Growth in the U.S. mechanical tubing market has flattened
out somewhat this year and is expected to remain so for the
next year or so unless the domestic or global economies pick up
There hasnt been a big downturn. Rather, the
mechanical tubing market is likely to be flat to slightly down
for the rest of the year in light of the slowing of
general manufacturing activity since April and May through at
least summer, according to Paul Vivian, a partner at Preston
Pipe Report, Ballwin, Mo.
Mechanical tubing, especially seamless product, was on track
to have a very good year, at least through the first half, said
Shawn Seanor, vice president of oil and gas engineered steel
solutions at Canton, Ohio-based Timken Co. That, however, has
been somewhat impacted by certain headwinds that
started to develop in the second half.
Despite this, demand isnt bad and has flattened out at
a pretty good level, said Bill Jones, vice chairman of
ONeal Industries Inc., Birmingham, Ala.
That isnt that surprising, according to William A.
Wolfe, executive director of the Steel Tube Institute of North
America, noting that mechanical tubings use in some of
the stronger end-use sectors, like automotive, heavy equipment,
and oil and natural gas, has helped prop up demand.
It just isnt the same super strong market
as it was last year, when many tube mills had their customers
on allocation or controlled order entry, according to Tim
Spatafore, president of Marmon/Keystone LLC, Butler, Pa.
The mechanical tubing market had been growing at a pretty
good clip ever since shipments bottomed out at 1.93 million
tons in 2009, said Christopher Plummer, managing director of
Metal Strategies Inc., West Chester, Pa. But even though 2011
shipments were up 55 percent from that trough to just under 3
million tons, levels remain about one-third below the 2006 peak
of 4.69 million tons.
But as many mechanical tubing consumers are small
businesses, the lack of clarity regarding federal tax policies
and sequestration spending cuts have forced many to delay
growth action until they better understand their financial
obligations in 2013 and beyond, Edward Vore, vice president of
marketing and sales at ArcelorMittal Tubular Products North
America, said. As a result, some customers have been reluctant
to build inventories.
Declining flat-rolled steel prices and short lead times also
dampened demand through the second quarter as companies closely
watched their raw material acquisition costs and inventory
values, he said.
While distributors generally have been cautious about the
months of supply on hand, mechanical tubing inventories
increased slightly during the summer, Seanor said, partly
attributing that to rising imports, especially for mechanical
tubing used in oilfield applications.
Rising imports have been impacting the market, especially on
the West Coast, Wolfe said. But it is just the classic,
ongoing situation and it isnt as acute as it had been
some times in the past, he said, adding that there
hasnt been the same pricing umbrella to prompt a flood of
Mechanical tubing demand generally is reflective of overall
industrial production, which rose 4.4 percent year on year as
of July; and gross domestic product (GDP) growth, which was 1.7
percent in the second quarter, according to Vore. U.S. durable
goods manufacturers also have been able to increase their
export volumes to developing countries with higher GDP growth
rates, he added.
One big area for this activity is heavy equipment, or yellow
goods, according to Jim Hoffman, senior vice president of
operations at Reliance Steel & Aluminum Co., Los Angeles,
noting that overall yellow goods demand is up about 10 percent
year on year.
Agricultural equipment has been particularly strong for much
of this year, but issues during the summer, including drought
conditions in the Midwest, could impact farm income and in turn
farmers purchases of replacement equipment, Wolfe
Nevertheless, demand should continue to rise, given the
demographics of the developing world, Hoffman said.
Increased wealth is affecting the way people eat, and
that affects the need for farm implements.
Demand for construction equipment also is quite strong, up
about 12 percent year to date, Plummer said. However, it could
be stronger if not for the glut of nonresidential buildings in
the United States. Exports have made up the difference,
especially with China still growing, albeit at a slower rate,
and still building up its cities, he said, although there is
concern that this could slow if the U.S. dollar continues to
One of the bright spots has been transportation, according
to Plummer, noting that North American auto builds rose 22.6
percent year to date through July. While some of this stemmed
from slower production of Japanese-owned brands a year earlier
due to supply constraints following the earthquake and tsunami
in Japan, he noted that there has been a lot of pent-up demand
as consumers held off buying vehicles during the economic
Heavy-duty truck sales, which had been extremely hot last
year and earlier this year, have been easing, Plummer said,
falling 5 percent in July vs. June, but are still up 22.3
percent year to date following a 57-percent rise last year.
Vivian said that any softening in the U.S. economy could
affect auto sales, but Seanor said that, given current sales
estimates of as many as 14.8 million vehicles next year, he is
at least cautiously optimistic that demand from the auto sector
will continue to hold up.
The energy sector is another end-use market that, while
easing slightly recently, is expected to have legs going
forward. Seanor said that while the number of drill rig
completions, especially those for natural gas, are down 10
percent year on year in North America following declines in the
past three to four months, the number of rigs operating
continues to be high historically, and more permits are being
granted for offshore drilling.
Hopefully, that sector wont be too
negative, Vivian said. It depends on what happens
with the global economy.
Hoffman believes the market continues to have a great
upside. No one believes that it isnt a good idea to
lessen our dependence on Middle East oil, he said.
When the mechanical tubing market was tighter, several
producers added production capacity. While there currently
might not be enough demand to absorb all of the new capacity
that is coming on-stream, it is a good product and once
the economy picks up again demand for mechanical will pick up
and the capacity will adjust, Hoffman said.
Despite this, producers have attempted to pass along raw
material price increases to their customers, although it has
been difficult as tubing producers often find themselves
between a few large suppliers and large customers with buying
power, Vore said. It is challenging for companies to
protect themselves from these competing forces as they manage
their raw material acquisition costs on one end and their
selling price recovery on the other.
Looking forward, this year is likely to be slightly better
than last year, and next year could be slightly better than
2012, Plummer said, estimating an increase of about 5 percent.
But the market still has a way to go to get to full
recovery. That isnt likely to happen until