While long-term growth in global energy demand will ultimately result in increased steel pipe consumption, the pipe market will continue to be adversely affected by the economic recession, which will likely be long and deep. In the meantime, an antidumping case against Chinese OCTG is probably imminent. These were some of the sentiments expressed by speakers and attendees at the National Association of Pipe Distributors (NASPD) 2009 Annual Convention held last weekend in Beverly Hills, California.
Speakers at the three-day event included Peter Hartley, Professor at Rice University, Steel Business Briefing reporter Lisa Gordon, and trade attorney Lewis Lebowitz.
Most attendees SteelOrbis talked to at the event said they were experiencing a marked downturn in their business, while some pipe companies, located in the Pacific northwest and western Canada, reported that they were still seeing satisfactory demand. It was clear though that the overall feeling at the meeting was one of concern over when the pipe markets will recover, particularly for distributors and producers of oil country tubular goods (OCTG), the segment of the pipe market which has seen the steepest drop in demand.
However, energy pipe demand will not remain depressed indefinitely, according to Professor Peter Hartley of Rice University. Professor Hartley, in his presentation entitled "Finding Opportunities in the Changing North American Gas Markets," shared his opinion that tighter carbon dioxide emission restrictions will result in increased natural gas consumption, in the US and worldwide. It will still take at least "another couple decades" for renewable energy sources to gain momentum in the energy market, and thus the energy system will be dominated by fossil fuels for many years, said Hartley. Meanwhile, due to carbon-restrictive measures implemented to combat climate change, more carbon-intensive energy sources like coal and oil will lose ground, while cleaner natural gas energy generation, will increase. (Nuclear power generation also produces less greenhouse gas emissions than traditional energy sources, but Hartley thinks it will continue to have problems gaining public acceptance due to safety concerns.)
While North America does have both onshore and offshore natural gas reserves, including unconventional supplies like oil shale, Hartley pointed out that access restrictions currently imposed on many of these reserves would need to be lifted in order to access them. However, due to the expected carbon dioxide emission restrictions and the resulting move towards natural gas as a cleaner source of power, Hartley thinks there is a good chance that the access restrictions for these natural gas reserves will be lifted.
So what does this all mean for pipe? Professor Hartley forecasts that with the "dash to gas" in the next 10 years, the US will see major pipeline expansions for natural gas transmission, as will the rest of the world. Some examples are the potential development of supplies in Utah and Wyoming, to be transferred to California and Arizona, shale-extracted gas out of Texas piped to the northeast US, and internationally, Asia's growing energy demand likely resulting in new pipelines from Russia. Iraq, depending on the geopolitical conditions, could also become a major exporter of natural gas to Europe through Turkey. Hartley predicts that due to the availability of domestic resources, the US won't import a lot of natural gas for awhile, but beyond 2020 more natural gas imports will be piped in.
In the short term, however, energy demand of any kind is unlikely to increase because of the economic downturn. Lewis Leibowitz, in his presentation entitled, "The Steel Pipe Market from a Washington Perspective: Trade Cases, Stimulus and Infrastructure," remarked that we are living in "momentous times" and there are signs that this meltdown will continue for a long time, and we'll come out of it slowly. Leibowitz went on to warn that trade cases are complicated and expensive, and are not necessarily a panacea for our current problems. Allegations of dumping and subsidization are particularly complex right now since, with many steelmakers globally selling below cost because of the sharp market downturn, and the "stimulus" or "bailout" legislation aiding many heavy manufacturing industries around the world, the question arises: "Who isn't dumping or subsidizing right now?" We are in unknown territory, Leibowitz said, and none of his clients want to test it by filing the first case.
Regarding the US trade case expected to be filed against Chinese OCTG, Leibowitz said that despite the half a million tons sitting in Houston, if domestic producers wait too long to file it, they won't have a case, since imports have recently been declining along with demand. So, if it's going to happen, it will happen soon. But with the decline in demand continuing to occur in the face of declining imports, it may be difficult to prove that imports are really to blame for the "injury" US pipemakers are experiencing. If antidumping is imposed, Leibowitz said, the effect of it would be small until the economy turns around; it would only be insurance against an upturn in the future.
In regards to the recently passed US economic stimulus package, Leibowitz said that the good news is that it will create jobs in construction, which will positively impact pipe and tube as well as increase confidence. The bad news, he said, is the Buy American provision. "We don't know what 'produced in the US' means anymore," said Leibowitz. Depending on whether it means that the steel must be melted or poured in the US, for pipe used in stimulus projects, it may matter where a US pipe company's flat rolled or billets used as raw materials were produced. Leibowitz concluded his presentation by warning against imposing any protectionist policies reminiscent of the Smoot-Hawley laws passed amid the Great Depression which only worsened the situation, arguably resulting in World War II.
On the whole, while opinions among the conference attendees differed as to when the economy will rebound and whether the imminent dumping case against Chinese OCTG is a good thing, it seemed that everyone was optimistic that a market recovery will eventually take place, and the pipe market will ultimately see more prosperous times once again.
NASPD will hold its next event, the 2009 Summer Conference, from May 28-30 in Jackson Hole, Wyoming.