According to a report released by the European Confederation of Iron and Steel Industries (EUROFER) entitled "Economic and Steel Market Outlook 2009-2011", the drop in output of steel tubes in the European Union (EU) deepened in the second quarter this year.
Steel tube production in the EU has been hit hard by the recession. Output in the second quarter decreased by more than 34 percent year on year, following a close to 30 percent drop in production in the first quarter of this year. Extremely weak activity levels at the customer level of the tube producers and massive inventory reductions by customers in the distribution and processing chain resulted in an unprecedented drop in tube production in the first half of 2009.
Against the background of the persisting weak business activity expected for basically all end-user sectors of the steel tube industry in the EU, the short-term market outlook for the tube industry is very subdued.
While the decline in tube output in the second half of 2009 could be slightly less deep than in the first half, output is predicted to fall by 26 percent this year.
The downward trend in production is predicted to ease in early 2010 and growth may become positive again from the second quarter onwards. A positive impulse could come from the stock cycle; some restocking by distributors and end-users seems plausible. However, without final demand improving as well, the restocking effect will be limited. The current outlook suggests that end-use consumption could gradually strengthen from mid-2010 onwards.
So far this year, global drilling and exploration activity has been relatively weak due to reduced levels of energy consumption in most economic regions. OCTG demand should improve during 2010 as the economic situations in developing Asia and in the US start to improve.
The outlook for large welded tube projects is expected to remain weak, mainly because of financing restrictions. Current projects will not be fully replaced by new ones. Small welded tube demand will not recover before mid-2010.
All in all, output may rise modestly in 2010 supported by the stock cycle and may shift into a higher gear once the business cycle picks up in 2011.