Gas prices toronto canada

In 1999, the massive Alliance pipeline project was a major windfall for Ipsco Inc., which was lead supplier of large diameter pipe for the natural gas line. Incredibly, the Regina, Saskatchewan-based company reports this year will be even better despite the fact it expects much lower sales of large pipe and higher raw material costs.

By year-end, Ipsco essentially completed all shipments of 36-inch diameter X-70, 0.560-inch-thick pipe for the Alliance project, which will stretch almost 2,000 miles from Alberta to a point near Chicago.

Ipsco shipped 400,000 tons or roughly 716 miles of pipe for the project, the biggest order in the company's 43year history, which should generate about $1 billion worth of pipe business for all Alliance suppliers. As of mid-December, orders in hand for comparable products for 2000 at Ipsco accounted for only 25 percent of the 1999 level.

So why the high level of optimism for this year? In a word, heavier drilling activity in western Canada, according to Ed Tiefenbach, Ipsco's senior vice president and chief financial officer. He said increased drilling activity in Alberta should translate into higher sales of tubular goods, small diameter line pipe and cut-to-length sheet and plate used by tank manufacturers.

Statistics from the oil industry back his predictions. The Calgary-based Petroleum Services Association of Canada estimates 13,550 oil and gas wells will be drilled in western Canada this year versus 10,200 in 1999. By comparison, some industry analysts are forecasting upwards of 16,000 wells will be drilled, which would be close to the record of 16,500 wells drilled in 1997.

"If it falls somewhere in the middle, it will be a substantial increase," Tiefenbach said.

Ipsco also expects higher production from its Montpelier, Iowa, steelworks and higher shipped tonnage from its Blytheville, Ark., and Houston pipemaking facilities and its Toronto cut-to-length operation. The end result could be a 20 percent sales increase in tonnage terms over 1999, although the overall business will not be as profitable on a unit basis, according to Roger Phillips, president and chief executive officer.

"Montpelier was down for two weeks in December for major repairs to the slab reheat furnace, and there were, delays from a lawsuit (with Mannesmann Demag to correct design problems) in getting the mill back up to operating capacity." In addition, legal costs associated with the lawsuit will increase its selling, general and administrative costs.

Still, Ipsco is expected to produce close to 2 million tons of steel this year at its Montpelier and Regina steelworks versus 1.8 million tons in 1999 and to purchase as much as 450,000 tons of hotrolled coil from North American suppliers.

The company added that Montpelier production could be 40 percent higher than last year as major bottlenecks are corrected to allow continuous operations that will reduce operating costs. Montpelier was operating at 60 percent capacity at the end of the third quarter and is expected to be up to 80 percent capacity during the first quarter of this year.

Ipsco noted that hot-rolled coil prices increased in the last half of 1999 while plate prices increased in November and were slated to increase again Feb. 1, all good signs for the industry. These price hikes, combined with similar ones for small diameter line pipe, oil country tubulars, hollow structurals and standard pipe should improve the company's bottom line.

"But the downside is that scrap prices are also moving up rapidly, which will offset somewhat our selling price increases," Phillips pointed out. He also noted that in fiscal 1999, Ipsco began reporting its financial results in U.S. dollars to reflect the company s growing presence in the United States, where nearly 70 percent of its fixed assets are located.

As proof, the company has earmarked $325 million in capital expenditures this year, of which $275 million will be spent on its 1,250,000ton Mobile County, Ala., steelworks, which is scheduled to begin production early next year. Like its two other steel-making facilities, it will use steel scrap as its primary raw material. Another $35 million is slated for maintenance on both sides of the border, while $15 million is for yet-to-be-approved projects to expand its coil processing and tubular product offerings.

Of course, this rosy outlook could go down the tubes if there is a major economic slump or energy prices were to drop substantially, Phillips cautioned.

"The agriculture sector continues to be depressed," he noted, "but we try to shift the production mix to where the demand is." He said the role of imports is also a question mark as the trade case in the United States against six countries has not been resolved and a successful 201 action regarding line pipe imports to the United States is still hinging on a decision by the Clinton administration.

In addition, Phillips pointed out that white product prices tend to increase faster than scrap prices over the long term, there was a risk that in the short term scrap increases could overtake selling price improvements.

Therefore, while this year is shaping up to be a good one for improved earnings, they are likely to come towards the end of the year instead of earlier. For example, first quarter results would reflect the decline in large diameter gas transmission pipe sales while the full impact of price increases for other products and cost improvements at Montpelier would not click in immediately but will gradually show up on the balance sheet as the year progresses.

"So we're optimistic that each quarter in 2000 will be more profitable than the same quarter in 1999," said Phillips.

One financial analyst concurs, noting that stronger volumes and higher selling prices should improve earnings. J.P. Benson of Merrill Lynch, Toronto, expects earnings per share to increase from $1.75 in fiscal 1999 to $2.45 this year.

Ipsco is a low-cost producer with the best production growth profile of the major Canadian steel producers. On a very preliminary basis, we believe Ipsco's shipping volumes could grow another 25 percent in 2001.