US ERW pipe market – Standard A53 still steady, API grades still strong

The US domestic ERW pipe market is still going strong despite higher inventories and decreases in raw material costs. The reasons for the market's continued buoyancy are strong consumption and decent sales, thanks to the strength of the non-residential construction and energy industries. As usual, some distributors are trying to liquidate their high inventories before the end of the year. Normally, inventory liquidation means that prices soften dramatically. However, this year, consumers are snatching up the offers, and there has been no price depreciation yet. The API and seamless pipe markets are stronger than the standard pipe market, as the energy sector is still robust and the construction sector is maintaining its steadiness. The market for OCTG pipes is particularly strong, as new drilling projects still abound. Line pipe consumption also shows strength, but is not as strong as OCTG - since line pipe capacity and inventories appear to be larger. The Baker Hughes Rig Count shows that as of November 10, 2006, the current rig count in North America was 2139, 24 higher than the 2115 rigs counted the previous week, and 91 higher than the 2048 rigs recorded the previous year. Even though some professionals are concerned about the declining oil and gas prices, most do not think it will generate a major slowdown in the pipe market. Speaking to SteelOrbis, one steel pipe producer declared,“The drop in oil prices will probably affect the people on Wall Street more than it will affect us. Exxon's profits might go from $10 billion to $9 billion. The drop to $50 /barrel really isn't that big of a deal for us. I do not think drilling activity is going to slow.” As for standard pipes, most offers still range from $49.00 cwt. to $50.00 cwt. ($1,080 /mt to $1,102 /mt or $980 /nt to $1,000 /nt) ex-mill. Though demand is still steady, the pricing trend is as flat as inventories are high, and cheaper imports from China are still providing fierce competition. There has been talk about further cuts to the Chinese VAT export rebate, which affects raw materials for pipe, and could potentially bring Chinese pipe pricing down even further, but so far, these are only rumors. The import pipe market is still pretty stable, but is not as strong as the domestic market. Chinese pipe prices may soon start to weaken. The Chinese domestic flat rolled market has started to crumble, as the $20 /nt to $30 /nt HRC price increase Chinese mills announced last month was not generally accepted by the market. Also, this is one of the slowest booking periods for large pipe distributors, and is especially so this year with inventories so high. Chinese import pricing has not started to decrease just yet. As of now, Chinese line pipe (API 5L X42) offers still range from approximately $700 /nt to $750 /nt ($772 /mt to $827 /mt or $35.00 cwt. to $37.50 cwt.) FOB loaded-truck in Houston, with extras for pipe larger than 8”. Chinese offers for A53 standard pipe still range from $590 /nt to $630 /nt ($650 /mt to $694 /mt or $29.50 cwt. to $31.50 cwt.) FOB loaded-truck, Houston, Texas. Offers for sizes larger than 8” diameter from China range from $690 /nt to $730 /nt ($761 /mt to $805 /mt or $34.50 cwt. to $36.50 cwt.) FOB loaded-truck at West and Gulf Coast discharge ports. While larger than 8” pipe is generally made from hot rolled coils made from slabs, smaller diameter pipes are made from HRC made from billets. China has the largest share of the import pipe market by far, as its closest competitors are still priced $50 /nt to $80 /nt higher. Import API pipes are still benefiting from the strong energy industry in the US. However, Chinese line pipe prices will continue to slide, as Chinese line pipe manufacturing capacity is large and continues to grow with more and more mills receiving their API certificates. Import OCTG sales are expected to remain strong.