State of the Steel Industry and the effect on the outlook for the Tube and Pipe Markets

Transcription

1 State of the Steel Industry and the effect on the outlook for the Tube and Pipe Markets Kim Leppold Metal Bulletin Research NASPD Fall Meeting October 20, 20 Austin, TX

2 Contents MBR s tube and pipe group Global steel market conditions US steel market US structural tubing markets OCTG and linepipe situation and outlook Q&A

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4 MBR A global research & analysis team based in America, Europe, Asia and the Middle East Americas: Kim Leppold Kleppold@metalbulletinresearch.com Tel: Europe/MENA/Asia: James Ley James.ley@metalbulletinresearch.com Tel: CIS: Roman Filimonov Roman.filimonov@metalbulletinresearch.com Tel: Eastern Europe/Middle East: (based in Istanbul) Marina Vertemberg Bozkurt Marina.bozkurt@metalbulletinresearch.com Tel: China: (based in Shanghai) Ginger Ding gding@metalbulletinresearch.com Tel: * 35

5 MBR TUBE AND PIPE GROUP MBR has brought it s successful 5-year outlook reports for OCTG and LDP into an online annual service allowing a more detailed market coverage for the client Online website platform, sitting alongside detailed report, providing quarterly updates to supply/demand forecasts for the global markets Active following of all major large-diameter linepipe projects and OCTG contracts in the global markets Long-term market and price forecasting to 2022 Demo s of both data platforms are available next door!

6 GLOBAL STEEL MARKET TRENDS International steel prices found a floor in Q2 20, thanks to recovery in China, with US prices outpacing gains elsewhere Global domestic HR Coil price comparison ($/tonne) 1, China Domestic (Ex-warehouse) US Domestic (EXW) EU Southern HRC ($/tonne) Jul 10 Oct 10 Apr Jul Oct 11 Apr Jul Oct 12 Apr Jul Oct 13 Apr Jul Oct Apr Jul Oct Apr Jul Oct Apr Jul Source: MBR s Steel Forecaster

7 GLOBAL STEEL MARKET TRENDS Chinese demand growth surged in Q3 20, marking the first gain in steel consumption in over two years, growth continued in Q4 20 Global apparent steel consumption China vs ROW % Chinese demand RoW demand 10% 5% 0% -5% -10% -% Q1 20 Q2 20 Q3 20 Q4 20 Q1 20 Q2 20 Q3 20 Q4 20 Q1 20 Q2 20 Q3 20 Q4 20 Q1 20 Q2 20 Chinese steel consumption up by approximately 10% year-on-year so far in 20 Source: MBR s Steel Forecaster

8 GLOBAL STEEL MARKET TRENDS y-y changes in ADC, % China is now driving global steel consumption growth while growth in the rest of the world sputters Global apparent steel consumption China vs ROW 20% China RoW % 10% 5% 0% -5% -10% Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Feb Mar Apr May Jun Jul Apparent steel consumption growth in the rest of the world has been declining since June 20 Source: MBR s Steel Forecaster

9 GLOBAL STEEL MARKET TRENDS Mt Chinese apparent steel consumption headed lower for the rest of 20? Chinese apparent steel consumption outlook %.0% 10.0% 5.0% 0.0% -5.0% -10.0% -10 Mar May Jul Sep Nov Mar May Jul Sep Nov Mar May Jul Sep Nov -.0% Chinese demand changes y-y Chinese demand Vale ArcelorMittal Other analysts In order to meet most industry forecasts, Chinese steel demand would have to plunge for the remainder of 20 Source: MBR s Steel Forecaster

10 GLOBAL STEEL MARKET TRENDS Mt pm OECD estimates of surplus capacity are shrinking even as Chinese steelmakers increase production to meet rising domestic consumption OECD Surplus Capacity of Crude Steel (Mtpm) 70 Implied surplus monthly capacity Dec 13 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun While we state that overcapacity is the problem, historically it is production that over-compensates for changes in consumption Source: MBR s Steel Forecaster

11 GLOBAL STEEL MARKET TRENDS Crude steel output in July 20 broke May 20 s all-time record high 0 Global crude steel production (M tonnes) Jul Sep Nov Mar May Jul Sep Nov Mar May Jul Sep Nov Mar May Jul Source: MBR s Steel Forecaster Global crude steel output up 4.6% year-on-year through July, with July output up 6.3% y-o-y, while China s output is up 5.4% y-o-y in the year-todate, and 10.3% y-o-y in July

12 GLOBAL STEEL MARKET TRENDS Both global and Chinese steel output will exceed 20 levels to reach record highs in 20 Global crude steel production (M tonnes) 1,800 1,600 1,400 China ROW 1,200 1, f 2018f Chinese crude steel output forecast to rise 4% in 20, global output forecast to rise 3% in 20 Source: MBR s Steel Forecaster

13 NORTH AMERICAN STEEL MARKET TRENDS Tell us the rules so we can play the game Source: AMM, MBR

14 NORTH AMERICAN STEEL MARKET TRENDS US apparent steel consumption rose 9% y-o-y in H1 20 US apparent steel consumption (M tons) 35,000 Total Steel Products Import Share % 40% 38% 30,000 36% 34% 32% 25,000 30% 28% 20,000 26% 24% 22%,000 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 20% Apparent consumption growth also reflects increasing imports in 20, with imports representing a rising share of total consumption Source: MBR s North American Steel Market Tracker

15 NORTH AMERICAN STEEL MARKET TRENDS '000 tons '000 tons US domestic steel supply highlights inventories rose as a result of imports, but distributor shipments remained ahead of year-ago US service center flat-rolled steel shipments and inventories US service center carbon plate shipments and inventories Daily Shipments (LHS) Inventory (RHS) Daily Shipments (LHS) Inventory (RHS) 1,500 1, '000 tons , '000 tons Jul Jul Jul Jul Jun Dec Jun Dec Jun Dec Jun 500 Source: MBR s North American Steel Market Tracker

16 NORTH AMERICAN STEEL MARKET TRENDS US apparent steel consumption climbing in 20, after two consecutive years of decline 0 US apparent steel consumption (M tons) f US apparent steel consumption in 20 will be second only to consumption in 20 Source: MBR s North American Steel Market Tracker

17 NORTH AMERICAN STEEL MARKET TRENDS US crude steel output on target to rise 4% in 20, forecast to rise 3% in 2018 US crude steel production (Mt) f 2018f US steelmakers have struggled to raise average operating rates above 75% of capacity without jeopardizing prices Source: MBR s North American Steel Market Tracker

18 NORTH AMERICAN STEEL MARKET TRENDS Scrap consumption is declining with steel production but also in market share to alternative metallics US scrap consumption (m tonnes) US scrap, pig iron, and DRI consumption (m tonnes) Scrap Pig iron DRI Source: USGS, MBR

19 NORTH AMERICAN STEEL MARKET TRENDS US scrap exports provide the swing demand that can either support or sink domestic prices US scrap exports vs. prices Mar May Jul Sep Nov Mar May Jul Sep Nov Mar May Jul 0 Scrap exports ('000 tonnes) - RHS HMS #1 ($/l.ton) - LHS Source: ISSB, MBR s Steelmaking Raw Materials Market Tracker

20 NORTH AMERICAN STEEL MARKET TRENDS Demand in 20 has not yet recovered from 20 from many of the major scrap destinations 2500 US scrap exports (YTD through July) Turkey Mexico Taiwan India South Korea China Canada Source: ISSB, MBR s Steelmaking Raw Materials Market Tracker

21 NORTH AMERICAN STEEL MARKET TRENDS Will the current prices last and what does this mean for downstream products? US domestic flat product price forecasts ($/ton) 1,000 HR Coil CR Coil HDG Forecast Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Prices rose at mid-year due to stronger markets and Section 232 optimism. We suspect that prices are now at or near their peak for the current cycle. Source: MBR s North American Steel Market Tracker

22 Contents MBR s tube and pipe group Global steel market conditions US steel market US structural tubing markets OCTG and linepipe situation and outlook Q&A

23 STRUCTURAL AND INDUSTRIAL PIPE OVERVIEW US structural consumption has been rising but will likely level off if construction spending continues to falter will hurricane recovery provide a boost? US structural and industrial tube and pipe consumption (kt) US HSS imports (kt) Welded round industrial and structural tube Welded square and rectangular sections 10 0 May Sep May Sep May Sep Canada Mexico South Korea Turkey Italy ROW May Source: MBR

24 STRUCTURAL AND INDUSTRIAL PIPE OVERVIEW Outside of NAFTA, Asia origins dominate the HSS supply to USA Major HSS exporting regions to the USA in H1 20 vs. H1 20 (kt) : 9 : 9 : 6 : 10 : 4 : kt vs. 360kt : 72 : 81 ` ` : 23 : 37 : 3 : 11 Source: ISSB and MBR

25 Contents MBR s tube and pipe group Global steel market conditions US steel market US structural tubing markets OCTG and linepipe situation and outlook Q&A

26 HISTORICAL OCTG OVERVIEW Global seamless OCTG production dropped sharply in 20 and did not recover in 20, the same was the case for ERW OCTG production Global seamless OCTG production by region (Mt) Global ERW OCTG production by region (Mt) North America China Middle East Europe South America Africa Other Asia CIS North America China Middle East Europe South America Africa Other Asia CIS Source: MBR

27 HISOTRICAL OCTG OVERVIEW OCTG demand fell in all regions in 20 and 20, but it was North America that displayed the sharpest declines, with the CIS the strongest performers OCTG apparent consumption by region index (2013=100) Africa China CIS Europe Middle East North America Other Asia South America Source: MBR Global OCTG Intelligence Service

28 HISOTRICAL OCTG OVERVIEW Global seamless OCTG consumption fell for three consecutive years since 20, with major drops seen in USA and China. US ERW OCTG consumption, which accounted for 70% of the global ERW market, dropped to 55% in 20. Global seamless OCTG consumption by region (Mt) Global ERW OCTG consumption by region (Mt) North America China Middle East Europe South America Africa Other Asia CIS North America China Middle East Europe South America Africa Other Asia CIS Source: MBR

29 NORTH AMERICA OCTG The US OCTG market is highly reliant on imports (more than 50% in some years), with very little exported (mainly to Canada) US consumption of OCTG (kt) US shipments, imports and exports of OCTG (kt) Welded Seamless Domestic shipments Imports Exports Source: MBR

30 NORTH AMERICAN OCTG TRENDS Indeed, total US imports (ERW and Seamless) dropped by more than half in 20 from 20 South Kora saw ERW OCTG exports fall by 2/3 rd but still remained the largest OCTG exporters to the USA Major OCTG exporting regions to the USA in 20 vs. 20 (kt) : 98 : 32 : 8 : 41 : 87 : 33 2Mt vs. 961kt : 248 : 270 ` ` : 304 : 126 : 618 : 296 : 56 : 7 (South Korea) Source: ISSB and MBR

31 NORTH AMERICAN OCTG OUTLOOK In total, we believe that North American consumption in 20 will be over 5Mt in 20, significantly higher than 20/6 but below 20 levels NA OCTG apparent consumption (seamless and welded, kt) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Oil prices $50/bbl Rig numbers remain strong (928 on Oct 13th) which means OCTG demand continues to stay firm as consumption per rig continues to constantly rise Uncompleted wells increased Re-fracking Global oil production outlook mixed Section 232 looks likely to have no major impact on OCTG market for now (Commerce to provide report to Trump by 2018? After Tax changes?) Given more jobs depend on steel consumption than steel production, MBR believes that 232 will be less severe than thought Source: MBR

32 NORTH AMERICA OCTG The Permian basin is the most active shale basin in North America in terms of rig counts and well completions. This is driving OCTG consumption per rig higher than prior to the oil price downturn Rig counts from selected shale basins (unit change y/y) Eagle Ford Williston Permian Marcellus Source: Baker Hughes, EIA, MBR

33 NORTH AMERICAN OCTG TRENDS Imports in 20 have recovered strongly as a result of market forces as well as concerns over future trade restrictions Major OCTG exporting regions to the USA in 20 vs. 20 (kt, year-to-date through July) : : 105 : 23 : 45 : 9 : kt vs. 1.75Mt : 1 : 253 ` ` : 55 : 4 : 6 : 655 : 6 : 7 (South Korea) Source: ISSB and MBR

34 NORTH AMERICA OCTG ERW OCTG imports have surged back into the USA in US ERW OCTG imports ( 000 tonnes) ERW OCTG imports from South Korea are now already close to 800kt in 20 ( through September license data), could surpass 1Mt by the year end Year-end inventory concerns will slow activity now through Q4 Trends: P110 still favored but L80 picking up in popularity Oct Apr Jul Oct Apr Jul Oct Apr Jul Casing requirements are increasing in size Push up in connection requirements in the Permian (API to semi, and semi to premium, still threaded and coupled and not flush) South Korea Taiwan Canada Turkey Philippines ROW Source: ISSB and MBR

35 RECENT MARKET HISTORY LSAW production and consumption for API 5L applications has not increased significantly between 2012 and 20, averaging just over 8Mt Global LSAW production by region (kt) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Global LSAW capacity by region (kt) North America South America Middle East Africa CIS Europe Asia ex China China Average global capacity utilisation (%) * North America South America MENA CIS Europe Other Asia China Source: Company interviews and MBR estimates *This is for API 5L grades and does not include API 2 structural applications etc. Global capacity has been revised up significantly in China due to more detailed information being received to MBR in recent years. Source: Company interviews and MBR estimates

36 RECENT MARKET HISTORY HSAW production for API 5L applications has remained around 5.5Mt, again there is no shortage of capacity when viewed from a total global level Global HSAW production by region (kt) Global HSAW capacity by region (kt) North America South America Middle East Africa CIS EU Other Asia China China Other Asia CIS EU MENA North America South America Average global capacity utilisation (%)* *Only includes production for the API 5L markets, and not for structural non-api certified applications Source: Company interviews and MBR estimates

37 NORTH AMERICAN LINEPIPE TRENDS Shipments and imports surged in 20 after years of flagging demand North American LDP apparent consumption (kt) 3,500 3,000 2,500 2,000 1,500 1, % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% HSAW LSAW ERW Production Net imports Source: MBR s Five Year Strategic Global Large Diameter Linepipe Market Outlook

38 NORTH AMERICAN LDP TRENDS No dominant supplier to the US LDP market as there is in OCTG Major LDP exporting regions to the USA 20-20, average annual tonnage (kt) 1kt 73kt 808kt 107kt 86kt 84kt 47kt ` ` 188kt Source: ISSB and MBR

39 OUTLOOK INTO 20 NORTH AMERICA A new administration and a surge in drilling in the Permian will support pipeline development in the USA, but 20 will likely be a transition year Apparent LDP consumption for North America (kt) Forecast Trump Effect - Current Administration has voiced commitment to clearing the hurdles for delayed pipeline projects A surge in Permian drilling is now supporting plans for infrastructure building, transporting oil and gas to the Texas Gulf Coast and Cushing Over 1b bpd of planned oil pipeline capacity, 3k-km and over 460kt of linepipe 2k-km and 600kt of linepipe for gas Melted and manufactured requirement remains a topic of discussion waiting for recommendations * LDP = LSAW+HSAW+ERW (over OD) Source: MBR

40 OUTLOOK INTO 20 CHINA China have kicked start development of several major domestic LDP pipeline projects that saw delays in 20-20; 20 will likely be a pick-up year Apparent LDP consumption for China (kt) Forecast China is prioritizing the development of WEP connecting lines and branch lines over the undeveloped WEP trunklines Russsia-China oil and gas pipelines are moving The next major project to move in 20 the east-section of Xin-Zhe-Yue Synthetic Gas Pipeline * LDP = LSAW+HSAW+ERW (over OD) Source: MBR

41 Thank you for your time