St louis gas prices

While market conditions for steel pipe makers may not look good through the first half of 2002 as energy prices continue to spiral downward, there is optimism among manufacturers that the market will bounce back at some point later in the year as demand for energy picks up.

Sagging energy prices currently are dragging down some oil country tubular goods tags, with January prices declining an average of 2.2 percent compared with the previous month, according to data published by Pipe Logix Inc., a Santa Fe, N.M.,-based consulting and information services company.

The price for natural gas is down more than 62 percent from a year earlier, and the price for West Texas intermediate crude oil for delivery in March is down 34.2 percent in the same comparison.

"The outlook for (2002) is uncertain," said Gregg Eisenberg, president and chief executive officer of Maverick Tube Corp., St. Louis. "We believe our end-user customers will see lower cash flows." In fact, according to published reports, U.S. drillers have reduced their drilling budgets by 20 to 23 percent and Canadian drillers have reduced their budgets by 20 percent.

"However, lower drilling costs are likely to allow these budgeted dollars to stretch further, thereby mitigating the impact of lower budget dollars on drilling activity," Eisenberg said. "We are hopeful that the downturn in the United States will not be too severe or last too long and the current uptrend in Canadian activity will continue through the first quarter of 2002."

Rene J. Robichaud, president and chief executive officer of NS Group Inc., Newport, Ky., said that his company's shipments of OCTG products declined 32 percent in the fourth quarter of 2001 compared with the third quarter. He expects near-term demand for OCTG to be soft, but remains hopeful of a recovery.

"The price for natural gas remains depressed and the rig count may decline further in the coming weeks," Robichaud said. "Also, while our industry will be seeking import restrictions on countries whose import levels have surged, we do not expect any significant relief from high OCTG imports during the first half of the year.

"Our medium- and longer-term outlook is excellent," he added. "We are well positioned for the future. Record free cash flow in 2001 improved our cash investment position to cover (more than) $91 million at Dec. 31 and leaves us debt free. In addition, our successful restructuring has substantially lowered our fixed costs. We believe energy prices will rebound later this year and expect to see accelerating demand for OCTG and line pipe products in North America over the next several years."

Producers and distributors are convinced that demand for natural gas is solid but is being offset by high inventory levels. However, they expect that by the second half of the year natural gas prices will rise as inventories go down, and anticipate no further deterioration of OCTG prices.

As for oil price trends, the Organization of Petroleum Exporting Countries (OPEG) remains committed to its $22-to $28 per-barrel price range and said in late January that it likely would leave oil production unchanged. Some firming of oil prices is expected in coming months as demand goes up along with world recovery from the current recession.

"I expect energy prices to hold firm this year," said Curtis Kayem, president of Tex-Isle Supply Inc., Houston. "I know natural gas is at a lower level right now but I think the price will end up in an acceptable range for the year."

Kayem expects natural gas prices to average between $2.50 and $3 per thousand cubic feet for the year and predicted an average oil price for the year of between $18 and $22 per barrel. "Prices have a chance to reach those levels," he said. "And if that's the case, it would be a decent year in the oil patch. The first half will be slow and it will continue that way for a while."

Ipsco Inc., Lisle, Ill., reported earlier this month that its shipments of large-diameter pipe were down 23 percent in 2001 compared with the previous year because of lower demand in the energy transmission pipe business. Shipments of OCTG and line pipe were down 9 percent, reflecting the lower drilling rates.

Looking ahead, David Sutherland, Ipsco's president and chief executive officer, said, "The momentum in the general economy and the posture that President (Bush) will take regarding the steel industry continue to be unclear."

A Section 201 remedy announcement from President Bush is expected by March 6. "Ipsco reiterates that only a strong remedy with high tariffs against countries where the ITC (International Trade Commission) made a positive injury finding will have the effect of allowing the industry to adjust appropriately," Sutherland said.

As reported earlier this month, optimism appears to be emerging in the welded stainless pipe market (AMM, Feb. 13). Increased orders for welded stainless pipe have prompted Marcegaglia USA Inc., Munhall, Pa., to hike transaction prices by between 5 and 10 percent on all pipe products effective with orders received March 4.

Producers, distributors and service center sources said prices likely had hit bottom but had remained static during the past four months. Sources said that prior to the fourth quarter, prices for stainless pipe had declined every two or three months over an 18-month period.

"The timing is favorable to try to set an increase," said David G. Fox, president of Marcegaglia USA. "The market is showing some improvement. We'll still be impacted by what we believe is unfairly dumped foreign imports, but our booking rates are up substantially from before."

Marcegaglia said the price increases were necessary to offset higher raw material costs, to more closely align price bases with manufacturing costs and to establish a more credible and effective pipe pricing mechanism. Company officials said the hikes follow a failed attempt in June to recover raw material increases and an announcement made last month by competitor Bristol Metals Inc. to restructure price bases and discounts.

Distributor discounts would remain unchanged and raw material surcharges would continue to apply, Marcegaglia said.

According to an informal survey of market sources, the price for grade 304, 1-inch is $2,100 per ton; grade 304, 4-inch is $1,650 per ton; grade 316, 1-inch is $2,750 per ton; and grade 316, 4-inch is $2,150 per ton. These products all are Schedule 40, which means they have wall thickness of 0.133-inch for grades 304 and 316, 1-inch, and 0.237-inch for grades 304 and 316, 4-inch.

One market source in the East said that "prices are ridiculously low" compared with manufacturing costs and the stainless pipe market was "getting out of control."

A service center executive in the East said that because a lot of companies were producing stainless pipe, the market remained highly competitive and tough. "The whole market is down," he said. "When it's down, it's more competitive."

While Marcegaglia's price increases caught some by surprise, one source said it couldn't hurt to try to hike prices. "I think some just feel enough is enough," the source said. "I think they have to try to bring the prices up."