During the month of June, the main problems facing most Chinese seamless pipe and tube mills were the uptrend in raw material prices and the shortage of round billet supplies. Round billet prices were being driven up by higher scrap prices and also by the strong demand for construction steels which caused some producers to focus more on square billet as opposed to round billet. To make things worse, according to some pipe mills, billet mills have been stocking round billets in expectation of higher prices in the near future.
Overall, the round billet price increased by RMB 700-1,050/mt ($100-150/mt) during the month of June. Some seamless pipe and tube mills report that they have been facing continuous price increases from week to week, in addition to the tightness in round billet supplies. According to some pipe and tube mills, they are working at full production capacity and have been booked through September. and even later, with most orders being for domestic buyers.
In the US, OCTG inventories are still at low levels, while there is evidence that end-user demand is continuing to be firm. SteelOrbis expects imports to increase in the near future, as Chinese material appears to be more favourably-priced than it has been for some time. Some Chinese domestic producers inform Steelorbis that they have been receiving more and more orders from the US. As a result of the high costs as well as the strong market demand, seamless OCTG prices in the US again climbed higher in early June. The prices and surcharges imposed by the mills are being passed on by distributors. SteelOrbis has learned that distributors' prices for seamless OCTG have reached $1,800/mt for API 5CT J55 material and $2,150/mt for N80 grade, with prices quoted higher for sizes which are seeing particularly tight supply. The cycle of high prices and low inventories may continue into the third quarter and thereby may influence pricing for the near future.
In the Middle East and Africa, we expect demand for seamless OCTG and line pipe to keep rising by between 10-20 percent per year, for the next year at least. The latest estimates also indicate that demand for premium OCTG material can be expected to grow strongly. Overall, total OCTG consumption in the Middle East and Africa is expected to reach almost 1.9 million mt this year. This increase in demand will be met by significantly higher imports in 2008, and possibly in 2009 too unless seamless mills scheduled for commissioning in the Middle East come on stream precisely as planned.
Currently, China origin API 5CT J55 T&C NUE seamless tubing of 60.3 mm x 4.24 mm x R2 size is being offered at $1,650-1,700/mt FOB, up $150-200/mt compared with the previous month; meanwhile, N80-Q T&C 114.3 mm x 6.35 mm x R3 material is being offered at $1,700-1,720/mt FOB, up $200-220/mt since the end of May. This week, an OCTG mill told us that they are offering P110 casing T&C of 139.7 mm x 7.72 mm x R3 size at $1,850-1,870/mt FOB, up $255/mt in early June due to the round billet price uptrend. Seamless API 5L GRB is now being offered at $1,300-1,320/mt FOB, an increase of $150-170/mt in the past month. Although iron ore prices are weakening, rising scrap and coal prices mean that costs are fairly high for the Chinese mills, and demand for construction steel is diverting significant billet volumes towards construction. In this context, no short-term reduction is expected in prices for round billet, and this will have the effect of keeping finished seamless prices up.
As for welded pipe, compared to the spectacular increases that steel prices have seen this year, Chinese flat product price rises in June were less impressive but remained significant. The major mills raised prices for the third quarter and traders followed with spot price increases as well. SteelOrbis understands that HR coil for export is around $1,050-1,080/mt FOB, up $70-90/mt since early May. Hollow structural sections have also risen by about RMB 300/mt or more due to the rising hot rolled coil prices. Currently, ASTM A500A 250 mm x 150 mm x 5 mm material is being offered at $1,160/mt FOB, while A500B of the same specification is at $1,200/mt FOB. There has been an increase of about $40-50/mt in offers in the last month, but with few deals being completed. Demand for structural tubing is strong, supplemented by the reconstruction efforts following the Sichuan earthquake. Supplies will be tightened through the third quarter as mills will reduce output during the Beijing Olympics.
In addition, confirmation of the affirmative vote by the US International Trade Commission on Chinese circular welded pipe and subsquent anti-dumping and contervailing duties will have an impact on Chinese exports. Accordingly, Chinese mills are planning to avoid the US market in favour of other regions with better opportunities. Going into the third quarter, we expect Chinese domestic prices to remain at high levels due to tight supplies, but they could decline later in the year if export prices decline.
Export prices of Chinese welded line pipe continue to climb higher on the back of strong demand and higher material costs. LSAW line pipe is now up to $1,520/mt FOB for API 5L X60, an increase of about $50/mt in the month of June, and X52 has reached $1,400/mt FOB. ERW API 5L Gr.B is now priced at $1,050-1,100/mt FOB, up about $140/mt in the past month.
Due to the shortage of HR coil in South Korea, the pipemakers there are behaving cautiously as regards exports. So far, offers are standing at about $1,500/mt FOB for ERW API 5L Gr.B line pipe for September delivery.
304 series stainless steel welded tube of 40 mm x 0.8 mm x 6 m size is now being offered from China at $5,650/mt FOB, down $450/mt compared with one month ago due to the sharp decrease in stainless steel prices. So far, no deal has been completed at this level.
Turning to news relating to new capacities, Hengyang Steel Tube plans to start up its 200,000 mt per annum seamless pipe project in early 2009, taking its total annual capacity to 1.2 million mt. The producer's seamless pipe production is expected to reach 100,000 mt in 2009 and 150,000 mt in 2010. The new capacity will be for seamless pipe of 273-720 mm in diameter and 3-12 mm in length. The products are mainly used in oilfield applications, boilers and machinery.
In addition, Wuxi Seamless is planning to increase its annual hot rolled seamless pipe capacity to one million mt through expansion at its newly formed joint venture, Liaoyang Seamless Oil Pipes Co. Wuxi owns a majority stake in the company, which was set up in the current year, and is due to commission a 300,000 mt per annum seamless mill within the framework of this joint venture later this year. This new venture is part of Wuxi's plans to target markets in China's northeastern provinces.