CHICAGO U.S. Steel Corp. should benefit from increased demand for premium tubular products even as the market struggles to work off a glut of commodity-grade welded oil country tubular goods (OCTG), the companys top executive said.
Electric-resistance welded (ERW) product inventories will likely "remain abundant" in the third quarter despite the U.S. Commerce Department recently assessing dumping margins on material from South Korea, U.S. Steel president and chief executive officer Mario Longhi said during a July 30 conference call with analysts. That inventory overhang in ERW is due to both offshore offerings and "additional domestic capacity."
But the picture is different on the value-added side of the market, where "increased demand for premium products could allow for some upward price movement," he said.
The bullish outlook on high-end tubulars comes as high energy prices are expected to boost the U.S. rig count to its highest level in at least two years, Longhi said, noting that oil prices are expected to remain above $100 per barrel in the third quarter and natural gas prices should be "significantly above" where they were a year ago. As a result, shale drilling for oil in particular should drive a higher rig count and increased OCTG demand, he said.
While U.S. Steel expects higher pricing and margins in the third quarter, the Pittsburgh-based company also forecast a decline in sales volumes due to the idling of "unprofitable" facilities in McKeesport, Pa., and Belleville, Texas.
U.S. Steel said in June that it was indefinitely idling the two tubular facilities, citing what it called unfairly traded imports (amm.com, June 2). The company has also said it doesnt expect any benefit in the third quarter from an OCTG trade case that earlier this month saw anti-dumping margins assessed against product from South Korea (amm.com, July 11), as a final injury ruling isnt due until mid-August (amm.com, July 29).
Despite the idling, U.S. Steels tubular products division had another strong showing in the second quarter, recording operating income of $47 million. This was up 4.4 percent from $45 million in the second quarter and nearly double the $24 million that the segment recorded in the first quarter, according to earnings data released July 29.
The gains also come as U.S. Steel is adding new research staff and equipment to support both its automotive and tubular product development efforts, Longhi said. On the tubular front, those efforts are focused on proprietary premium and semipremium connections, he added.