NEW YORK The pipe and
tube sector is set to face a major oversupply problem, with new
players entering the market just as existing companies plan new
expansions, and industry observers fear that not everyone will
make it through.
"The problem isnt how many
are coming; the problem is that not all of them will survive.
Today we dont need one more joint of pipe, yet
theyre all coming," Dolty Cheramie, president of
Houston-based line pipe distributor Pipe Exchange Inc., said.
"Across the nation, our inventories are very reduced and
were scared to buy anything. Whatever you buy today is a
bad deal tomorrow."
Dolty was among the participants
speaking at the recent Critical Commodities Conference hosted
by the American Institute for International Steel and the Port
of New Orleans. Many said that margins in the pipe and tube
sector are being hurt due to additional capacity being brought
While the pipe market has been
among the few bright spots in the steel sector, some worry that
the momentum will be short-lived.
"Theres a metamorphosis
taking place in this business right now. The whole systems we
used to live are going to break," Leon Goldenberg, president of
New York-based steel trader Fremak Industries Inc., said. "All
these guys are building mills right now. But its not only
here: Its also in Taiwan, the Philippines, Korea. For
business today, there are a handful of guys who control the
game. Margins have been squeezed, and were not making any
Cheramie agreed, noting that
recent oil country tubular goods (OCTG) price hikes have failed
to garner momentum.
"OCTG sales prices have been in
the red for most of the last year. With the $100 price
increases we saw a few weeks ago, I thought: Why
dont you make it a billion dollars? What difference does
it make? You aint gonna get it, anyway, " he
But panelists at the New Orleans
event warned that tapping into the shale plays will require
high-performance steels with more advanced connections,
particularly as environmentalists cite fears of directional
drilling and hydraulic fracturing. They point out that more
stringent requirements will mean clear winners and losers.
"Quality issues will be a
problem, and there is no margin for error. Were drilling
in places weve never explored, and the weld designs are
constantly being changed," Goldenberg added. "Most of the shale
plays need seamless pipe with premium connections. My personal
feeling is that with the environmental issue, most of the shale
plays will end up using seamless. Those building ERW
(electric-resistance weld) mills will be the losers."
In recent months, a growing
number of foreign playersincluding Luxembourg-based
Tenaris SA; Borusan Mannesmann, Istanbul; Benteler Steel/Tube
GmbH, Paderborn, Germany; United Metallurgical Co. OMK, Moscow;
and TPCO America Corp., a unit of Tianjin, China-based Tianjin
Pipe (Group) Corp.have announced new projects in the U.S.
Gulf in an effort to take advantage of the game-changing shale
plays and burgeoning energy sector. A number of domestic
producers have also expanded capacity.
On the import side, long lead
times for foreign material, along with depressed U.S. prices,
have effectively shut traders out from the market. And with
more foreign players wanting a larger stake in the U.S. market,
the competition could continue to heat up.
"My customers tell me, I
dont need you; I can buy domestic, "
Goldenberg said. "I offer them August shipments compared to
domestic shipments of three weeks. The steel side isnt
any better. In about two years from now, certain people will
disappear. Not all the guys will survive."