NEW YORK Northwest Pipe Co. is mulling production cuts in its tubular segment due to compressed margins, even as the company continues to boost capacity.
"We took some short-term production reductions in the third and fourth quarters (of 2012) to help control inventories and will consider additional reductions as we react to further changes in the market," president and chief executive officer Scott Montross said during a conference call.
The possible cuts are the result of tough market conditions in the tubular segment. "In tubular products, we expect to see compressed margins for the foreseeable future as imports have had a negative impact on both volume and margins," Montross said.
Even as the Vancouver, Wash.-based company considers cuts, it has invested in capacity expansions that are expected to boost output in the segment to about 500,000 tons by "sometime late January, early February 2014" from 425,000 tons currently.
Questioned about possible overcapacity, Montross said the expansions also will grow the companys end markets. For example, an investment at its Atchison, Kan., facility is expected to double the potential end markets for the plants products.
Northwest Pipe saw capacity utilization in its tubular segment "somewhere in the 40-percent range" in 2012, Montross said, although the company has since managed to boost that figure. "As weve moved into (2013), one of the things that weve tried to (do) is to establish some longer-term relationships and agreements with the customer base, so as were in the first quarter of (2013), were at a little over 50-percent capacity utilization on those (tubular) facilities," he said.
The company is looking to move into higher-value markets in the oil and gas field sector.
"The larger percentage of that product market (oil country tubular goods) is moving toward heat-treated products, especially with all the fracking and the pressures on connections and the joints themselves, so when were moving up the value chain were getting more into those heat-treated products as opposed to the more generic carbon products," Montross said.
The second half of the year might bring some relief for the OCTG market as drill rig counts are expected to rise. "Maybe its just positive thinking, but I havent seen anybody this year thats not projecting that the rig count starts to go up sometime by the middle of this year," Montross said.
He made no mention of a potential trade case against foreign producers of OCTG and line pipe, which the company reportedly was working on last year (amm.com, Aug. 8).
"Imports are kind of a fact of life. We have to deal with imports no matter what," Montross said during the call.