… For the oil and gas industry, OCTG supply remains tight.
Energy steel
After a brief pause toward the end of January, steel prices have regathered pace. In the case of Chinese hot-rolled coil (HRC) export prices, daily average assessments rose by 1.8% week-on-week in the week ending February 3 while US domestic HRC prices rose 4.0%; a tenth consecutive weekly rise after prices found their floor at $711 per metric ton in late November.
Upside risks surely continue in the US as the comparatively narrow premium US prices enjoyed back then, at just $65 per ton over European domestic assessments, has been narrowing ever since to just $30-35 per ton in recent weeks dissuading importers that need to account for higher transport and associated costs.
European prices have been impacted by rising energy prices, which recovered strongly in December, as well as seasonal rallies in raw materials, which has ensured that margins remain at low levels in spite of a near 5.0% rise in prices.
While it remains highly unlikely that prices in the US or Europe can fully recover this year, further price rises can be expected in and out of China where the average producer’s profit margins fell to less than 1% last year.
Long products are also moving higher following recent scrap price rises which are also likely to gather speed as steel production revives.
The big data story recently has been Chinese steel production, which failed to continue its recovery path in December.
Instead of rising strongly on a year-on-year basis as it did from August through November, output fell almost 10% in the month, ensuring that steel production in the country fell for a second consecutive year, contrary to our expectations of a modest recovery from the government-imposed cuts in 2021.
Output in the rest of the world fell more acutely than in China last year after the post-lockdowns surge in supply in 2021 but as with China we expect 2023 will be a year of recovery.
Alistair Ramsay, vice president
+++
While main steel makers in the US have announced price increases for HRC & ERW OCTG, prices continue to soften.
Prices of ERW surface casing of J/K 55 are declining faster than prices for more premium grades as imports of J/K55 surface casing is not in a short supply and there seems to be plenty available recently.
This may lead to further price pressures on imported surface casing.
Some foreign suppliers are speculating on J/K55 surface casing imports right now.
For instance, Taiwanese mills have been quite aggressive in lowering their prices as they attempt to get more orders for surface casing.
We expect South Korea will continue to be the primary supplier from the welded import side, benefiting from modest duties applied on entry to the US market.
However, locally produced surface casing of J/K55 does not appear to have gained much of a market share yet.
At the same time, intermediate casing supply remains tight as domestic US mills don’t have enough heat treat capacity to meet demand.
The price level for tubing have been stable due to very tight supply amid lack of heat treat capacity.
As processors add capacity, price for tubing may start to decline for Q3/Q4 deliveries as availability rises to meet demand.
Seamless OCTG prices have peaked and may start to come down slowly in the coming near term.
Mills are cautiously considering prices for Q2 2023 deliveries amid uncertainty, but OCTG demand from operators is expected to be steady, although we are not hearing of any meaningful activity increases.
Between the capacity increases from Tenaris, Vallourec, and domestic ERW OCTG mills, we don’t think the market will see a shortage of OCTG this year.
Domestic ERW OCTG mills are expected to be the primary source of new product supply in 2023.
Once OCTG supplies improve and inventories are rebuilt we may see deeper impacts on seamless OCTG pricing.
Rystad Energy’s weekly steel and OCTG note from Alistair Ramsay and Marina Bozkurt:
