NEW YORK The steel industrys worries about significant overcapacity in the oil country tubular goods (OCTG) market might be overdone, as announced expansions and new projects will displace older capacity, according to top industry executives.
"Its efficient capacity. It displaces old, inefficient mills that should be dead and gone. Its capacity that services our customer base in the way they need to be servicedwith quicker deliveries, with better products, with heavier products, with lighter gauges," Barry Zekelman, executive chairman of Chicago-based JMC Steel Group Inc., said during a panel discussion at AMMs sixth annual Steel Tube and Pipe Conference in Houston, adding that the capacity additions will displace "lower-hanging fruit."
"Ive operated in an industry that has been in overcapacity for the last 30 years, and it seems to have worked for me. If somebody else is adding capacity and theyre not doing it right, were going to kill them, and thats what happens," Zekelman said.
Millions of tons of new energy tubulars capacity could be added to the U.S. marketplace in coming years as a host of companies have announced expansion plans or new projects (amm.com, Feb. 1).
Executives also pointed out that most projects are unlikely to operate at nameplate capacity from the start, and would be ramped up with market conditions in mind.
"We have no intention, in this market, as we commission the mill in the late summer of this year, to come out of the gate producing at (full capacity)," said Robert Mandel, president and chief executive officer of Concord, Ontario-based Welded Tube of Canada Ltd., which is installing a $50-million mill in Lackawanna, N.Y. "People need to understand you produce in accordance with what the market gives you."
However, one panelist did see the added capacity possibly squeezing margins. "At the end of the day, the better mills will survive, and itll be tougher for the mills that dont have the heat-treating or the end-finishing for producing pipe," said Don Baysal, president of Houston-based Seba Pipe Ltd.
Mandel said most expansions are being planned by reputable companies, likely with solid feasibility studies, although he recently came across one example of a planned expansion that seemed less well-thought-out.
"I was troubled to meet with someone a few months back (who) indicates that its his intention to bring not one but a number of mills from the Middle East and install them somewhere in North America," he said, adding that the potential new entrant seemed to have done little research on the domestic market. "If that kind of attitude prevails and if others jump on that kind of bandwagon, were in for a tougher time than would otherwise be the case."