Chinese pipe producers are itching to increase their offering prices for the US but are hesitant to do so before the legislation regarding the VAT rebate decrease is announced. Some producers are now forcing traders to take half the risk of any prospective tax change, which could mean a significant cost increase.
Although nothing official has been announced yet, there is an assumption in the market that the VAT rebate for pipe and tubes will decrease to at least five percent (from 13 percent) very soon. On top of this, an export tax on pipe and tubing may not be out of question. If these legislative changes do happen, their effects will be felt throughout the world pipe market, as Chinese pipe producers will have to raise prices somewhat. However, it will be difficult for Chinese mills to increase their offering prices to the US significantly since demand from the US is slow, reflecting the relatively high inventories of US pipe distributors.
For the time being, some Chinese pipe producers are holding back from offering until after the legislation is announced (or isn't announced), as both producers and customers are nervous about making a move before this happens. Therefore, the import market has stayed pretty quiet for the past two weeks.
In light of the expected reduction in the VAT rebate, as well as the slow rise of Chinese HRC prices, the pricing trend for import pipe remains slightly up.
For now, Chinese offers for A53 ERW standard pipe still range from $600 /nt to $640 /nt ($661 /mt to $705 /mt or $30.00 cwt. to $32.00 cwt.) FOB loaded-truck, Houston, Texas. Large diameter ERW standard pipe offers range from $670 /nt to $710 /nt ($739 /mt to $783 /mt or $33.50 cwt. to $35.50 cwt.) FOB loaded-truck, Houston. (This price range is also valid for most West Coast ports.) Chinese line pipe (API 5L X42) offers range from approximately $680 /nt to $720 /nt ($750 /mt to $794 /mt or $34.00 cwt. to $36.00 cwt.) FOB loaded-truck in Houston.
In other news regarding the import market, the US International Trade Commission (US ITC) recently made its final determination in the sunset review of antidumping and countervailing duty orders against oil country tubular goods (OCTG) from Argentina, Italy, Japan, Korea, and Mexico. The ITC determined that the revocation of these orders would not be likely to lead to the continuation or recurrence of material injury to the domestic industry, and accordingly the orders will be revoked. Therefore, we may start to see more OCTG imports from these countries for the next quarter.
However, China offers lower quality grades of OCTG at very competitive prices and as long as the VAT rebate and lack of export tax from China remain in effect, these new sources will only able to ship advanced grades of OCTG.
Final census data from the US Import Administration show that the countries which exported the most OCTG tonnage to the US, year to date (January through March) were: China at 201,852 mt, Korea at 48,481 mt, Austria at 38,558 mt, Canada at 31,264 mt, and Brazil at 28,558 mt.
As for the domestic pipe market, not much has changed in the last two weeks, with US pipe producers still seeing slow but steady demand. Pipe demand from the non-residential construction and energy markets remains decently strong, but import competition (particularly for OCTG - In May, China exported a record 89,300 mt of OCTG to the US), as well as the sluggish domestic scrap and flat rolled markets, are both factors that continue to prevent domestic pipe prices from gaining any upward momentum for the time being. The pricing trend for standard pipe remains flat with domestic offers for A53 ERW standard pipe continuing to range from $47.50 cwt. to $48.50 cwt. ($1,047 /mt to $1,069 /mt or $950 /nt to $970 /nt) ex-mill.
The Baker Hughes North American Rotary Rig Count shows 1,874 rigs for the week ended May 25, compared to 1,865 rigs the previous week and 1,974 rigs for the same week of the previous year.