Market Overview
Have a look ...World Tube & Pipe Market: Factors influencing the current situation
Dr. Gunther Voswinckel – Update as per July 2024
Welcome to ITA’s and VOSCO´s regular presentation of the main worldwide economic factors influencing the tube and pipe industry.
The Russian invasion of Ukraine and its consequences, the war between Hamas and Israel, possible upcoming war between Israel and the pro-Iranian Hezbollah militia, the increasing tensions between the USA and China, the Houthi attacks in the Red Sea and the upcoming elections in France and Iran are threatening our industry or are at least being closely monitored. After the initial turbulence on the energy market, the impact of these threats has weakened considerably, as the parties involved have so far succeeded in limiting these conflicts locally and preventing them from spreading to other regions. However, political intervention and regulations are increasingly influencing the strategies and actions of the industry.
The necessary transition to environmentally friendly and carbon-reduced production has become a central task for the industry. The consequences of the associated increase in costs are unevenly distributed worldwide. Despite generally lower energy prices, Europe is confronted with comparatively high energy prices and taxes for carbon-intensive industries. Regions such as the USA, India, Turkey and China are benefiting from lower energy costs. The high level of government debt caused by the expensive measures taken to overcome the various crises gives rise to fears that the central banks' effectiveness in combating inflation will be limited.
Pipe manufacturers were able to record an increase in profits in 2023, but high energy prices and CO2 levies are weighing on pipe manufacturers in Europe. Due to the dynamic nature of current developments, it is usually very difficult for manufacturers to react appropriately. Some manufacturers are losing confidence in their ability to compete on the global market with these additional costs and are even reducing their involvement in Europe as a result. Some countries/regions are therefore looking for suitable political countermeasures to compensate for their cost disadvantages.
Whereas quality, delivery time and costs used to be the only decisive factors, geopolitical and logistical risk considerations as well as current and future energy costs are now increasingly taking centre stage. All sources of supply are being critically scrutinized and one can only hope and warn that international trade will not suffer too much as a result. In particular, regional differences in energy prices will have an impact on the current landscape of the energy-intensive steel and tube industry.
However, disruptive times also always create new opportunities for economic success. New markets such as Carbon Capture Utilization and Storage (CCUS), new networks for hydrogen transport, electromobility and productivity improvements at production sites as part of the transformation to more environmentally friendly plants offer opportunities that need to be exploited.
As already outlined in earlier reports, the availability of economical energy is a decisive factor for the industry. Geopolitical turbulences and political regulations have changed the regional balance with increasing challenges for the industry in regions with higher energy cost. This may change the industrial landscape of the energy intensive industry with significant future consequences.
The prices for electrical energy in Europe, after turbulent periods, is now reported at a level of about 60-70 €/MWh (Figure 1). The cost level for electrical energy has partially converged for the industrialized countries. Some countries with larger nuclear energy sources or other base-load energy sources at reasonable cost, still have cost advantages. Considering for example that the US-Texas based costs of about 60 €/MWh are about 16-25% lower than the average European electrical energy prices the unbalanced cost situation becomes obvious. Political institutions still must control, that regulation introduced will not rise the electrical energy cost level creating unbalanced cost situation for the industry.
Cost of natural gas, after turbulent times climbing in 2022 up to levels higher than 9 USD/MMBtu and another sharp increase in 2023 up to 4 USD/MMBtu, has now again climbed up again to a level of about 2,7 USD/MMBtu, which is about 30% higher than early 2020 (Figure 2). The volatility of the natural gas price is still challenging the gas intensive industries and gas power plants. Europe anyhow, originally being supplied by Russian gas via pipelines at good values, now sources its gas needs to a great extend as LNG (Liquified Natural Gas). Just Austria and Poland still source their natural gas via Jamal pipeline from Russia. LNG on the other hand is by far more expensive than normal natural gas.
Figure 3 displays the development of the global price for LNG. Since November 2023 the LNG-price for 1MMBtu was reduced significantly from 15 to 9 USD. Since March 2024 the cost for LNG went up again to about 11 USD/MMBtu. This price right now with more than 8 USD/MMBtu is much higher, plus 8,2 USD or ab. 400%, than the price of normal natural gas. These remarkable additional costs are applicable to such regions without sufficient natural gas supply. Europe is one of such regions with additional cost burdens. Europe is buying LNG from USA, Kuwait but also from Russia via third countries. Extended European local gas exploration or shale gas exploration are politically banned. Therefore, hardly any short- or mid-term measures are visible to overcome cost disadvantages European high energy consuming industries are confronted with.
The long-term strategy to shift towards green hydrogen to replace fossil energy sources such as natural gas, are also questioned by specialists. Hydrogen production via electrolysis in an industrial scale requires not only masses of clean water, but also a lot of electrical energy. About 55 MW electrical energy per ton of Hydrogen must be considered. Furthermore, the chemical process, the electrolysis, requires permanent electrical energy 24 hours over 7 days per week with limited power network variations. The lifetime of the electrolyse stacks is significantly reduced in case of larger power supply volatility. Therefore, green hydrogen production seems to be feasible in regions with steady sun and wind. In most parts of Europe such constant power supply at reasonable cost is still hardly to be realized by the green energy sources wind and sun. Some European countries therefore consider nuclear power as the green solution hereto.
The total world tube and pipe production in 2023 was 167,1 million tons. The largest segment are tubes and pipes with a diameter < 406 mm accounting to 95,1 million tons, followed by seamless tubes and pipes accounting for 49,7 million tons and welded tubes and pipes > 406 mm diameter accounting to 22,3 million tons (figure 4).
Tube and Pipe manufacturers buy hot-rolled coils, round billets, or plates as input material for their production lines. 70 % of the total world pipe production, i.e. about 120 million tons/year, are welded tubes and pipes. Welded tube producers are highly dependent on attractive hot rolled coil prices and large OD (> 406 mm diameter) pipeline producers, on plate prices. Average prices for hot-rolled coils came down from September 2021 (ab. 2000 USD/ton) to September 2023 (ab. 700 USD/ton). Since then, the HRC prices strengthened again to prices of about 1120 USD/ton. End of June 2024 the price is at 730 USD/Ton (Figure 5). Some Countries, such as Turkey and India trade even at 600 USD/Ton. Furthermore, tube producers suffer from shortages in the availability of special tube material specifications. Special alloyed HRC as applied e.g. at OCTG tubes and pipes, are traded at significant higher prices. Steel plates are traded according Kallanish on 26th of June 2024 for low grade S275 plates at about 690 USD/ton.
Billet prices, used for seamless tubes are traded for an average of around 500 USD/ton.
In 2024 almost all prices for tubular pre-materials were quite volatile. It remains challenging to predict the pre-material price developments.
Figure 6, shows the price development for two representative tube grades since June 2022:
- P110 OCTG O.D. 5,5” alloyed casing pipe.
- S235 non alloyed structural pipe.
The OCTG pipe price for P110, after its hight in October 2022 (ab. 3.900 USD/ton) experienced a price decline of ab. 46% until October 2023 (ab. 2.100 USD/ton) - however, since then, it seems the price has bottomed out at a level of 1.700 USD/ton.
The structural pipe S235 although on a much lower price niveau, characterized by much less volatility almost maintained its price level at ab. 630 USD/ton. Comparing the price difference between HRC and finished structural tubes and pipes type S 235 (Figure 6), it becomes obvious how small the margins for tube producers of such products are. There were even time periods, with negative margins.
As already shown in the last edition, the world tube and pipe production after a slight downturn in 2022 of -1%, had an impressive recovery in 2023 of +14%.
Anyhow substantial regional differences are reported. CIS (+17%), the strong growth most likely due to compensation of imported pipes by local production. Remarkable is that contrary to the trend, the production of welded tubes < 406 mm OD was suffering by
– 38%, whereas the segment of pipeline pipes > 406 mm OD was growing by 67%. This trend seems to be fired by the need to build new pipelines to redirect the gas originally send to Europe. USA (+19%) with strong growth in all dimensional segments driven by the strong economic situation and the strong oil and gas demand. China representing more than 50% of the world tube production had a further gain of 15%, which is by far more than the overall economic growth in China. Particularly the seamless tube segment reported a remarkable increase of +23%. India after a week 1st half year 2023 reported a booming 2nd half year ending up at a full year 2023 increase of +12%. This positive development was already reported in our last report and was covering all tube and pipe segments. In essence the tube and pipe producers in these four countries are benefitting the most from the present geopolitical turbulences. Japan and Europe on the other hand are suffering and do not participate in the general growth trend reported for 2023 in the range of +14%!
Whereas the welded tube production segment < 406 mm OD is charged by hot rolled coils mainly processed on continuous ERW lines, the segment of welded pipes > 406 mm OD is represented by more alternative production routs. Up to a max. of 710 mm OD and a max wall thickness of ab. 25 mm, the ERW process is applied depending on the availability of adequate hot strip dimensions. The discontinuous LSAW process charged by plates is producing up to ab. 1.524 mm OD and wall thicknesses up to ab. 65 mm in standard length of 6-12 m (18 m). The LSAW process is limited by the geometrical availability of plates in the required width and length range. The applied technologies with different capacities are: U-ing and O-ing presses, 3-roll bending or incremental bending by a hydraulic sword. LSAW pipes are normally used in more demanding OCTG applications.
In case of even larger OD requirements, the continuous HSAW process is applied. The process is charged by hot strip, which is spiral weld up to 3.050 mm OD with wall thicknesses up to 25 mm. This process is applied for large pipelines and various construction application.
A special market segment are stainless steel tubes with a wide range of applications. The market size is only about 5 million tons per year, subdivided in welded tubes (89%) and seamless tubes (11%), but this niche market has attractive segments (Figure 7). Especially the seamless stainless steel tube market growths by about 5% per year!
Looking at the different market segments of stainless-steel tubes, that higher alloyed tubes for OCTG, chemical/petrochemical and power generation are mostly seamless, whereas the volume segments architecture, building and construction, transport and automotive as well as food processing with less alloyed materials are dominated by welded tubes (Figure 8).
The major driver of the tube and pipe industry is the OCTG market representing about 51% of the world tube and pipe production. The consumption of OCTG tubes directly relates with the oil price (see previous tube market reviews). OPEC+ during the past years have tried to keep the oil price at a minimum level of 90 USD/Bbl. by voluntary supply cuts. The USA on the other hand tried to balance the possible supply shortages by additional own supplies. These measures kept the Oil price mostly in a range of 70 to 90 USD/Bbl. (Figure 9). Therefore, under normal conditions, the World Bank projects the WTI oil price to stay at 80 USD/Bbl. in 2024. This projection certainly only applies if the war in middle east and the other geopolitical conflicts remain local. The oil price volatility anyhow ticks higher with more geopolitical risks simmering. Traders monitor Houthi attacks in the red sea, the increasing tension between Israel and the pro-Iranian Hezbollah militia as well as the upcoming elections in France and Iran with concern.
