The AIIS Gulf Region Conference held on September 23 and 24 at the Houstonian Hotel in Houston, Texas, provided steel traders, distributors, and logistic companies an opportunity to discuss current issues and forecasts concerning their respective markets. While all ferrous steel markets were represented at the conference, the majority of the discussions and speaker presentations focused on the critical energy and pipe markets.
The conference opened with a cocktail reception, where the mood of the attendees became quickly apparent: things are still not good. Attendees commented that while the general economic conditions are slightly improving globally and in the US, the steel markets, especially pipe and tube, have a long way to go before any sort of "recovery" may be proclaimed. Service centers and distributors, especially on the US Gulf Coast, still have an abundance of pipe and tube stocked in their yards, while most traders haven't booked any significant business since the beginning of the summer.
The next morning, the conference speakers session opened up with Rice University energy economics Professor, Dr. Peter Reginald Hartley. Dr. Hartley focused primarily on the future of the energy expansion industry. He mentioned that in the US, natural gas pipeline expansion projects will begin developing in the coming years, primarily from Canada into the Northeast US, Texas heading out West, and from the Rocky Mountains heading into the Pacific Northwest and California; however such projects may take some time before actually requiring pipe supply, and they will not include the expected "great Alaska pipeline" expansion, which is not expected to run further south than Alberta, Canada.
Next, the pipe distributors panel, aptly named "Surviving the Bad Times," featured Gerald Merfish, CEO, Merfish Pipe and Supply; Dolty Cheramie, President, Pipe Exchange LTD; Steve Fowler, Principal, Tubular Synergy Group; and Dr. Paul Vivian, Editor in Chief, Preston Pipe Report. Mr. Merfish focused more on the standard pipe industry and alluded to how difficult it is for distributors to try and raise their prices to customers while there is no demand; however, mills are doing just that to distributors. "Pipe manufacturers must not produce pipe for their inventories -- but need to run their mills only for orders," Mr. Merfish said.
Meanwhile, Mr. Cheramie centered his presentation primarily on line pipe and rig counts. He stated that while rig counts had slightly improved over the last couple months, they are still running at less than 50 percent of normal levels. However, he also mentioned that pipe supply especially in the US Gulf, will be necessary for the future of the drilling industry because an estimated 30 percent of worldwide drilling activity occurs in the states of Louisiana, Texas, Oklahoma, and New Mexico.
Mr. Fowler also focused on rig counts and drilling activity, but more from an OCTG perspective and claimed that despite some recent increases in rig counts, there remains an average of 12 to 14 months of excess OCTG supply on the ground at ports and warehouses, with certain sizes accumulating to about 24 months of excess inventory. Mr. Fowler believes that rig counts will most likely decline again in this current cycle. And Mr. Fowler stated that although steel prices have been recovering, mostly due to the flat rolled market, "We are one blast furnace away from coil prices and other pipe prices declining."
To end the pipe distributors panel session, Dr. Vivian proposed that even though US Federal Reserve Chairman Ed Bernanke told press the previous evening that the recession was over, the recession couldn't be over considering that unemployment is still expected to rise through February 2010 and that the US government is planning on continuing to stimulate the economy through March 2010. Furthermore, Dr. Vivian turned to Mother Nature for help out of the current pipe demand drag by saying, "We need to see some really cold weather beginning in November; otherwise rig counts will deplete."
Regardless of the many conversations and speaker comments indicating the current depressed state of the energy and steel markets, most attendees at the conference seemed to understand that while things are difficult right now, they have already weathered the toughest part of the storm. Bright skies may not be on the horizon until 2011, as the overall consensus amongst the speakers confirmed, but most firms that have survived the storms up till now expect to be in better shape once the markets pick up again.