Although the drivers are different, one common thread running through the various steel tube and pipe sectors is that while they are all doing OK, this year hasnt been anything to write home about.
It has been largely the same old, same old, without a huge amount of improvement, said Kim Leppold, senior steel analyst at Metal Bulletin Research.
Bill Wolfe, executive director of the Steel Tube Institute (STI), agreed, saying that while underlying demand hasnt been all that bad, the consensus view for most tubulars is that they will be either up or down by just a few percentage points this year, depending on their end-use applications.
While there is cautious optimism that most tubular markets will improve next year, at least modestly, Wolfe said that markets have changed so much recently that it is very hard to see that far out. It is hard to say what is normal for the tubulars market anymore, he said.
This is particularly true of the two major energy-related pipe and tube markets. Oil country tubular goods (OCTG) and line pipe, while not as strong as they once were, are still holding up. In fact, Leppold said that despite weaker-than-desired natural gas prices (around $3.70 per million British thermal units mid-September), OCTG continues to be one of the hottest steel-consuming markets.
Early last year the market had been on a strong growth trajectory with a very high number of drill rigs operating in the United States and expectations that drilling activity would continue to improve. The number of drill rigs operating in the United States hovered around 2,000 through the first quarter of 2012, but by mid-September this year that had fallen to 1,768, according to Houston-based Baker Hughes Inc., down 5.2 percent from a year earlier.
Nevertheless, OCTG consumption has actually remained more or less flat year on year because increased drilling in the nations shale oil and natural gas formations means more wells are drilled horizontally or directionally, using double the footage of OCTG than conventional vertically drilled wells.
Also, the shift to more shale drilling has required OCTG with heavier wall thicknesses to withstand the high-pressure environment of hydraulic fracturing (fracking), said Gregg Eisenberg, president and chief executive officer of Boomerang Tube LLC, Chesterfield, Mo. The demand side is OK and should get better, especially if natural gas prices (which are now lower than what many energy companies consider to be a profitable level to drill) improve. The big question is what will happen as far as supply.
The two big issues affecting that side of the equation are the seemingly never-ending announcements of new seamless and welded OCTG production capacity since 2008--some of which has already come online, but most of which will not do so until as late as 2016 or 2017--and the long-awaited, potentially landmark OCTG trade complaint filed in July against nine countries.
If the trade case is successful it could make things look rosier in the OCTG market, said Paul Vivian, principal of St. Louis-based steel tube and pipe research firm Preston Publishing Co.
Lynn Lupori-Gray, managing consultant in Hatch Associates Pty. Ltd.s North American Strategy Consulting Practice, agreed, saying that it will reduce OCTG imports and make room for the new capacity coming online.
John Anton, director of steel services for Lexington, Mass.-based IHS Global Insight Inc., said that if the trade case is at least partially successful, as he believes it will be, it will protect the domestic OCTG industry. However, if it tightens things too much it could make drillers angry. It could kill the goose that is laying the golden egg, he said, much as what happened after the Section 201 trade relief granted several years ago. If they cant get enough pipe, it could cause drilling to stop or slow.
That is not likely to happen, given all the new OCTG capacity expected to come on-stream. Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa., noted that since 2008 more than 5 million tons of new capacity targeting the OCTG and other tubular sectors has been announced, although he cautioned that is the rated capacity and no one in the OCTG sector operates at near those levels, with many only operating at 50 to 60 percent of their gross nameplate capacity.
It will be an interesting time in the next year or so as companies sort through this supply movement, said Kurt Minnich, a partner at Spears & Associates Inc., Tulsa, Okla., and manager of affiliated Pipe Logix Inc.
Meanwhile, Vivian said there has been a little pickup recently in pipeline activity, which is a plus for makers of line pipe.
The line pipe market isnt as good as we had hoped it would be this year due to a lack of a federal energy policy, but it isnt that bad, said a spokeswoman for California Steel Industries Inc., Fontana, Calif., which is building a new large-diameter electric-resistance welded line pipe mill that will give the company the ability to make up to 24-inch-diameter pipe in lengths up to 80 feet vs. its current limit of 16-inch pipe up to 60 feet long.
Plummer said that line pipe apparent consumption was down about 10 percent year to date through July, partly because energy companies were leery of the long-term commitments necessary for pipeline projects to go ahead, waiting to see what happens with TransCanada Corp.s proposed Keystone XL pipeline.
Lupori-Gray said she expects more project work to go ahead next year, although there will be more success with smaller pipelines vs. large projects like the Keystone XL. Going forward, there is a need to build transmission pipelines, given that the lack of such infrastructure currently necessitates some of the oil from the Bakken shale play being transported by rail.
Wolfe said that demand for mechanical tubing is up about 2 to 3 percent this year due to a little firming of the economy, pushed especially by the strength of the automotive market.
On the other hand, demand from the heavy equipment sector, which was strong earlier in the economic recovery, has gone quiet recently, according to John Simon, vice president of sales for EXL Tube, North Kansas, Mo.
On the automotive side, Shawn Seanor, vice president of oil and gas and engineered steel solutions at Timken Co., Canton, Ohio, cited not just the increased volume of vehicles being produced but also certain technological advancements, including new automatic transmissions with more gears and more mechanical tubing. Transmissions have already gone from four speeds to seven or eight, and a 10-speed transmission is expected soon. This is a positive for the market, although he acknowledged that certain industrial uses for mechanical tubing, especially for mining and construction equipment, are not that strong. However, he is optimistic that next year will be better, especially with distributors now beginning to order at a healthier rate.
If we can assume that producer shipments by STI members are an indicator of overall demand, the year-on-year demand for hollow structural sections is up, said Mark Bula, director of hollow structural sections (HSS) for STI. In fact, our producing members just had one of their strongest quarters since the institute began collecting data over a decade ago.
One reason, according to Simon, who is chairman of STIs HSS Committee, is that agricultural equipment remains strong despite some declines in other heavy equipment, given certain export buying opportunities and high farm income, as well as the fact that new farm equipment is more efficient and requires the use of larger, heavier sizes of tubing.