Energy industry bright spot for NorthAm steel

Market: Coking coal, Crude oil, Metals, Natural gas
08/08/22

The oil and gas sector has proved to be a strong demand source for the US steel industry in 2022, while falling hot-rolled coil (HRC) prices increase the production of welded pipe.

Tubular producers Tenaris and Vallourec expect demand to remain strong through the rest of 2022, driven by pipe shortages and increased demand from drillers taking advantage of higher oil and natural gas prices. The Argus West Texas Intermediate fob Houston assessment, the US benchmark, was below $50/bl for most of 2020 as crude demand plunged along with US travel with the onset of the Covid-19 pandemic. Prices then began rising steadily from December 2020, hitting a peak of $127.81/bl in early March. The price was at $91.95/bl on 4 August.

The increased demand has coupled with falling hot-rolled coil (HRC) prices to make welded pipe more economical. Tubemaker Tenaris in particular is looking to increase its US pipe production.

"Our customers continue to increase their drilling activities and look to us to meet their tubular requirements we are hiring employees to ramp up our US welded production now that the hot-rolled coil prices have fallen and the spread between pipe and hot-rolled coil cost makes the production of welded pipes viable," chief executive Paula Rocca said in a second quarter earnings call on 4 August.

The company is even eyeing a possible electric arc furnace (EAF) at the Benteler Louisiana seamless steel pipe mill Tenaris is in the process of acquiring. The EAF would help get the rolling mill to its maximum production of 400,000 metric tonnes/yr.

Vallourec is targeting steel and rolling production of 750,000 t/yr in North America as it works to shed unprofitable rolling capacity in Europe. The company believes that tight tubular supply in North America will help keep volumes and pricing elevated.

The Argus US hot-rolled coil (HRC) Midwest ex-works assessment fell to $822/short ton on 2 August, its lowest level since December 2020. Prices have fallen by 48pc since the beginning of 2022.

Prices may remain under pressure as US flat-rolled steelmakers Cleveland-Cliffs, Nucor and Steel Dynamics work to bring a combined 16,200 st/day, or an additional 1.45mn st/quarter, on line in the back half of the year, according to capacities listed by the companies.

In the US, during the second half of the year Tenaris will take a maintenance outage at its Bay City, Texas, pipe mill, a move which could cut into domestic supply.

Integrated steelmaker US Steel, which has its own tubular operations in Fairfield, Alabama, shipped 136,000st of products in the second quarter, up by 30pc from the prior year. Utilization rates were at 75pc, up by 24 percentage points.

In addition to growing domestic supply imports have also jumped to meet US demand. Oil country tubular goods (OCTG) imports have jumped by 70pc in the last year to 1.12mn t through June, while line pipe imports are up by 40pc to 439,000t.

By Rye Druzin

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