December 2016, Vol. 243, No. 12

Features

Steel Tube Industry Continues Heading for Global Growth

Steel tubes are still a success story. Except for a downturn in 2009, global production figures have been pointing in one direction only – upwards. According to the German Steel Tube Association (Wirtschaftsvereinigung Stahlrohre) in Düsseldorf (Germany), steel tube manufacturers increased their worldwide production by another 7% in 2014, reaching a record 166 million metric tons.

As in previous years, the increase was due, in particular, to higher production figures in China. In 2014 the People’s Republic achieved yet another above-average increase in steel production by 11.6%, reaching 89 million tons. In the same year, 54% – over half the world’s steel tubes – was produced in China. China is even more dominant when it comes to seamless hot-rolled steel tubes, where its share in global production has now reached two thirds.

In other parts of the world growth was 4% – 77 million tons – and thus considerably lower. In East Asia (excluding China) production remained more or less constant, at 2.2 million tons. Japan recorded 7.2 million tons and thus a 3% growth. The EU, too, experienced a slight production increase in 2014, after the previous year’s sharp downturn, though without achieving the record values of 2005-08. Nevertheless, at 12.6 million, European steel tube manufacturers are still producing 4% more than in 2013.

The German steel tube market is buoyant again. A 4% production increase (2.7 million tons) was also recorded by the German steel tube industry in 2014. But 2013 was one of the weakest years for German manufacturers. The industry is still well off the record values of about 4 million tons produced in the period 2006-08. Not all industry segments benefited from the recovery.

Gains were made, above all, by welded steel pipe manufacturers, while seamless steel producers experienced a decline. According to the German Steel Tube Association, the poor results in this market segment were due to a substantial drop in crude oil prices, particularly during the second half.

The main reason for the rise in German production was an increase in domestic demand. Germany’s foreign trade surplus, on the other hand, experienced a decline, as exports dropped 12% to 2.4 million tons. At the same time imports went up 5%, reaching 1.9 million tons. This resulted in supplies for the German market rising to 2.2 million tons – up 18%.

In addition to this development in volumes, the development of prices was equally important to manufacturers. After a general decline in the previous year, 2014 brought different results for different types of steel tubes. Whereas prices went up for large-diameter tubes, they went down for seamless tubes. For precision steel tubes, on the other hand, prices varied only very little.

Outside Western Europe

According to Salzgitter AG, 2014 was marked by rising energy requirements in the BRIC countries, the development of the United States toward self-sufficiency in oil and gas and, at the same time, a decline in energy demand in the industrial nations, caused by improvements in efficiency. These developments meant that growth opportunities for the tube industry largely shifted to regions outside Western Europe. Moreover, partly due to overcapacities on the steel tube market in 2014, several markets also saw stronger competition.

In its annual report Salzgitter broke down global production into products and manufacturing processes. It shows that seamless tube production increased globally by less than 6%, reaching 49 million tons, of which 32 million was produced in China. The production of welded steel tubes up to 406 mm (outer diameter) rose to 94 million tons – a segment where the Chinese share reached 50% for the first time.

By contrast, large-diameter tube production (i.e. above 406 mm outer diameter) stagnated globally at 22 million tons. Slight increases in the CIS, China and Japan were offset by a decline in production in the West. The downturn in large-diameter tubes was particularly noticeable in the United States – partly because U.S. production had been at such a high level in 2013.

Benteler International AG is another company whose 2014 annual report focuses on the background of developments on the steel tube market. The company found the year marked by crisis-induced downward movements in Brazil and Russia. The company observed a decline in drilling activities caused by falling oil prices and, as a result, a lowering of demand for pipes in oil and gas exploration. The big regional differences in the use of steel tubes were reflected in growth rates of 3-5% – and sometimes even higher – in Asia, Africa, the Middle East, Eastern Europe and Turkey, while the Western European market remained rather weak, with growth mainly below 2%.

North America continues to be an important market. According to Benteler, positive signals came from the important OCTG market in the U.S. Due to a considerable increase in oil exploration and production, the demand for tubes rose substantially from mid-2014 onwards. U.S. anti-dumping measures against imports from various countries, particularly Asia, led to price increases by the second half of the year. Toward the end of the year, however, a major drop in oil prices began to cause a tangible reduction in demand.

In all, says André Sombecki, CEO of Benteler Steel/Tube, the steel tube market has evolved positively over the last few years: “The demand for tubes is rising, and the market is growing – especially in the United States and Asia. Europe recorded some slight growth and a high level of existing capacities. At the same time we can observe increasing competition from China, Russia and Eastern Europe.”

The U.S. is seen as an important growth market, which is underlined by the new hot rolling mill in Shreveport, LA. Sombecki said Benteler not only wants to demonstrate a close customer focus and a local approach, but it also wants to achieve a better long-term ability to serve markets in North and South America.

Statistics of customer industries of German steel tube manufacturers show that the energy sector is the biggest single area, with 40%. It is followed by automotive (around 20%) and mechanical engineering (15%). The energy sector is seen in the industry as the biggest growth engine and global market of the future. According to a forecast published by Benteler, production of shale oil is expected to rise over 100% in the period 2012-25. Production of liquid petroleum products and liquid gas is set to increase 100% in Latin America, 40% in North America and 35% in the Middle East.

Restrained Development

In 2015, however, the steel tube market did not confirm such forecasts. Overall, after the weakness of the first six months, this market continued to develop in a rather more restrained manner during the third quarter. This, at any rate, was the conclusion of Salzgitter AG. One major reason was apparently the crude oil prices which ultimately caved in again after a brief period of recovery. This led to weaknesses in vital exploration activities.

The impact could be felt by seamless steel tube manufacturers which had to cope, for instance, with up to 40 production slumps in North America. Substantial downturns were also recorded in the European Union, including Germany.

In all the other segments, by contrast, the economic performance was more positive. In welded steel tubes up to 406 mm (outer diameter) manufacturers achieved a slight increase in production output. Increases were also recorded for large-diameter pipelines (above 406 mm outer diameter), especially in North America, Russia and China. In the EU, on the other hand, production was only slightly higher than the very low level of the previous year. European manufacturers benefited when the suspension of the Black Sea Pipeline Project, Part One, was lifted – the former South Stream Pipeline, now TurkStream.

Yet, in all, the number of new and existing orders recorded by Salzgitter’s Energy Division – which handles its tube activities – was lower for the first three months of 2015 than for the same period a year earlier. As oil prices continued to be low, numerous gas and oil exploration projects were postponed or even abandoned throughout the world. Reduced demand coupled with newly created production capacities, particularly in Asia, led to greater price pressure and thus to a massive decline in revenue. This development also affected HFI and spiral-welded tubes, a segment which recorded a tangible downturn in existing and new orders in the first three quarters compared with the previous year.

After the continuing weakness of Europe’s large-diameter pipeline market throughout much of 2015, several facilities in Germany did show improvement in their employment situation. This was helped by the resumption of production for the Black Sea pipeline project, the order for the Trans-Adriatic Pipeline (TAP) and the ongoing positive situation in North America. The Salzgitter Group won the tender for 270 km of large-diameter pipes and 1,559 pipe bends for the TAP which will eventually transport natural gas from the Caspian Sea to Europe. Due to low oil prices, the company anticipates results below the level of 2014 for seamless stainless steel tubes.

No Crisis in Steel Tube Industry

“The steel industry is going through a global crisis which even the German steel industry won’t be able to avoid,” stated Hans Jürgen Kerkhoff. But the President of the German Steel Tube Association also admitted that the “weak economic figures in the steel industry are in contrast with the prospects of its big customer industries.”

Apparently, a positive picture continues to emerge and inspire confidence – partly from performance indicators and thus a good mood in most customer industries, but partly also from the forecasts of the most important steel-processing companies. Certain signs of stabilization can be observed in mechanical engineering and construction. Kerkhoff added: “In the steel tube segments stimuli should mainly be coming from large-diameter pipes.” In total, production in the processing industry is expected to increase somewhat, while the need for steel will move slightly sideways.