NEW YORK — Looming overcapacity, the timing of a possible trade complaint against South Korea and a comparatively low rig count are on the minds of oil country tubular goods (OCTG) market participants in the run-up to AMM’s sixth annual Steel Tube and Pipe Conference in Houston.
Sources estimate that between 2 million and 3 million tons of annual welded and seamless OCTG capacity is set to be added to the market in the coming years, with a host of companies—including Turkish producer Borusan Mannesmann (amm.com, Jan. 4), Germany’s Benteler Steel/Tube GmbH (amm.com, Nov. 7) and investment firm USA Investment Group LLC (amm.com, Jan. 22)—recently announcing new U.S. projects.
Even with robust demand expected from the development of U.S. shale plays, sources wonder whether the domestic market will be able to soak up the extra capacity.
"Unless we completely drop imports I don’t think domestic (demand) can handle that," a source at a Mid-Atlantic distributor said.
"I’m shaking my head. My customers shake their heads," one trader said of the planned expansions.
The expected growth here and slack demand elsewhere is driving the investments, sources said.
"The U.S. has more than half the rigs worldwide. It’s clearly the single-largest market," a second trader said.
However, exploration has shifted recently from natural gas to oil due to plummeting gas prices, leading to a lull in drill rig counts.
"The rig count is coming down right now. I still maintain that’s temporary," the second trader said, adding that eventually oil exploration will make up for the cutback in natural gas. "At (current price levels for oil), everybody can make a lot of money."
The most recent figures from Houston-based oilfield services firm Baker Hughes Inc. show a slight rise in operating drill rigs, although they’re still well below levels seen at the same time last year (amm.com, Jan. 28).
Imports would certainly need to be cut back for the added capacity to find a home, sources say, and there has been talk that a trade case against Korean producers of welded OCTG, the biggest foreign suppliers of the product to the U.S. market, is imminent (amm.com, Jan. 16).
OCTG imports totaled about 3.65 million tons last year, according to data from the Commerce Department’s Import Administration, with Korea the biggest player.
"The dumping case will give relief," the first trader said.
But a third trader warned that talk of a trade case has been ongoing. "I think it’s part of domestic mills’ game to build some uncertainties into the marketplace," he said.