmaker,
told investors during a conference call. Weve
actually had some orders (related to that pickup)
already, he said, citing increased demand for
heavy-gauge, thick-wall, large-diameter material. To the
extent that comes back stronger, thats really positive
for us in the long term.
Shale plays also will help boost the segment, Surma
said in prepared remarks at the companys annual
shareholders meeting in Pittsburgh. The energy
industrys efforts to extract and transmit those resources
have led to increased tubular products sales for our company
and an extended period of strong financial performance from our
tubular segment, he said.
In a similar vein, Timken Co. steel group president
Salvatore J. Miraglia Jr. said he was really
excited about shale drilling, calling the opportunity
a wonderful development for his company and the
Miraglia told AMM that demand for seamless
tubing made from special bar quality billets will keep growing
as the United States taps into the burgeoning resource to
produce crude oil and natural gas. The shale play is a
wonderful development because we make products well suited to
the needs of deep-shale horizontal drilling, he said.
It wont only help our businessin terms of
economical energy, it can make our industry much more
competitive on a global scale.
Miraglia said he isnt worried about low natural
gas prices slowing exploration and extraction. Now that
its down to $2 (per mmBtus), we need the incubation time
to generate the demand that such economical energy will
create, he said. For example, fleet owners are trying to
figure out how to convert their vehicles and truck builders are
beginning to produce natural gas-fueled models, he said, while
electricity providers are starting to build or refit generating
plants to use natural gas. During this period, demand
pressure will begin transitioning to the product. Meanwhile,
the people doing the drilling (will be) going after the wet
gases because oil is still at $103 a barrel, Miraglia
Another opportunity will arise when liquid natural gas
terminals at U.S. ports are converted from import to export
capability. Shale drilling will have benefits that go beyond
any one industry, Miraglia added. This resource has the
abilityover the course of a number of years you can count
on one handto make the United States energy independent
. . . and balance trade.
There also are some signs of optimism outside of the
United States. Tenaris SA plans to invest $200 million to
upgrade its mill in Colombia by 2014. The Luxembourg-based
steel tube and pipe maker said the money would go toward
construction of a new heat-treatment mill, ultrasound
inspection technologies and finishing capabilities at its Tubos
del Caribe SA operations in Cartagena de Indias.
Colombias energy sector is set for
extraordinary growth in the coming years due to
favorable government policies, Tenaris chief executive officer
Paolo Rocca said in a statement. This opens up important
opportunities for the development of an industry like our own,
focused on the supply of equipment, products and materials for
the oil and gas industry.