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More players, capacity to hurt pipe, tube mart

Keywords: Tags  pipe, tube, Leon Goldenberg, Dolty Cheramie, Fremak Industries, Pipe Exchange, Critical Commodities Conference, ERW energy tubulars

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 isn’t how many are coming; the problem is that not all of them will survive. Today we don’t need one more joint of pipe, yet they’re all coming," Dolty Cheramie, president of Houston-based line pipe distributor Pipe Exchange Inc., said. "Across the nation, our inventories are very reduced and we’re 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 online.

While the pipe market has been among the few bright spots in the steel sector, some worry that the momentum will be short-lived.

"There’s 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 it’s not only here: It’s also in Taiwan, the Philippines, Korea. For business today, there are a handful of guys who control the game. Margins have been squeezed, and we’re not making any money."

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 don’t you make it a billion dollars? What difference does it make? You ain’t gonna get it, anyway,’ " he said.

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. We’re drilling in places we’ve 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 players—including 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 don’t need you; I can buy domestic,’ " Goldenberg said. "I offer them August shipments compared to domestic shipments of three weeks. The steel side isn’t any better. In about two years from now, certain people will disappear. Not all the guys will survive."

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