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Global trends in tube & pipe

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The extended Chinese New Year holiday in reaction to the Wuhan coronavirus outbreak resulted in a steep decline in steel prices in China in the first quarter, but pipe prices were not as strongly affected at time of writing, with just modest declines, if any, recorded. However, few transactions were made after the Chinese New Year, so it is likely that further discounting will take place in the pipe markets from Chinese producers as they look to maintain cash flow.

Nevertheless, it is the view of Fastmarkets MB research that the hit to the Chinese economy from the coronavirus will be short in duration, but also that there will be ripple effects across the global energy markets due to the drop in oil and gas consumption causing Supply overhangs to build further. Indeed, first-quarter 2020 global petroleum and liquids demand is forecast to decline from the previous quarter – the first quarterly decline in more than ten years. This will put pressure on suppliers in regions poised to boost production, such as the US shale basins, Middle East and the North Sea. A buildup of oil and gas in storage could overhang into the second quarter, causing a slowdown in completions and drilling, especially in the US shale basins, until the oversupply is corrected.

Global linepipe and OCTG consumption in 2020 is not expected to take a significant hit from the economic effects of the outbreak. Our assumption is that activity will resume to normal levels in the second quarter and, in some cases, catch up on some lost time.  

European OCTG demand

European OCTG demand grew strongly in 2019, rising more than 30% year-on-year from 2018 levels.  Fastmarkets MB research expects demand in the near term to step back modestly from 2019 and then remain stable. The growth in 2019 was mainly driven by increased wells and meterage in the North Sea – UK and Norway – but we are also seeing increased demand out of both Romania and Albania, although at relatively low tonnages to start.   

Given the strength of demand in 2019 and sustained levels of consumption expected in 2020, the market could foresee an increase in prices in the first quarter of the year. This has not been the case so far as high inventories are a drag on pricing. Even with the limits on third-country imports as a result of safeguards, stocks remain too high to affect pricing to the upside. 

Only in the specialist, high-alloy OCTG grades do we see any increase in price. In this case, inventories are not nearly as ample and lead times have been increasing as a result of tight demand and limited number of suppliers in the specialist market. 

Chinese OCTG consumption

Japanese mills are the main providers of high-alloy corrosion-resistant OCTG to the global markets.  Stainless steel OCTG exports from Japan to all destinations in 2019 were 50% higher than in 2017, reaching over 180,000 tons for the year.  With strong corrosion-resistant alloy (CRA) demand into the North Sea, offshore Gulf of Mexico and Middle East forecast for 2020, we expect that market to remain tight in terms of pricing with limited alternative supply.

For Chinese OCTG consumption, after a temporary halt to activity in reaction to the coronavirus outbreak, project execution and tendering activity should return to normal in the second quarter. Drilling plans will not be fundamentally affected and growth in OCTG consumption is expected to increase nearly 8.6% in 2020 over 2019.

China still relies heavily on OCTG exports to maintain capacity utilization rates at the domestic mills. With the hold up in export activity due to restricted movements in the first quarter, OCTG pricing will likely be affected by discounting, especially at Tier 2 mills. The Middle East and North Africa market remains a strong target for sales, and exports will look to be competitive there.

Middle East tendering
For the Middle East region as a whole, we do not expect strong tendering activity to take place in 2020, outside of Saudi Arabia. Total OCTG consumption is expected to grow by 5% in 2020 over 2019. In 2019, there was little OCTG procurement activity by Saudi Aramco, the region’s largest buyer. We expect Aramco to return to the market in 2020 with modest tendering activity (which will first go to domestic Saudi mills), but it will likely take another year before Aramco returns to more normal buying patterns and tonnages.

Otherwise, there are few large OCTG tenders upcoming in the region in the short-term. Fastmarkets MB research understands that Qatar will tender for its expansion projects at some point in the first half of 2020. Bahrain may be the most interesting market in the region for now. The country exhibited a surge in OCTG demand in 2019, rising to over 30,000 tons from around 10,000 tons in 2018. Recently, Bahrain awarded a significant OCTG contract to China’s TPCO to supply up to 40,000 tons of casing over the next few years.

Tatweer Petroleum, wholly owned by Bahrain National Oil and Gas Authority (NOGA), is responsible for the country’s oil and gas exploration, development and production activities. The company’s portfolio includes the Bahrain oil field. This field is a mature one, which, since 2009, Tatweer has been seeking to revive by drilling new wells, debottlenecking facilities, implementing new technologies and testing advanced Enhanced Oil Recovery (EOR) pilots.

From the field, the company produces around 43 kbpd of oil, and it is looking to increase to 44 kbpd by the end of 2020. The field is a tight oil (shale) field, so Tatweer has been talking with US oil firms with expertise in fracking. Japan’s JX Nippon Oil has also been in discussion to develop EOR, and Italy’s ENI, in May 2019, signed an Exploration and Production Sharing Agreement to develop the offshore Block 1. Total has also signed an MOU with Tatweer for ongoing exploration and production activities.

European linepipe demand

Fastmarkets has noted a flurry of pipeline projects in Europe, which will keep regional linepipe producers busy this year. Large-diameter linepipe consumption in the region is predicted to exceed 1.2 million tons in 2020.

Europipe received an order from Gaz-System for the delivery of 36-inch LSAW pipe for the Polish offshore part of the Baltic Pipe Project. The pipe wall thickness will range from 20.6 mm to 23.8 mm. The pipeline will be covered with a special 4.2 mm thick anti-corrosion coating to protect it during its operation on the seabed, as well as 60-110 mm concrete coating.

Corinth Pipe of Greece will supply 32-inch linepipe worth €58.2 million to ICGB for the Gas Interconnector Greece-Bulgaria Pipeline this year. The contract also includes external 3LPE anti-corrosion coating and internal liquid epoxy lining.

Liberty Steel Hartlepool (UK), in conjunction with Sumitomo Corporation Middle East FZE, will supply part of the Saudi Aramco Marjan project with more than 16 km of heavy-duty LSAW linepipe from its 42-inch UOE mill.

Longer-term, Norwegian pipeline system operator Gassco is examining the possibility of building a new pipeline to export natural gas from the Barents Sea. Production in the northern Barents Sea is liquified at Hammerfest, but Gassco has concluded that there are sufficient reserves and planned production to justify either a second LNG site or a pipeline that would run south to join up with existing infrastructure in the UK and onto Europe. The provisional costs for the pipeline are $1.4 billion, with a final decision expected by 2022 and completion by 2026.

Meanwhile, Russian linepipe prices remain at a discount to their European counterparts as a result of market conditions. With the end of Power of Siberia, Nord Stream and TAPI shipments in late 2019, 2020 may be much quieter for the LSAW mills as Gazprom takes some time to re-orient towards a focus on repair and replacement rather than new projects. In order to maintain output rates, Russian pipe producers will seek export opportunities. 

Asian linepipe demand

In 2019, linepipe producers in Asia, especially Japan, reported low utilization rates because of reduced regional business and steep competition for supply among projects in other regions.

The end of the Australian LNG investment boom is a primary reason for the malaise in Asian demand. While there are a number of projects that are under consideration – Pluto, Browse, Scarborough, Barossa, Crux and Clio-Acme – only a couple have received the go-ahead and some will require less linepipe infrastructure than previous projects.

Nevertheless, we do expect to see some pick-up in Australian projects over the next couple of years and believe that 2019/20 will be the low for Asian regional demand, with projects in Vietnam and Malaysia also being supportive of increased volumes.

Large-diameter pipe order volumes in the Middle East region should be robust in 2020 with Aramco, ADNOC and Qatar processing tenders, while other projects in Oman and even Jordan and Iraq will require material. Moreover, projects always require supplemental volumes that should keep the spot market active. Local large-diameter linepipe mills could also see improving utilization rates, as projects that were initially intended for international LSAW mills are diverted to local players.

Issues to watch

In countries with well-developed domestic steel industries, safeguard measures are common and include duties, tariffs, quotas and domestic content requirements – government programs which demand a pre-determined level of domestic steel content in purchasing. The best known is the Buy America program in the USA, which requires US-made steel to be purchased for all government works projects. 

The Middle East, historically a steel-short region, is moving towards that trend as regional steel production grows. This will have implications for global steel trade with the region a common target of export attention.   

In the energy tubulars sector, Saudi Aramco’s In-Kingdom Total Value Added (IKTVA) program is increasingly driving procurement decisions for the company. The goal is to procure 70% of services and goods by 2021 from
in-kingdom suppliers.  

The program is behind schedule, but the company has made shifts in supply to move towards compliance in the first quarter of 2020. In January, for example, Global Steel Pipe was awarded the majority of the Marjan Package 4 sour service for over 100,000 tons of pipe supply.

Global was approved by Aramco for linepipe up to 1.5-inch wall thickness (WT) for sour grades in 2019 (previously it was up to
1-inch WT). Global will procure the plate from EU or Asian suppliers, but is working under fairly tight schedules for pipe delivery in April through to July 2020.

The decision highlights the importance that Aramco is placing on IKTVA. There are still more linepipe orders for offshore applications to come over the next few years, including Zuluf and Berri, but still rather short supply of competition in the kingdom. The Japanese-owned National Pipe is also certified for sour-service up to 1-inch WT. The Chinese-owned Al Qahtani plant can produce thicker wall thickness, but has only produced carbon grades to date.

Aramco continues to work with Nippon Steel on a planned HR plate mill in Saudi Arabia to further increase the value-added proportion of its procurement.

It is also stepping up domestic procurement for welded OCTG. Arabian Pipe, from its 160,000 tpy ERW plant in Riyadh, received an order for $46 million for welded OCTG from Aramco in December 2019, with delivery scheduled to start in Q4 2020 and through 2021. This order suggests that Aramco is going back to a more planned-delivery schedule rather than a project-based model, which resulted in swelled inventories and long stretches of no purchasing, as seen in 2019.  The planned delivery schedule should support domestic pipe producers’ cashflow.

New pipe capacity

The 240,000 tpy Al Gharbia large-diameter linepipe plant in Abu Dhabi produced its first pipe in January 2020. The JFE-Senaat JV can produce 18-56-inch pipe with a wall thickness of up to 44.5 mm and will make sour and non-sour grades up to X80, targeting both the offshore and onshore linepipe markets. The Saudi Arabian market is of interest here, but the UAE and other GCC markets are likely to be the primary destinations for the plant’s output in our opinion.

Algerian consumption of ERW linepipe can reach as high as 75,000 tons annually, and there is no existing ERW linepipe facility in Algeria. Meanwhile, domestic energy development, and tubular demand, surged in 2018-19 (see chart). A proposed new ERW pipe plant in Hassi-Benabdallah is potentially in the works as a joint venture between local drilling and contracting company Tassili Forage, the US tubular producer Tejas Tubular, and US oilfield products manufacturer and distributor Summit International.  The facility would make welded linepipe for the Algerian and regional market.

In Kazakhstan, Asia Steel Pipe completed the commissioning of its new 100,000 tpy spiral mill owned by a joint venture of Baoji Steel Pipe, CNPC and a Kazakh investment fund. Located in Almaty in southern Kazakhstan, it will target mainly domestic sales where CNPC is already a substantial player, as well as being a partner in the Phase II development of Kashagan.

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