CHICAGO Service center operator Russel Metals Inc.s foray into the energy business has intensified since the Mississauga, Ontario-based companys acquisition of Apex Distribution Inc. in November, giving its leaders a better view of whats happening in the oil patch.
For example, president and chief executive officer Brian R. Hedges said he is paying close attention to the transportation of oilfield products and how that affects Russels business.
The consensus in Canada is that TransCanada Corp.s proposed Keystone XL pipeline will eventually be approved, he said, but "the bigger discussion point now is there are alternative ways of getting the oil moved," Hedges said during the companys May 3 earnings call.
"It has become abundantly clear that (the) XL pipeline doesnt (completely) solve the problem anyway. There will have to be other pipelines or rail sets that move oil," he said.
Hedges said Russel Metals expects to benefit from growth in either pipeline construction or the alternativerail activity. "Pipelines are a much better piece of business for us, but obviously, youve got to make more cars, and thats steel going into rail cars," he said.
Russel Metals has a service center at Ontarios Thunder Bay Terminals Ltd. that could both ship steel and transload energy-related products from rail to boat, he said. "Theres a positive there, but it doesnt even come close to offsetting what we lose if XL doesnt get approved," Hedges said.
Russel Metals has won some large-diameter pipe supply contracts recently, the companys executives noted. Line pipe is picking up again, chief financial officer Marion E. Britton said, but "the problem area still really is (oil country tubular goods)."
Hedges said he wonders whether new pipe production capacity announced in the United States will displace imports, "because a lot of the (new plants) are being built by importers," he said, citing Luxembourgs Tenaris SA as one example.
On the other hand, "it hasnt happened yet, and the larger issue is theres a lot of inventory out there and the rig counts are down," he said.