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MONTHLYUPDATEInternational marketanalysis of seamless OCTG and linepipe

MBR SEAMLESS OCTG & LINEPIPEMARKET TRACKER

Issue 108

15 September 2014

seamless lInepIpe prIces ($/tonne) Source: Metal Bulletin reSearch

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contents

Current and forecast seamless tube and pipe prices 2

Americas market analysis 3

Europe and CIS market analysis 6

Middle East and North Africa market analysis 8

Asia market analysis 10

Seamless capacity developments and news 12

US markets boost pricesPrice increases are taking shape in the seamless OCTG markets and are now spilling into the seamless linepipe markets. With the positive demand outlook and the trade case behind them, domestic producers and distributors now feel confident to raise prices. MBR forecasts that pricing will continue to move higher through the end of the year, but increasing domestic capacity and a strong dollar, which could encourage imports from non-duty countries, will constraint further increases.

MENA tender activity slower than expectedWhile the major tenders from both ADNOC and KOC continue to progress, MBR understands that the number of other OCTG tenders in the Middle East market is lower than was anticipated for this time of the year – amounting to only 25% of the expected number. The instability in Iraq is thought to be the primary cause. Meanwhile, aggressive Chinese sales will continue to weigh on API OCTG prices.

Chinese domestic market outlook dismalIndeed, weak export markets are not providing any support to Chinese producers who have seen domestic demand plummet this year. Spending by CNPC, as well as Sinopec and CNOOC has been lagging short of 2013 – with CNPC purchasing just 400kt of OCTG this year through September, resulting in a 25% cut in China’s domestic consumption from CNPC alone.

formerly known as Seamless Steel Tube and Pipe Market Tracker

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http://www.metalbulletinresearch.com/Article/3266645/MBR-Downloadable-Steel-Scrap-and-Metallics-Forecaster-Excel-File-October-2013.html



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WWW.MetalBulletinreSearch.coM SePteMBer 2014 MBR SEAMLESS OCTG & LINEPIPE MarKet tracKer

3seamless tuBe & PiPe PriceS

SOURCE: Bloomberg and MBR

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Current and forecast seamless tube and pipe pricesLocal Q4 2014f Q1 2015f

Country Currency Local $/tonne Local $/tonne Local $/tonne $/tonne $/tonneUSA (distributor)OCTG casing J/K 55 (btc connection) $/ton 1,452 1,600 1,420 1,565 1,379 1,520 1,650 1,630OCTG casing P110 (btc connection) $/ton 1,824 2,010 1,788 1,970 - - 2,060 2,050OCTG casing P110 (premium connection) $/ton 2,101 2,315 2,074 2,285 - - 2,375 2,350Linepipe API 5L B $/ton 1,134 1,250 1,112 1,225 1,034 1,140 1,260 1,230Linepipe API 5L X65 $/ton 1,252 1,380 1,207 1,330 - - 1,400 1,400Middle East (Jebel Ali cfr)OCTG casing J/K 55 (btc connection) $/tonne 830 830 850 850 1,315 1,315 840 845OCTG casing L80 (btc connection) $/tonne 970 970 990 990 - - 970 975OCTG casing L80 (premium connection) $/tonne 1,790 1,790 1,815 1,815 - - 1,785 1,815Linepipe API 5L B $/tonne 900 900 905 905 1,165 1,165 905 1,040Linepipe API 5L X65 $/tonne 1,260 1,260 1,270 1,270 - - 1,260 1,265Western European (fob)OCTG casing J/K 55 (btc connection) €/tonne 1,185 1,540 1,157 1,540 1,246 1,665 1,570 1,570OCTG casing L80 (premium connection) €/tonne 1,693 2,200 1,652 2,200 1,647 2,200 2,245 2,245Linepipe API 5L B €/tonne 1,128 1,465 1,100 1,465 1,108 1,480 1,470 1,470Linepipe API 5L X65 €/tonne 1,297 1,685 1,266 1,685 - - 1,680 1,680Eastern European (fob)OCTG casing J/K 55 (btc connection) $/tonne 1,055 1,055 1,055 1,055 1,125 1,125 1,055 1,055OCTG casing L80 (btc connection) $/tonne 1,175 1,175 1,175 1,175 - - 1,175 1,180Linepipe API 5L X42 $/tonne 950 950 950 950 960 960 980 980Russia (distributor FCA)Round billet (fob) Rub/tonne 20,897 560 20,249 560 20,630 634 540 540OCTG casing J/K 55 (btc connection) Rub/tonne 59,519 1,595 57,675 1,595 - - 1,605 1,605Linepipe API 5L X65 Rub/tonne 61,683 1,653 59,772 1,653 - - 1,670 1,670Japan (fob)OCTG casing J/K 55 (btc connection) $/tonne 1,700 1,700 1,840 1,750 1,785OCTG casing L80 (premium connection) $/tonne 2,300 2,300 - 2,345 2,350OCTG Cr 13 $/tonne 5,300 5,300 5,450 5,300 5,300Linepipe API 5L B $/tonne 1,500 1,500 1,570 1,550 1,550Linepipe API 5L X65 $/tonne 1,600 1,600 1,680 1,650 1,650China export (fob)OCTG casing J/K 55 (btc connection) $/tonne 790 790 915 815 815OCTG casing P110 (btc connection) $/tonne 1,035 1,035 1,190 1,050 1,050Linepipe API 5L B $/tonne 700 700 795 740 750Linepipe API 5L X65 $/tonne 1,060 1,060 - 1,080 1,080Source: Metal Bulletin Research

Note: unless specified OCTG prices relate to casing of a 7" OD

Sep-14 Aug-14 Sep-13

seamless octG anD lInepIpe INDICATORS

Current and forecast Seamless tube and pipe prices Data is only available to paying

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MBR SEAMLESS OCTG & LINEPIPE MarKet tracKer SePteMBer 2014 WWW.MetalBulletinreSearch.coM

4 amerIcas MarKet analySiS

SOURCE: MBR

uS Gulf of Mexico rig count

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Seamless OCTG prices continue to gain supportAs expected by market participants following the duty announcement on imported OCTG, prices for OCTG, both seamless and welded, are on the rise. Entering September, prices increased $25-40/tonne, depending on product, with API 5CT J/K55 seamless casing at distributors selling for $1,600/tonne. Since then, US Steel, with other domestic producers likely following their lead, have announced increased prices of on all new orders, starting this month. Increases on seamless API grades start at $100/ton with ERW coming in at $75/ton higher than previous orders. Alloy grades and premium connections on seamless OCTG are an additional $50/ton.

The market expects these prices to take hold over the course of the coming weeks, although the fundamentals remain unchanged compared to conditions in the market prior to the duty announcement. Indeed, demand is firm with increasing rig and well counts supporting OCTG consumption growth. Oil and gas production growth in the Utica shale region is the fastest rate of development in any of the shale basins. Twenty-four companies are now producing in the Utica, a steady increase over the previous year. Infrastructure development in and around the Utica and Marcellus basins will provide support for further output growth.

With the positive demand outlook and the trade case behind them, domestic producers and distributors now feel confident to raise prices despite adequate supplies.

Inventories adequate for now…Indeed, OCTG inventories are not much different than what they have been for the past year – holding at around five months of supply. If demand was less robust, the inventory levels would be of concern and would be weighing on prices. Relative to demand, distributors and buyers are comfortable with the stock levels. As a result of the trade case and extended investigation, we are seeing prices increase on the basis of catching up with missed opportunities to raise prices earlier in the year.

Market participants also tell us that there is expectation of tightness in certain grades and sizes which is already having an effect on prices before it actually happens. Supply of smaller-sized tubing and casing is likely to tighten through the rest of the year and support prices as well.

…but slowing import rates are providing price supportAvailable customs data still illustrate the increasing rate of OCTG imports through the second and early third quarters of the year. Preliminary import license data,

US prices increase for both OCTG and linepipe

MBR Outlook The pent-up price increases are finally taking shape in the seamless OCTG markets and are now spilling into the seamless linepipe markets. Both products posted gains this month and there is promise of more hikes through the end of the year. MBR forecasts that pricing will continue to move higher through the end of the year as the market adjusts to changes in import dynamics. Meanwhile, new domestic capacity is becoming increasingly available to take the place of imports and will have an effect on supply. Dollar strength will also encourage offers from non-duty countries. We expect the price increases will last into the fourth quarter, but will likely stabilize by the end of the year. MBR expects a slight price correction in the first half of 2015 to reflect the capacity build. Continued dollar strength could hasten the correction.

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us J/K55 casInG prIces

Source: MBr


5amerIcas MarKet analySiS

Apparent consumption of seamless pipes in key American countries by product ('000 tonne)Country 2011 2012 2013 Jun-14 Q2 2014 y-o-y % chgUSA OCTG 2,273 2,628 2,636 259 737 13%Line pipe 497 480 431 44 122 -21%CanadaOCTG 291 267 270 12 39 -11%Line pipe 117 134 103 9 33 3%Mexico OCTG 235 251 42 1 8 69%Line pipe 55 66 236 17 47 -22%Brazil OCTG 452 448 327 30 72 -24%Line pipe 108 115 69 6 19 16%Colombia OCTG 177 172 102 10 31 -7%Line pipe 40 41 35 3 11 9%Argentina OCTG 136 113 99 19 56 71%Line pipe 132 140 160 15 45 66%Ecuador OCTG 150 126 117 6 44 19%Line pipe 51 21 29 3 8 -16%Source: Customs Statistics, ISSB, Metal Bulletin Research estimates

however, suggest that imports are slowly correcting downward as a result of the duties as prior sales are shipped and new sales reflect the duty imposition. Indeed, import prices are now on the rise to reflect the duties as well as better conditions in the US domestic market. The domestic premium over imported grades is narrowing, we understand, making imports less advantageous given shipping times.

In August, total OCTG imports, according to license data, was down about 46kt year-over-year from August 2013, and was also down from each month in the May-July period. September trade is on track to be down slightly from August levels. Of the major ERW producers, sales from Turkey have dropped off completely while South Korean sales are in a more gradual decline. The main seamless exporters in the suit started to display declines in export sales after the preliminary duties were released and now India has dropped of strongly.

Mexico, however, has exhibited increasing sales in the USA, finding opportunity in supply to this market. Indeed, trade data through May show that overall seamless OCTG exports from the country were on the rise with North America an important destination. Shipments to the USA since then have continued to rise through the third quarter. This also reflects that even though the Mexican government is intent on increasing domestic oil and gas production and energy self-sufficiency, the pace has been slowed by the reorganization of Pemex. In the meantime, exporters, namely Tenaris’ Tamsa mill which increased output in recent years, will have to rely on aggressive export sales in order to maintain utilization rates.

Imports could pose a threat again with dollar strengthWhile domestic mills expect to see imports of OCTG drop in the

second half of the year in response to duties placed on material determined to be dumped, dollar strength may undermine their competitiveness against importers from non-duty countries. Since early July, the US dollar has strengthened against the major world currencies, rising 5.7% against the pound and 5.2% against the euro as a result of concerns over the economic strength of the EU. In essence, offers of seamless material to the USA are now on offer at a discount. Moreover, with seamless OCTG and linepipe prices now finally displaying some price buoyancy, foreign mills have more room to compete on price.

Just as we have noted Mexican exporters increasing sales to the USA, other producers will look to do the same. For example, German OCTG exports to the USA are running higher than year-ago levels in August and September.

GOM activity strengthsGOM drilling activity, as we have mentioned in previous issues of Seamless OCTG and Linpipe Market Tracker, is now higher than before the Deepwater Horizon accident, with oil drilling displaying the strongest gains. Recent leases of acreage in the GOM by the US Department of Interior’s Bureau of Ocean Energy Management (BOEM) note that more than half of the blocks receiving bids were at depths of more than one mile. Energy contractors are now venturing into the Lower Tertiary of the GOM, which will require hydraulic fracturing in order to access the energy. We expect further increasing demand for premium and proprietary OCTG as well as a growing need for seamless linepipe at these depths. MBR understands that the common size for GOM linepipe is for 18” OD heavy wall. This size tends to be too small for LSAW producers to produce while the wall thickness is usually out of the range for ERW producers.

Apparent consumption of seamless pipes in key American countries by Product Data is only available to paying subscribers.

To subscribe, or for a preview of our data, please contact our sales

department on: +44 (0) 20 7779 7999


6 amerIcas MarKet analySiSWhile seamless linepipe has had trouble competing against ERW linepipe recently as the quality and availability of ERW linepipe improved while offering a much lower price, deepwater projects remain the mainstay for this market.

Steady raw materials costs solidify price floorSeamless producers, however, will also find price support in steady to rising raw materials costs. US No. 1 bushelling prices have held steady at around $400/l.ton since April of this year while shredded scrap has been unchanged at $370/l.ton since June. The expectation is for prices to rise into the fourth quarter on a firm supply/demand balance. Globally, iron ore prices, after hitting lows near $80/tonne cfr China for 63% fines, are making a recovery, posting strong gains in mid September.

Long-term demand outlook bolstered Two Liquified Natural Gas (LNG) projects crossed a final hurdle to realization this month when the US Energy Department approved the export of LNG from the proposed plants. The Cameron LNG terminal in Cameron Parish, Louisiana, has been authorized to export up to 1.7 bcf/d for 20 years to non-free trade agreement (FTA) countries. The $10bn project will be completed in 2018. Carib Energy has been authorized to export 0.04 bcf/d to non-FTA countries once the project is complete. Now, three planned projects, Cameron, Caribe and Sabine Pass which was previously approved, will be exporting LNG. Tube and pipe producers laud the movement of LNG exports as they believe it will support higher natural gas prices and drilling rates and OCTG consumption. Other upstream steel producers oppose the movement as they believe higher gas prices will affect their cost competitiveness.

Seamless linepipe also getting boostOn the back of rising OCTG prices in September, seamless linepipe prices are also on the rise. Prices are now up $25/tonne from last month and are likely to continue to track OCTG through the end of the year. The fundamentals in linepipe have been stable with firm demand and a reduction in imports. Indeed, seamless linepipe imports to the USA are down 25% year-on-year through the first half of the year. This market is also looking for a general pick-up through the end of this year and into next year with increased drilling in the Gulf of Mexico (GOM) as well as strengthening demand for linepipe along the size and product ranges.

SOURCE: MBR

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SOURCE: MBR

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Company Location Type '000 tons start-upStart-up in process:

Borusan Baytown, TX Welded 300 mid-2014Axis Pipe and Tube (Prolamsa) Bryan, TX Welded 300 late 2014California Steel Industries Fontana, CA Welded 450 2014

Under construction:Benteler Caddo, LA Seamless 300 late 2015PTC Hopkinsville, KY Seamless 100 late 2015Tejas Tubular Norfolk, NE Seamless 150 Q3 2015Tenaris Bay City, TX Seamless 600 2016

TPCOGregory, TX (Corpus Christi) Seamless 550 2016

Announced/Planned:Alamo Tube San Antonio Welded 250 2016Alita USA Buffalo, NY Welded 150 2016

Source: Metal Bulletin Research

New and planned North American OCTG capacity

New and planned North American OCTG capacity Data is only

available to paying subscribers.


department on: +44 (0) 20 7779 7999


7europe anD cIs MarKet analySiS

Turkish seamless OCTG/linepipe demand slowsTurkey is a large European marketWhen considering the European market, Turkey has historically been an afterthought. Yet as analysed in depth in MBR’s upcoming OCTG Strategic Report out to 2020, OCTG consumption in this market is now on a par with the UK and exceeded Norway last year.

Part of the growth has come from geothermal wells (classified in the chart as others) that use domestic welded material, but it is a not insignificant import market for seamless OCTG and linepipe.

China is the dominant (85%) seamless casing supplier with 34,000 tonnes in 2013 and is also the dominant (57%) seamless linepipe provider (17,000 tonnes in 2013) or 55% of the market. For OCTG, higher-value grades are sourced from Vallourec and Tenaris, while Ukraine and Romania compete in seamless linepipe.

The market is primarily commodity-grade and highly price-sensitive, which explains the dominance of Chinese supply although shorter lead times and competitive pricing facilitate Romanian and Ukrainian supply of linepipe. Current landed prices for Chinese J55 are in the region of $900/tonne cfr compared to around $1,100/tonne cfr for Ukrainian material. In linepipe, Chinese X42 is in the region of $800/tonne cfr with Ukrainian and Romanian closer to $950/tonne cfr albeit with shorter lead times.

Current order levels are slowHowever, the Turkish market has stalled somewhat in mid-2014. Although the rig count has remained high, some de-stocking is taking place after a surge in Chinese supply from December 2013 to March 2014, and current order levels are low for OCTG. Meanwhile infrastructure investment has dropped on political uncertainty and a weaker domestic economic performance and seamless linepipe imports were down 24% year-on-year in the first five months of the year.

Nevertheless, we expect to see a recovery in demand later in the year and into 2015. Despite relatively low oil and gas reserves, there is a lot of drilling underway as the government has placed a premium on reducing its import dependence. A new Petroleum Law in 2013 should facilitate more investment by improving the process for offshore drilling rights in particular with a number of exploration projects due in 2015. More offshore drilling – currently just one of the 42 rigs in operation is offshore – could also facilitate an increase in demand for higher grades, although the majority is likely to remain at the lower end of the spectrum.

SOURCE: Baker Hughes, MBR

turkish rig count

SOURCE: Customs data, MBR

turkish imports of seamless octG & linepipe (tonnes)

MBR Outlook A combination of an improvement in Russian demand and the exit of EU supply, along with a weakening of the currency, should prompt higher domestic rouble prices in Russia, although dollar gains are likely to be less pronounced. In EU commodity OCTG markets, Turkish demand is currently lacklustre, but after de-stocking, demand should pick up again later in the year, but will probably be met from China. Indeed low Chinese prices will continue to maintain pressure on Eastern European export prices. With depreciating currencies, they may take the opportunity to cut dollar pricing in order to compete.

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european J/K55 casInG prIces

SOURCE: MBr

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8 europe anD cIs MarKet analySiSTMK finally starts new seamless millAfter deciding not to start production at its 600,000 tpy mill in 2010 at its Severskey plant due to weak demand, a stronger market in the last year has facilitated the start of the mill that can produce high quality seamless OCTG and linepipe in sizes from 168-365mm and in wall thicknesses from 6.28-37.3mm. TMK originally ordered the mill in 2007 from Danieli. Commercial production should commence in October after hot trials are completed.

The mill will replace an existing older mill at the site, but should allow higher and better quality output. The decision could be linked to the second half outlook for CIS OCTG demand. After a slow start in the first half of 2014, where demand was down year-on-year, TMK in its recent half-year results suggested that the seamless OCTG market could improve in the second half of the year. The exclusion of EU (and US) material due to sanctions may also have a positive impact on the market share available for domestic producers.

However, pricing has yet to suggest there has been an upturn with distributor pricing flat over the month. Nevertheless, in MBR’s view, with the weakening of the

ruble (making imports more expensive), we would expect domestic Russian prices to increase in local currency terms, but probably holding flat in dollar terms. That should assist domestic market profitability for local producers.

Scottish independence – a factor in North Sea OCTG markets?The recent results of opinion polls on Scottish independence that suggest a narrowing of the gap between pro-independence Yes and pro-union No groups raise the question of whether independence would have an impact on investment and OCTG demand in the North Sea. MBR believes that it would, and possibly quite soon. If the independence vote is successful, regulation (and crucially taxation) of the North Sea oil and gas industry would come under Scottish (rather than UK) purview. As such, all agreements would have to be re-negotiated and this may include the fiscal regime. As the transfer between the UK and Scotland would take some time and involve extended negotiations – most estimates put it at 2-3 years – investment expenditure in this period would probably stall given the uncertainty of the outcome. That would hit OCTG demand in what has already been a declining UK North Sea market.

Apparent consumption of seamless pipes in key European countries by product ('000 tonne)Country 2011 2012 2013 Jun-14 Q2 2014 y-o-y % chgUK OCTG 80 79 53 0 8 -44%Line pipe 34 53 15 0 0 -101%Norway OCTG 17 57 53 9 11 -11%Line pipe 66 9 22 1 3 -24%Italy OCTG 25 14 28 0 3 -13%Line pipe 49 58 89 6 20 149%SpainOCTG 11 18 24 1 0 -105%Line pipe 41 25 39 3 10 -9%Russia OCTG 1,438 1,590 1,874 150 454 -11%Line pipe 514 545 572 50 148 19%KazakhstanOCTG 155 176 230 17 50 -30%Line pipe 165 206 221 18 53 0%Source: Customs Statistics, ISSB, Metal Bulletin Research estimates

Apparent consumption of seamless pipes in key European countries by Product Data is only available to paying subscribers.


department on: +44 (0) 20 7779 7999

9


mIDDle east anD north afrIca MarKet analySiS

to download full data sets please click here

Tender activity slow to resume after RamadanThree major tenders continue to progress…Activity is now returning to the MENA OCTG market following the Ramadan period, we mentioned in July about three major tenders out in the market for ADNOC and KOC, this is our understanding of the current status with regards to each of these tenders:

z ADNOC’s ADCO order that was tendered back in the first quarter of this year for around 170kt for the groups drilling program for the end of 2014/2015 is expected to have the commercial tender awarded by September 16th. There is a 90-day validity on the commercial tenders that were offered by most OCTG suppliers (with these commercial tenders submitted to ADCO at the end of August from OCTG producers), MBR expects therefore that official tenders will be awarded in October.

z ADNOC ADMA – the much larger joint tender that we first mentioned in June has been issued for around nearly 500kt of OCTG for all of ADNOC’s drilling requirements in 2016/7. MBR understands that the commercial RFQ for this could be issued by November, leading to the possibly of a commercial price being reached by the end of the year and a actual tender being issued by Q1 2015.

z KOC – MBR understands that parts of this contract (we estimate the total KOC tender is close to 150kt) have just issued the commercial results from this. This includes a package for 31kt of 13 3/8 K55 casing with buttress connections and 21kt of 9 5/8” L80 with buttress connections. MBR expects that it is Chinese mills that will be awarded these deliveries. The prices are low, with the L80 casing thought to be being agreed at a price of around $820/tonne cfr, with the K55 casing as low as $750/tonne cfr.

Alongside these three main tenders out in the industry MBR understand that ADNOC ZADCO at the end of August issued a tender for just under 10kt of seamless OCTG for short-term requirements away from the giant ADMA deal. We expect the bulk of this order to be premium connections and higher grade material.

…however, overall tender activity in September not as strong as expectedHowever, despite these major tenders still underpinning the market, there is concern in the sector that a number of smaller tenders from International Oil Companies (IOC’s), particularly in Iraq have not arrived in the market in September as was expected. MBR understands that market participants were expecting around 10-12 operators to come into the market in September, but only around ¼ of these have so far materialised. The current security situation in Iraq is understood to be the main

SOURCE: ISSB and MBR

uae seamless octG imports (‘000 tonnes)

SOURCE: ISSB and MBR

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MBR Outlook While the major tenders that we have discussed this year in this publication continue to progress from both ADNOC and KOC, MBR understands that the number of other OCTG tenders in the Middle East market is lower than was anticipated for this time of the year. The instability in Iraq is thought to be the primary cause for the fewer tenders being issued from International Oil Companies who dominate in this part of the country.

With the Chinese market struggling so much, we do not expect API OCTG prices to pick-up in the coming months into the Middle East market. Competitive offers also remain from Brazil in the premium connection market, which could also pose some problems for price recovery here in the next few months as well.

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SOURCE: MBr

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France Japan China

http://www.metalbulletinresearch.com/Article/3260368/MBR-Downloadable-Steel-Scrap-and-Metallics-Forecaster-Excel-File-September-2013.html


10 mIDDle east anD north afrIca MarKet analySiScontributor of these lack of tenders arriving in the Middle East markets. Iraq is a rather unique OCTG market in the Middle East region in that IOC’s dominate OCTG procurement with the country’s NOC having little involvement. This is also the same reason that MBR believes that there has been a slowdown in tenders from the Kurdistan market a well.

A slowdown is also believed to be underway in terms of new tenders issued in the Saudi Arabian market due to an inventory build-up that has occurred since the second half of 2013. However, underlying drilling demand, and hence OCTG consumption, in Saudi Arabia is believed to be continuing to increase as the country spends $40bn this year on developing its hydrocarbon basin. The slowdown in tenders thus relates purely to inventory run-down as opposed to direct demand.

New billet supply arriving in the GCCIn Saudi itself MBR understands that ArcelorMittal continues to ramp-up its seamless OCTG production from its new mill, and the mill does have orders overseas at the moment as it waits to achieve Saudi Aramco approval. Both ArcelorMittal and JESCO are not fully-integrated seamless mills and have to import billet from outside the Middle East.

However, a local billet supplier is now entering the market in Oman. Jindal Shadeed is a DRI/steelmaking facility that is now ramping up in Oman. As presented at Metal Bulletin’s

International Tube and Pipe forum in Abu Dhabi in early September, the group plans to supply 50kt per month of round billets to the local seamless pipe market from October. The group’s priority is to supply to the Saudi seamless pipe mills before targeting export market outside of the GCC. The company will produce billets in diameters from 200 to 406mm OD.

Brazil still aggressive in the premium connection marketPressure still remains in the premium connection market and MBR this month has heard of L80 casing at a 7” or 9 5/8” OD with a premium connection being offered from Brazil into Iraq as low as $1,650/tonne cfr with a btc connection on an L80 casing also being offered from Brazil at under $1,100/tonne cfr. This is above the prices being offered for premium connections from the Chinese market, however it’s still significantly below the offer prices that MBR hears from Japan, Europe and other South American markets that remains well above $2,000/tonne.

Chinese 13% Cr arrives in the GCCChina continues to progress with exporting both connections and grades of OCTG. MBR understands that exports of Chinese 13% Cr tubing are now entering into the Qatar market with a Hunting connection attached. Baosteel has already successfully supplied 13% Cr OCTG tubing and casing into the Indian market.

Apparent consumption of seamless pipes in key MENA countries by product ('000 tonne)Country 2011 2012 2013 Jun-14 Q2 2014 y-o-y % chgSaudi ArabiaOCTG 332 302 574 30 147 8%Line pipe 174 217 199 14 51 -21%UAE OCTG 164 149 175 11 49 -17%Line pipe 146 232 335 24 95 7%Kuwait OCTG 142 148 139 17 39 32%Line pipe 120 80 80 23 33 74%Qatar OCTG 38 41 37 0 2 92%Line pipe 23 29 28 0 6 130%OmanOCTG 102 193 145 14 45 -4%Line pipe 23 68 47 0 10 108%Iran OCTG 133 286 96 5 37 54%Line pipe 152 138 177 10 44 -4%Iraq OCTG 103 148 139 17 39 32%Line pipe 80 107 137 3 12 -79%Egypt OCTG 124 179 132 10 26 22%Line pipe 28 71 59 6 13 46%AlgeriaOCTG 44 51 25 2 40 534%Line pipe 77 58 102 9 18 15%Source: Customs Statistics, ISSB, Metal Bulletin Research estimates

Apparent consumption of seamless pipes in key MENA

countries by Product Data is only available to paying subscribers.


department on: +44 (0) 20 7779 7999

11


asIa MarKet analySiS


Chinese mills struggle to make sales as margins come under tight pressureChinese export prices hold…Chinese export prices on seamless OCTG are unchanged in September, holding at a level that market participants consider to be a floor. API 5CT J/K55 tonnage remains on offer at around $790/tonne fob with P110 material with premium connection standing around $1,035/tonne. MBR understands that these prices may be list prices and actual transaction prices could in some circumstances be lower in order to make sales. Linepipe export prices are also unchanged this month for seamless products with API 5L b at around $700/tonne fob and X65 tonnage going for $1,060/tonne.

The lack of buoyancy in pricing underscores the difficult situation for exporters this year as overseas sales have slowed. Indeed, Chinese exports of both OCTG and linepipe through the first six month of 2014 declined year-over-year from the January to June period in 2013. For OCTG, exports are down 8.8% with linepipe declining 4.1% year-over-year. These cuts amount to a monthly cut in sales of more than 23,300 tonnes.

…as domestic demand continues to retreat…Exports will continue to be important to Chinese producers as the domestic market remains challenging and this year has been especially competitive. There are three main purchasing groups in the Chinese domestic market – CNPC, Sinopec and CNOOC. Traditionally, CNOOC is responsible for China’s offshore OCTG purchasing, buying about 300kt of material last year, we understand. Sinopec is also understood to have purchased at a similar rate of 300kt in 2013.

CNPC is the largest buyer in China, purchasing around 1.6Mt of OCTG in 2013. The company, however, has been embroiled in a corruption investigation which started late last year and is continuing to implicate high-ranking officials. The investigation is a result of the new leaders of the communist party, who came into power in 2012, of China cracking down on business corruption. Much of the attention for CNPC has been placed on bribery and the improper awarding of government contracts. Dozens of officials have been replaced or indicted on charges at CNPC and a number of planned projects are now on hold.

…with demand plummeting at CNPCAs a result, spending by CNPC, as well as Sinopec and CNOOC has been lagging short of 2013. In the case of CNPC, the company has purchased just 400kt of OCTG this year through September. This rate of purchasing, as a result, puts the company’s buying more than 1Mt behind last year’s rate, resulting in a 25% cut in China’s domestic consumption from CNPC alone. Sinopec recently reported a 25% decline in capex spending in the first half of the year and is cutting total expenditure this year by 4%.

Chinese producers under duress from weak margins…As a result of these cutbacks, the Chinese domestic market has become even more competitive for business causing prices to slip and squeezing already

SOURCE: MBR

china offshore rig count

0

5

10

15

20

25

30

35

Jul95

Jul96

Jul97

Jul98

Jul99

Jul00

Jul01

Jul02

Jul03

Jul04

Jul05

Jul06

Jul07

Jul08

Jul09

Jul10

Jul11

Jul12

Jul13

Jul14

Gas Oil

SOURCE: MBR

chinese seamless octG and linepipe exports (‘000 tonnes)

0

50

100

150

200

250

Feb12

Apr12

Jun12

Aug12

Oct12

Dec12

Feb13

Apr13

Jun13

Aug13

Oct13

Dec13

Feb14

Apr14

Jun14

OCTG

Linepipe

MBR Outlook The outlook for Chinese API seamless OCTG producers is becoming dire. Exports are falling short of expectations while the domestic market suffers under a steep decline in purchasing by the major energy companies. Smaller private seamless mills have shuttered production but they will likely not affect the market as much as necessary to balance the fundamentals. Demand is forecasted to rise in the second half of the year but it is likely not enough to make up for the steep shortfalls of previous years’ purchasing.

1600165017001750180018501900

Q32012

Q12013

Q32013

Q12014

Q32014

Q12015

Q32015

$/to

n

Japanese J/K55 casInG prIces

SOURCE: MBr

http://www.metalbulletinresearch.com/Article/3260368/MBR-Downloadable-Steel-Scrap-and-Metallics-Forecaster-Excel-File-September-2013.html

12


asIa MarKet analySiS


thin margins. We have been told that some producers are desperate for sales while others are idling capacity. Some of the producers who are shuttering output are the smaller private mills while the large government-owned producers continue to compete in the market. We question then how much seamless output will actually be cut in the third and fourth quarters if it is only the smaller producers who are shutting production. We surmise that TPCO may be the most exposed of the larger OCTG producers as it is not associated with a much larger steelmaking arm.

Spending by Sinopec and CNPC is expected to pick up later in the year as the corruption probe moves on and drilling confidence improves. While we do not believe OCTG tonnage will match last year’s buy, there is expectation that the rate of purchasing will increase through the end of the year. Chinese domestic seamless OCTG producers, however, will continue to struggle into next year as they deal with a shortfall in demand and limited outlet into the export markets.

…with domestic OCTG prices also fallingThe positive side of the outlook, however, is that raw materials prices are in decline, which is providing some breathing room for producers’ margins. Iron ore spot prices are now down to around $82/tonne for 63% Fe fines shipped to China, and are expected to hover in the $80-90/tonne range through the end of the year, providing some relief to integrated mills. However, domestic seamless linepipe prices held firm, but seamless OCTG prices are down Rmb100-200/tonne and the expectation is for further slides. The usual fourth-quarter price recovery appears in doubt with some market participants suggesting that producers were desperate. Exports would seem a likely solution, although the number of available markets to Chinese exporters is shrinking.

India imposes duties on imported seamless as wellIndeed, the developing markets, that have become the mainstay for Chinese exports shunned by the developed markets, are now looking to protect their own domestic capacity. After voting in favor of the duties in March of this year, India has just imposed a 20% duty on seamless tube imports in sizes up to 10.75” OD from all developed countries and China, ie those countries with established seamless OCTG capacity. The 20% duty will last one year, when it will drop to 10% for the following year and then fall to 5% in the following six months.

Moreover, as countries which are net importers of seamless OCTG continue to increase their own domestic capacities, we are likely to continue to see protectionist measures against producers who rely heavily on exports.

Last year, China shipped more than 107kt of seamless OCTG to India. Through the first half of this year, about 49kt were shipped to India from China, a modest drop of about 4kt year-over-year from the first half of 2013. This tonnage represents about 5% of China’s total carbon-steel OCTG exports over this time period.

Baosteel ships 13% Cr to IndiaMBR has also been told that Baosteel has shipped 13% Cr OCTG to India, as well as customers in the MENA region. Duties do not apply to stainless material so we surmise that these shipments will continue as normal and Baosteel will look to increase their presence in the premium market. The company tells us that they are developing premium connections, but are not quite at the level to compete with the global market leaders. So far, TPCO is the only Chinese producer to develop premium connections that have been accepted by overseas customers. In order to build margins and maintain an export pathway, Chinese producers will need to continue to improve the added value of seamless OCTG, not just compete in the API grades.

Apparent consumption of seamless pipes in key Asian countries by product ('000 tonne)Country 2011 2012 2013 Jun-14 Q2 2014 y-o-y % chgChinaOCTG 3,638 3,623 3,591 323 887 4%Line pipe 1,554 2,068 1,964 161 449 -1%IndiaOCTG 211 210 209 21 65 38%Line pipe 160 150 131 7 20 -28%Indonesia OCTG 171 239 138 19 62 86%Line pipe 75 52 -5 10 34 76%Malaysia OCTG 90 92 74 1 3 -85%Line pipe 97 115 115 1 6 -84%Thailand OCTG 145 158 155 15 47 20%Line pipe 52 58 89 7 20 5%AustraliaOCTG 65 85 122 7 34 -21%Line pipe 27 51 23 2 6 15%Source: Customs Statistics, ISSB, Metal Bulletin Research estimates

Apparent consumption of seamless pipes in key Asian

countries by Product Data is only available to paying subscribers.


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Venezuela’s Tubulares de Sidor resumes productionAfter stoppages that lasted nearly a year, Venezuela’s Tubulares de Sidor (previously known as Tubos de Acero de Venezuela – Tavsa) has resumed operations. The facility is expected to produce around 1.35kt of seamless pipes per month from a total capacity of 5kt per month. The plant was previously controlled in 2009 by Tenaris, before being nationalised and transferred to PDVSA Industrial SA, a subsidiary of state-owned oil producer Petróleos de Venezuela SA. The parent company of Sidor is Coporación Venezolana de Guayana.

TMK start-up new seamless pipe mill at SeverskyAs mentioned in our European section this month, Russia’s TMK has now opened a new seamless pipe mill at Seversky. The pipe mill which was initially planned for 2010 has a capacity of 600kt and will produce OCTG and linepipe in diameters from 168-365mm and wall thickness froom 6.28 – 37.3mm. Commercial production is expected to ramp-up in October and the mill will replace an existing older mill at the site.

Published monthly by Metal Bulletin Ltd ISSN 2055-0812.

editor Kim Leppold, [email protected]+1 610 404 0801

head of tubular consultingJames [email protected]+44 207 779 8521

consultantRoman [email protected]+ 44 207 827 6443

head of researchAlistair Ramsay

mBr DirectorPhilip Manley

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other mBr reports include:

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- Strategic Prospects for the Global Transmission Linepipe Market by type, size, range and grade

- The Five Year Outlook for the Small-diameter Linepipe Market (under 16” OD)

- A Strategic Outlook for the OCTG Heat Treatment, Threading, Coupling and Premium Connection Sectors out to 2020

- Steel Weekly Market Tracker

- Galvanised Steel and Tinplate Market Tracker

- Stainless Steels Monthly Tracker

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