China: Threat or opportunity for external pipe producers?

While the effects of the winter season have been felt slowly, most of the steel sector has started to see a slowdown trend as expected. This slowdown and the decline in flat rolled prices have been reflected in the pipe sector. The Turkish pipe sector, currently renovating itself, has also seen difficulties. Bookings have been already concluded based on the construction sector's annual projects. Taking into consideration these bookings and the general situation, next year is expected to be similar to 2006. If the reasons backing this expectation continue to have influence, then they will also affect the pipe sector in 2008. The dominance of Chinese pipes in the US, along with the slow European market, has caused Turkish producers to focus on their domestic market. Although there is uncertainty in the Turkish domestic market and stagnation in the construction sector, the revival and upward trend expected in the flat rolled market in a few weeks may lead to an improvement in the pipe sector. The slowness in implementing the mortgage system in Turkey and the delays in carrying out natural gas and fuel projects have hampered domestic purchases. In addition, other factors will also create difficulties for the Turkish market. The increase in the current account deficit, the approaching elections, and the relations with the European Union will mean that a difficult period lies ahead for the economy. There are rumors even that a crisis situation could be seen. Even though there will be no crisis, the economic indications are that it will be a difficult year. It is very important for all sectors, not only the pipe sector, to get through this depressed period with minimum losses. It is almost impossible for Turkey in the upcoming years to have a place in the pipe sector with a weak economy and with only low value-added pipe as its main focus. Turkey has to produce high value-added materials and must distinguish itself from China and India in terms of pipe quality. Otherwise, it will be very difficult for Turkey to compete with these countries, where labor costs are very cheap.. If we add the expected decline in flat rolled prices to all these conditions, the picture becomes more and more gloomy. Countries such as Ukraine and especially Russia have a voice in the Turkish pipe sector and also in sales worldwide. These countries also have problems with China, similar to those experienced by Turkey. The losses of these countries as regards US market share and their increasing labor costs in accordance with their growing economies are reducing their competitiveness. These countries have also looked to produce higher value-added materials, just like Turkey, and their major companies have concluded related investments. However, the advantage of Russia over Turkey is the continuous improvement seen in the country's domestic market and in its investments in accordance with the hot money achieved from its energy sales. With this money input, Russia will be able to renovate its infrastructure and buildings, and so can look forward to having a very strong domestic market. The winter season, declining flat rolled prices and the two to three months of stability in the Russian market will cause a downturn in the Ukrainian market. Currently, seamless pipeline prices are at $950-990/mt in Russia, while prices are at around $850/ton in Ukraine. However, the prices are expected to see a slowdown. All these developments show that China is the candidate to be the best player in this sector. Is this situation a threat or an opportunity for the pipe producers of other countries? China has achieved steady national income and domestic market growth. Investments in the country are gradually increasing. Although China is implementing measures to reduce low-productivity companies and decrease flat rolled prices, exports have still not been curbed. However, how long will this situation continue? China, which will experience demand increases in the future, can be a land of opportunity for pipe producers. The important thing is to see the shortage in the right time and place. When we examine the issue globally, we see that the main area for improvement and growth is Asia. With the increasing collaboration between Baosteel, POSCO and Nippon, Asia may have a strong say in orienting the world economy in the century ahead with its high population, know-how, low costs and gradually increasing investments.