With the recent filing of the antidumping/CVD petition against standard and structural pipe from China in addition to the VAT rebate reduction for pipe and tubes rumored to take place July 1, import pipe prices are trending up.
Chinese pipe prices aren't expected to shoot up overnight, but they will slowly start to rise due to the increased costs that these pending legislations will incur for the Chinese pipe mills. The VAT issue currently has more weight for the US pipe market than the antidumping issue (US pipemakers file AD and CVD petition against steel pipe from China) since the effects of the rebate reduction will be seen more immediately.
Although the expected VAT rebate reduction for standard pipe (from 13 to zero) and some seamless and line pipe (from 13 to 5 percent) has not yet been officially announced by the Chinese government, some Chinese pipe mills are already asking traders to split the additional costs. Up until recently there was some hesitation to book orders before the VAT was officially announced, but as it gets closer to July 1, mills are rushing to ship material before this deadline. In the short term, this may cause the already-inflated inventories of standard and API pipes to build up further, making it harder for domestic pipemakers to raise their prices. But in the long term, both the VAT rebate reduction and the antidumping/CVD petition will likely have the effect of curbing the volume of and increasing the prices of Chinese standard and structural pipe imports for the US. However, the VAT rate for Chinese seamless OCTG and certain API grades may not change at all, so some mills may end up shifting production to OCTG and other higher grades that are not covered included in the rebate reduction, while they will ship their standard pipes to other world markets.
Sources say that Chinese prices have already increased approximately $10 /nt in the last week, most likely as a result of the expected VAT rebate reduction. Chinese offers for A53 ERW standard pipe now range from $610 /nt to $650 /nt ($30.50 cwt. to $32.50 cwt. or $672 /mt to $717 /mt) FOB loaded-truck, Houston, Texas. Large diameter ERW standard pipe offers range from $680 /nt to $720 /nt ($34.00 cwt. to $36.00 cwt. or $750 /mt to $794 /mt) FOB loaded-truck, Houston. (This price range is also valid for most West Coast ports.) Chinese line pipe (API 5L X42) offers range from approximately $690 /nt to $730 /nt ($34.50 cwt. to $36.50 cwt. or $761 /mt to $805 /mt) FOB loaded-truck in Houston. The pricing trend for import pipe is up.
While these legislative costs are going up, there is no upward momentum coming from the raw materials side of the Chinese pipe pricing equation, as Chinese flat rolled pricing, which had been on the rise in recent months, took a dramatic slide in the past week due to increased flat rolled making capacity in the market and implemented export taxes. Prices for both hot and cold rolled are expected to continue trending down for the time being due to high inventories that resulted from the increased capacity. Despite the increased costs from the VAT, the softening flat rolled market will make it harder for Chinese pipe producers to raise prices too dramatically. However, most mills ask their customers to share the risk of VAT rate change. This risk will be passed along to North American buyers in terms of price increases.
For now, Chinese standard pipe imports to the US are still at high levels. Data from the US Import Administration shows that standard pipe imports from China to the US shot up to 79,400 mt in May, the highest amount since the all-time high of 86,600 in August 2006. This compares to the US' total standard pipe import amount in May of 138,300, the highest since October 2006. The only other major exporter of standard pipe to the US is Canada, which shipped a total of 36,300 mt to the US in May.
Domestically, the pricing trend for pipe is still flat to slightly down, with US pipe makers becoming more competitive in their offerings, especially for large buyers. The potential increase in Chinese prices shouldn't have too much of an effect on US prices in the near future, since even if Chinese prices rise some, they will still be significantly below domestic offers. US pipe consumption for commercial construction is still ok, and consumption from energy-related applications is good, but with high pipe inventories and domestic flat rolled prices trending slightly down, domestic pipe makers should not be able to raise prices for a good while. However, the domestic pipe market, at least for lower grade pipes, should ultimately benefit from the antidumping petition, which may be effective in wiping out the cheap Chinese pipe, allowing other higher priced import competitors into the US import market and allowing domestic prices to rise in turn.
Most domestic offers for A53 ERW standard pipe continue to range from $47.50 cwt. to $48.50 cwt. ($1,047 /mt to $1,069 /mt or $950 /nt to $970 /nt) ex-mill, though.
The Baker Hughes North American Rotary Rig Count shows 1,760 rigs for the working week ended June 8, 2007, which is 14 rigs less than the week ended June 1, 2007, and 99 more than the week ended June 9, 2006.
The total amount North American rigs for the week ended June 8 was 1,986, up from 1,910 rigs the previous week, and down from 2,104 rigs the previous year.