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
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
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.
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
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
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.