Some US Import Line Pipe Prices Top Domestic Prices

- Feb 04, 2019-

Some imports of line pipe from South Korea are now selling for a higher price than US domestic material, demonstrating that Section 232 continues to cause new distortions almost 11 months after President Donald Trump announced the tariff-and-quota regime.

Prices for most oil country tubular goods (OCTG) declined after nervousness intensified over concerns about weak crude oil prices, a declining rig count and the skyward trajectory of the record-high tally of drilled-but-uncompleted wells (DUCs). It's also difficult to predict Trump's next move on Section 232 and federal energy policy, according to market participants. 

"Everything is bothersome right now," a southern distributor reported. "It's really hard to forecast." 
 
Fastmarkets AMM's pricing assessment for US import X52 line pipe strengthened to $1,200-1,300 per ton cif Port of Houston on Tuesday January 29. The assessment restored the high end of the range to $1,300 per ton after transaction prices involving South Korean material were thought to have slipped below that in December, when the range was $1,150-1,270 per ton. The low end of the abnormally wide range represents non-Korean foreign pipe, including Taiwanese.

Fastmarkets AMM's pricing assessment for US domestic X52 line pipe weakened to $1,230-1,275 per ton fob mill from $1,250-1,300 per ton on December 26.

A domestic pipe mill source said import line pipe prices are usually at least $200 per ton below the domestic competition. A quota on sought-after South Korean goods and a deep dive in US domestic substrate prices has turned the normal order upside-down. 

"Our prices have gone down and their prices have gone up," the US producer said. "There has been a convergence... They are right on top of each other." 

Market participants report that the available supply of OCTG is more than adequate, and they worry about the outlook for casing demand. The US tally of DUCs continues to jump to record highs. In December, there were 8,594 DUCs, up by 218 from the November count, according to the US Energy Information Administration. When DUCs are completed, they require tubing but already contain casing. 

"It's the DUCs and the inventory and we've been seeing a decrease in demand," a second southern distributor said. "The mills are not having a very good first quarter."

All eight categories of alloy OCTG tracked by Fastmarkets AMM declined in January. Domestic J55 material was unchanged because of tight supply from US producers, who would rather use their capacity to make higher-margin alloy grades, according to market participants. Import J55 prices strengthened for that reason. 

Welded OCTG items declined by a greater margin than seamless on Tuesday, restoring a wider spread that had narrowed when hot-rolled coil substrate soared at a greater rate than scrap and billet.

"On the alloy, the mills are all loaded up with inventory and they're trying to get rid of it," a trading source said. "Some guys are putting down rigs."  

Weakening the most was US domestic welded L80 casing, for which Fastmarkets AMM's pricing assessment fell to $1,345-1,420 per ton fob mill from the December range of $1,395-1,470 per ton. 

"There's a lot of downward pressure" on the OCTG, the southern distributor said. "There is not a lot of activity and there is enough inventory to create a lot of competition. I don't care how small the deal is, everybody is going to compete for it."

The Baker Hughes count of active US oil and gas rigs showed signs of peaking about a month ago and may now be on a downward slope, according to some market participants. West Texas Intermediate crude oil was trading around $53-54 per barrel on Wednesday. 

"Demand is still strong overall, although we are beginning to lose a few rigs here and there," a second mill source said. "Distributors are being cautious and pointing to hot-rolled coil prices softening."

Fastmarkets AMM's pricing assessment for US import J55 casing rose to $1.085-1,150 per ton cif Port of Houston on Tuesday from $1,075-1,135 per ton in December. The new level represents the impact of fresh casing offers from Japan. 

Fastmarkets AMM's pricing assessment for US domestic J55 casing remained at $1,200-1,285 per ton fob mill. 

Fastmarkets AMM's pricing assessment for US import seamless line pipe narrowed to $1,570-1,700 per ton cif Port of Houston on Tuesday from $1,570-1,800 per ton last month after fresh 2019 quota space opened up for imports from Argentina and Brazil. There are fears, however, that the supply will be just as constrained in 2019 as it was last year, according to a southern distributor.

The oil and gas industry is a bit less optimistic about investment, some market participants said. Industry participants believe it is vital to maintain the easier regulatory environment that Trump has emphasized. The president sought to remove environmental rules and reviews that the industry complained were onerous. 

"In the oil patch, there's a lot of apprehension that a Democratic-controlled House is going to put a lot of those regulations back in place," the first mill source said. "There's headwinds definitely down the road if they are able to do that. And then there's the price of oil. That's a tenuous situation."