Gas wells use more tons of heavier OCTG than the oil wells because they are deeper and transmit the fuel under higher pressure.
manufacturing.net
March 8, 2001
Steel Pipe and Tube
Energy goods support sales
BY TOM STUNDZA
Use of industrial-grade tubulars is slipping, leading to speculation of capacity cutbacks.
Economists and market mavens are divided on this year's steel pipe and tube market. Some see as much as a 4% drop in demand, some see use flat with last year, and some see as much as a 4% increase in consumption. The one thing the analyses have in common is a belief that demand for energy-related tubulars will stay strong, buoyed by high oil and gas prices. Where they differ is on projected sales of industrial-grade pipe and tube, which vary depending on their scenarios for the health of manufacturing and construction.
Demand for tubular products is complex since it is influenced by the construction and energy markets, the agricultural economy, industrial and mechanical equipment manufacture, export demand for metalworked products and general economic conditions. Steel pipe and tube buyers weren't overly active last year, as end use rose by just 2%. Purchasing's view: Total consumption will be subdued again this year, rising by just 2%.
Buyers can expect to see a continuation of the "extremely competitive" market that became apparent in the fourth quarter of last year. "Falling raw material prices have translated into extreme competitive conditions," according to a membership survey by the Steel Tube Institute of North America in Mentor, Ohio. "In addition, continuing customer inventory-reduction programs have not subsided as expected, pushing replenishment orders downstream." Even the tube producers' first-quarter forecast suggests shipments could be down 4% from fourth-quarter levels, partly because of seasonal declines and partly because of high imports.
The trend to watch in the steel pipe and tube market this year will be the possible shrinkage of domestic supply. Since margins are being squeezed by low sales prices and higher energy costs, even industry insiders say shutdowns of excessive domestic capacity are probable.
"Some mills didn't make much money during the 'gravy train' years," says Timothy Andrassy, executive director of the Steel Tube Institute of North America in Mentor, Ohio, referring to the 10-year economic expansion. "But, the 'gravy train' may be leaving the station this year." He foresees tightened credit and rising costs accelerating company consolidations and plant shutdowns in the months ahead.
That's why the mavens refer to 2001 as "a transition year" for the steel tubulars market. The bulls maintain this will result in reduced capacity and higher prices when demand perks up—either in the second half of this year or in 2002. The bears suggest there will be fewer domestic suppliers, but no price inflation because of plentiful cheap, foreign-made product.
Overcapacity exists in just about all of the industrial-grade segments—carbon and alloy mechanical and pressure tubing, structural tube and pipe, and stainless pipe and tube. Evidence: New tubular mill capacity in North America has increased approximately 25% since 1996, and U.S. capacity utilization has been reduced to 60% or less.
Much of the capacity-cutback speculation by market analysts centers on LTV Copperweld of Pittsburgh, which controls at least 35% of the nation's industrial-grade tubing capacity. LTV Copperweld is the largest producer of steel tubing in North America, with 19 manufacturing plants in the United States and Canada. The firm's parent company, steelmaker LTV Corp. of Cleveland, has filed for reorganization under Chapter 11 of the Bankruptcy Code. This filing includes LTV Copperweld's operations in the U.S. (but not Canada or the United Kingdom). "It is difficult to forecast the period of time this situation will persist, as many alternatives will have to be weighed as to the various reorganization options," says John D. Turner, president of LTV Copperweld. "So, we can't offer a precise timeframe for this process or suggest the precise manner of the final restructuring."
A fragmented supply base
Today, the pipe and tube industry is fragmented with no one competitor controlling more than 10% of the total market. Atop that, demand for these products peaked in 1998 at 10.4 million tons. Use of industrial-grade tubing fell by 1% last year to 9.6 million tons from 9.7 million tons consumed in 1999. Consumption this year is projected at 9.5 million tons, another 1% slide.
The busiest pipe and tube suppliers last year were the mill and distributors that supplied buyers with oil country tubular goods (OCTG) and line pipe. End use exploded by 10% to 3.9 million tons from 3.5 million tons the year before. "While we don't expect the current high energy prices to continue, we do believe that the medium-term demand for natural gas and oil in America will sustain relatively high drilling rates in the U.S. for several years to come," says David Britten, vice president of OCTG producer IPSCO Inc. in Lisle, Ill. And that view dovetails with the forecast of 9% growth to 4.2 million tons of energy-related tubulars.
So, because of high demand for energy-grade tubulars, the entire pipe and tube market of 13.5 million tons was 2% stronger in 2000 than the 13.3 million tons consumed in 1999. And use this year is projected to rise 9% to 13.8 million tons. In a nutshell, demand growth for industrial-grade steel pipe and tube products has been sluggish for some months now. But, it continues to grow briskly for energy-related goods.
And, to put end-use data into perspective, note that industrial pipe and tube demand last year was 19% higher than a decade ago, while consumption of energy-related
Even in the best of times, steel pipe and tube is a mature, slow-growth market. With feedstock prices low, price deflation is in the cards for 2001.
tubulars was 85% stronger. Thus, the projected total steel pipe and tube market in 2001 of 13.8 million tons may be just 2% improved over last year, but it will be 27% higher than the 1991 market of 10.9 million tons. Still, excess capacity has hung over the marketplace for some time. And the mills have blamed that—as well as high imports of finished goods—for their less-than-stellar financial returns in recent quarters. "The profit squeeze wasn't unexpected," says Andrassy, "It's just that it is happening quicker than many of the mills had expected." And he isn't alone in suggesting that "the supply landscape is going to change so dramatically that buyers and suppliers alike soon won't recognize the supply base."
Analyst Anthony Wilson of Strategic Dimensions Inc. in Pittsburgh notes that "the steel pipe and tube industry falls into a number of different segments" with each having different cost structures. That's because most tube makers are not vertically integrated.
Producers with their own steelmaking facilities tend to have lower raw material costs and higher value-added ratios, says Wilson, but "there are relatively few in this category" and are most active in the OCTG and line pipe categories, where higher-grade materials are needed. The group that buys its steel includes 169 companies who are especially active in the production of mechanical tubing and standard pipe, Wilson notes. "Producers who purchase their steel requirements typically spend up to 60% of total shipment value on materials."
He also points out that when domestic and imported hot-rolled coil and plate is low priced, these producers should be expected to achieve improved competitive advantages. However, it is well known in the tubulars marketplace that suppliers rarely march in lockstep—producing a wide range of sizes for the same basic products and charging different prices, depending on the target end-use market or supplier profitability goals. A lot of that has to do with excess engineered capacity for such product lines as mechanical and structural tubing and the steel pipe and tube mills' continued inability to become large-scale exporters.
Also, imports of finished steel pipe and tube have been low priced and lately have averaged 40% of total market sales. And, based on the latest (December) survey by the American Institute for Imported Steel (AIIS), 55% of the buyers who source offshore pipe and tube imports this quarter are maintaining or expanding their order levels for foreign-made steel. Atop that, 54% said prices of imported pipe and tube were declining moderately from previous months, while 46% said prices were declining substantially. And, adding fuel to the fires of possible domestic capacity cutbacks, 79% of the buyers of imported pipe and tube told AIIS that the market would be in moderate oversupply this quarter.
FWIW, here's the link for the site's glossary
manufacturing.net
metalcenternews.com
A PRIMER ON OCTG PRODUCTS
Drawing oil and gas from the earth is a huge undertaking, one that is dependent on three basic types of vertical tubular goods, according to tube producers.
•Tubing, either seamless or welded, is permanently installed into the well offshore or on land. Tubing lines the inside of the casing. Crude oil or natural gas flows up the tube, sometimes on its own or through the use of forced pressure. Tubing is made from carbon steel or carbon alloy and comes in four sizes: 2-3/8, 2-7/8, 3-1/2 and 4-1/2 inches. The size depends on how much pressure is naturally found in the well. If the pressure is great, a larger size will be used.
•Casing, either seamless or welded, is used to support the well by holding back the earth so the well doesn’t collapse. It is a hollow piece of pipe, cemented into the well. The tubing runs down the center of the case. There are four grades of casing: J55, N80, L80 and P110.
•The drill pipe is used on drilling rigs to physically drill wells. It can be reused and is not a permanent installation of the well. There are two types of drill pipes, made from two types of chemistries: 4125 or 4140.
•Line pipe is not an OCTG product, but is used to transport natural gas or crude oil horizontally from the surface to the refinery. |
