In the last couple of years the Russian pipe industry has seen considerable growth thanks to the rising consumption levels in the domestic oil and gas sectors. The current year is no exception. Both Russian pipe production and consumption have this year registered high levels of growth which, compared to previous years, are characterized by continuity throughout the entire year. However, increasing imports may create some difficulties for Russian pipe producers' plans to increase their sales and production capacities. Meanwhile, the unstable global financial markets may result in the temporary freezing of some major pipeline projects and cause the postponement of the start of new construction projects, as these are typically financed via international credits.
According to the data issued by the Russian Federation's Federal State Statistics Service, in the first nine months of 2007 steel pipe production increased by 15.4 percent year on year to 6.7 million metric tons, showing the largest increase of all steel production categories. This increase trend in domestic pipe production has been continuing for quite some time and is stimulated by increasing consumption, mainly in the oil and gas sectors and in some other industries. For instance, for the first eight months of 2007 Russian domestic pipe consumption has been estimated at 6.26 million metric tons - an increase of 23 percent from the corresponding period of 2006. Meanwhile, consumption is expected to reach nine million metric tons by the end of 2007.
The main consumers of pipes in Russia continue to be the oil and gas sectors, mainly on account of the simultaneous implementation of various oil and gas pipeline projects by Gazprom and Rosneft. These projects have been responsible for breaking the usual consumption cycle in the Russian domestic market this year. Thus, taking a look at the situation last year, the Russian pipe market had two seasonal jumps in consumption - in March-April and in September-October. Yet, this year a more or less continual rise in consumption has been seen in the Russian domestic market.
Although the oil and gas sectors remain the main consumers of pipes in Russia at the moment, during the current year demand from other industries has also increased considerably. Thus, according to the year-to-date data for 2007, pipe demand from machine building rose by around 10 percent, while the construction sector's pipe requirements increased by about 40 percent.
As a result of the rise in activity in different sectors which all require large diameter pipes, demand for this type of pipe has seen considerable growth.
Under general market conditions, high domestic demand for certain types of products intensifies imports of these products into the country. The Russian pipe market has not been an exception in this respect. According to the Russian Federation's Federal Customs Service, in the first eight months of 2007 Russia increased its imports of steel pipes by 134 percent year on year to 1.1 million metric tons - accounting for almost one sixth of Russian domestic pipe consumption during the same period. Among the new import trends, increases in imports of galvanized pipes, seamless pipes and shaped pipes, water and gas pipes were remarked this year.
Although Ukraine retains its leading position in the Russian imported pipe market, this year's growing market demand for pipes has attracted imports from other countries as well. For instance, Germany increased its pipe deliveries to Russia by more than twofold. Yet the greatest expansion into the Russian pipe market has been achieved by China. According to the data released by Chinese customs, exports of pipes from China to Russia in the first eight months of 2007 totaled 141,600 metric tons. Meanwhile, according to some estimates, pipe exports from China may reach 280,000 metric tons by the end of 2007. However, it is the rate of expansion rather than the tonnage figure that really sets China apart: compared to the first eight months of 2006, China increased its pipe exports to Russia by 746.28 percent, while according to estimates Russia's trade deficit with China may reach $4 billion by the end of the current year - the highest level in the last ten years. If the Chinese pipe expansion in the Russian market continues at its current speed, many smaller pipe producers in Russia may be forced out of business. This issue was brought up by the Russian Pipe Industry Development Organization, which warned that if the Chinese authorities do not bring pipe exports to Russia under control soon, then Russia may have to initiate anti-dumping investigations which could result in the establishment of quotas for Chinese pipe imports.
However, the Chinese threat does not currently seem to be so significant - at a time when the Russian pipe market is strong. Yet, with the not-so-promising forecasts for 2008 in mind due to the uncertain global financial situation, the increasing Chinese pipes imports combined with the rising domestic pipe capacities may pose a danger to the Russian pipe market. With an estimated domestic production capacity of nine million metric tons in 2007 and estimated imports reaching two million metric tons for the year, a problem of inadequate consumption levels may come to the fore very soon. This is particularly likely if the instability in the global financial markets continues and leads to the freezing of several pipeline projects.
The Russian domestic market this year developed some new characteristics - a continuous high level of consumption (of certain pipe categories) throughout the entire year, an increase in import deliveries and domestic prices, and a major expansion in the influx of Chinese products. With regard to these developments in the Russian pipe market, a clear parallel can be drawn with the developments which occurred in the Russian longs market last year - the same increases in consumption, prices and imports. However, as seen from the experience of the Russian domestic longs market, the net impact of sudden rises in demand for certain products may end up not being so great, and so it is possible that some deterioration in the Russian pipe market may be seen as early as next year.