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Pipe, tube prices fall as OCTG hit by supply glut

Keywords: Tags  steel tube, steel pipe, OCTG, line pipe, HSS, standard pipe, Michael Cowden

CHICAGO — Steel tube and pipe prices have fallen across the board in recent weeks as oversupply and weakening demand have hit energy tubular tags, market sources said.

At the same time, it remains to be seen whether announced hikes for welded products such as hollow structural sections (HSS) and standard pipe will boost prices or prevent further declines outside of the energy sector, they said.

Market players appeared divided over the direction of the market in general, with roughly half of respondents to a recent survey characterizing demand as "good" and the remainder split between "fair" and "poor." A similar divide emerged on the pricing front, with about 50 percent of respondents saying they expect prices to continue to move downward in coming weeks while the other half believe prices will either hold steady or rise.

"Domestic mills will raise prices on just good rumors," one respondent said, adding that prices would nonetheless remain relatively stable. Another source contended that prices were in a "free fall" due to lack of demand.

While prices fell for a wide array of products, energy tubulars and oil country tubular goods (OCTG) in particular saw some of the biggest month-over-month declines.

The trend also was reflected in recent data from Tulsa, Okla.-based Pipe Logix Inc., which showed average domestic OCTG prices at $1,771 per ton last month, down 2.2 percent from $1,811 in September. Welded OCTG prices averaged $1,644 per ton in October, down 2 percent from $1,677 the previous month, while seamless OCTG prices slid 2.5 percent to $1,898 per ton from $1,946.

Traders and distributors in the OCTG sector blamed the decline on an abundance of both imported and domestic material, a lower drill rig count and a push both by mills and buyers to liquidate inventory on the ground ahead of year-end inventory taxes in some states.

One distributor source said that end users could practically name their prices, given the glut of material available. "The market is continuing to slide, and I don’t know what’s going to stop it. The only thing that’s going to turn it around is a shortfall in supply, and I don’t see that happening anytime soon," he said, noting recent declines in the drill rig count, a key indicator of future OCTG demand.

The rig count stood at 1,800 for the week ended Nov. 2, down 26 from the previous week and off 226 from the same period last year, according to Houston-based oilfield services firm Baker Hughes Inc.

The distributor source said he was pinning his hopes in part on a cold winter, which might bring sustained higher prices for natural gas and see the rig count do an about-face.

A second distributor source acknowledged that the OCTG market had seen some "deterioration," but argued that it was largely because of seasonal factors, such as year-end inventory liquidation, being amplified by a lower drill rig count. "I think this is still a healthy industry and will be going into next year," he said, although he conceded that his firm didn’t expect to see as strong a start to 2013 as it experienced in early 2012.

"The more available capacity you have, the more mills are going to be beating each other up. All of them want a piece of this (U.S. OCTG) market," he said.

A host of companies have recently completed, are working on or have announced plans to expand OCTG capacity in the United States.

One trader predicted that a trade complaint might be filed early next year against energy tubulars from South Korea, given continued high import volumes from the country.

Imports of OCTG are expected to total around 267,180 tonnes in October, according to license data compiled by the U.S. Commerce Department, up 0.8 percent from 265,185 tonnes in September and 8.8 percent higher than 245,537 tonnes in October 2011.

But while OCTG imports overall have moderated, import licenses for Korea totaled 88,601 tonnes in October, up 32.4 percent from 66,904 tonnes the previous month and 58.6 percent ahead of 55,851 tonnes in October 2011.

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