Domestic producers of welded standard pipe are hoping their trade case, now before the U.S. Commerce Department, will provide some relief from predatory pricing of Chinese imports.

By Myra Pinkham,
Contributing Editor

Given the strength of nonresidential construction, U.S. producers of standard pipe should be having a good year. That is not the case, however, largely because of surging Chinese imports.

Even in 2007, which has been marked by a decline in overall steel imports from record high levels in 2006, Chinese imports of welded standard pipe continue to grow. Imports’ share of the standard pipe market jumped from 35 to 40 percent in 2006 to over 50 percent as of mid-2007, estimates Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa., with China accounting for most of that growth.

Roger Schagrin, general counsel for the Committee on Pipe and Tube Imports and president of Washington, D.C., law firm Schagrin Associates, explains that the Chinese are striving to alleviate their overcapacity and boost employment. “China has a production-oriented economy. Their main goal is to employ people and to sell product. Pipe and tube from China is up about 40 percent over last year, while finished steel exports are down 15 percent. China is concentrating on downstream products such as pipe and tube. They would rather ship pipe than sheet, and they would rather ship sheet than iron ore or coke.”

“It’s a tragedy,” declares Ray Dubreuil, industry manager of tubular products for California Steel Industries Inc., Fontana, Calif. “China is selling pipe into the West Coast market at prices that are lower than we can buy coil.” That does not even take into account the cost for mills like California Steel to convert that coil into pipe.

The same is occurring nationwide, maintains Schagrin. “It really makes no economic sense. I think in a broad way this demonstrates that there are significant subsidies in China. How else could companies absorb ocean freight and handling costs and sell pipe for lower than their raw material costs? It is impossible.”

In the first quarter of this year, domestic circular carbon welded pipe sold for $919.35 per short ton, compared to Chinese pipe priced at $652.06 per ton, according to industry data.

This disparity prompted six welded standard pipe producers, along with the United Steelworkers union, to file an antidumping and countervailing duty trade case in June against Chinese imports of welded standard pipe under 16 inches in diameter. The petitioners include: Allied Tube & Conduit Corp., Harvey, Ill.; IPSCO Tubulars Inc., Comanche, Iowa; Northwest Pipe Co., Portland, Ore.; Sharon Tube Co., Sharon, Pa.; Western Tube & Conduit Corp., Long Beach, Calif.; and Wheatland Tube Co., Collingswood, N.J. The petitioners are also seeking “critical circumstances” damages due to the surge of imports, which if successful would result in retroactive margin payments.

The U.S. International Trade Commission, in a 5-0 vote (with one commissioner abstaining) made a positive initial injury determination in that case in late July, directing the case back to the U.S. Commerce Department for further investigation. A preliminary ruling on countervailing duties was expected in late August, with a preliminary determination on antidumping duties to follow at the end of November.

While he says the ITC ruling come no surprise, David Phelps, president of the American Institute for International Steel in McLean, Va., questions the finding. AIIS represents foreign mills. “This is another example of trade protection against one product negatively affecting another,” he says. “There have been so many trade cases on hot-rolled sheet that the Chinese don’t have access to export hot-roll here.”

The recent surge in standard and structural pipe imports, in place of flat-roll imports, “is what happens when you try to fix a problem with protectionism. You have to resort to more protectionism,” Phelps says. “[AIIS believes] that protectionism for steel mill products has and continues to threaten the health and international competitiveness of steel consumers, who themselves are seeing increased competition from China and other countries that have access to internationally competitively priced steel.”

Standard pipe producers in the U.S. see it very differently, however. “There have always been a lot of imports. The problem is that these are coming in so cheap, it has caused us to lose market share,” says Will Boggs, vice president of the fence division at Allied Tube.

According to the ITC’s preliminary injury determination, the market share of domestic standard pipe producers declined to 50.4 percent in 2006 from 59.4 percent in 2005. China accounts for about 60 percent of all U.S. welded standard pipe imports.

Welded standard pipe imports from China went from about 100,000 tons in 2003 to 280,000 tons in 2004, 480,000 tons in 2005 to 720,000 tons in 2006, Schagrin says. If these imports continue to increase at the same rate as in the first half of this year, they could top 850,000 tons by the end of 2007. (Observers don’t expect Chinese shipments to reach that level, however, as imports often decline after an initial surge once a trade case is filed.)

“We are well aware that imports have always been part of the market. We have always been able to compete against imports,” says Raymond Davila, vice president of sales for Tex-Tube in Houston. “We just can’t compete when they are selling the same product we’re making at about the same price as we buy our hot-rolled coil.”

While import levels are high for many pipe and tube products, standard pipe has been particularly hard hit. “That’s because Chinese standard pipe is more widely accepted by users than line pipe or oil country tubular goods, which are more sophisticated products,” he adds.

Demand for seamless standard pipe, used mostly in low-pressure oil and gas applications, is up over 20 percent and should continue growing as long as the energy market remains strong, says Michael Phelan, president of seamless pipe distributor American Piping Products Inc., Chesterfield, Mo. The seamless segment of the pipe market has been less affected by Chinese imports, which should continue to be the case in the future, he says, since the Chinese have increased value-added export taxes on this product.

Seamless, however, represents a very small portion of the standard pipe market—only about 400,000 tons of the 3-million-ton total, says Plummer. The lion’s share is welded pipe, used for low-pressure conveyance of water, steam, natural gas, air and other liquids and gases in plumbing and heating systems, air conditioning units, automatic sprinkler systems and related uses. Welded-pipe demand is largely driven by nonresidential construction, which remains strong, though portions have been affected by the slump in homebuilding, Plummer says.

According to the Commerce Department, spending for both private nonresidential construction and for public construction hit record highs in June. Private nonresidential construction spending, at a $347 billion annualized rate, was up 17.4 percent from June 2006, while spending for public construction, at an annualized $285 billion, was up 10.4 percent from a year earlier.

“Our concern is that domestic standard pipe producers haven’t benefited from the strong nonresidential construction market because imports have taken a larger chunk,” says Scott Barnes, vice president, commercial, for IPSCO Tubulars.

One standard pipe executive was optimistic that nonresidential construction, though it may soften slightly, will remain solid as long as interest rates don’t rise and the overall U.S. economy stays firm. “At least in the short term, all indications are that our customers will stay busy,” he says. 

Dubreuil, at California Steel, is bullish as well, despite the fact that some pipe distributors are currently in an inventory reduction mode to avoid getting caught with high-priced material. During the first quarter, the domestic price of standard pipe declined by 9 percent vs. fourth-quarter 2006, to $919.35 per ton. This is also 3.6 percent lower than the $954.04 price in first-quarter 2006. Given that nearly 80 percent of standard pipe is sold through distribution, this destocking trend could be significant, he adds.

“American mills have done the best they could to compete in light of the China’s unfair pricing tactics, but it is difficult,” says Bill Wolfe, executive director of the Steel Tube Institute of North America, Coral Gables, Fla.

Domestic pipe mills have watched their profits decline over the past few years, even as demand increased, due to the rising cost for flat-rolled steel, their raw material. “We are watching very carefully what we are paying for raw materials,” adds Bruce Kaercher, president of Hickman Pipe & Tube Corp., Barlett, Tenn. “We are trying to tighten costs as best we can. That is necessary with prices declining—and they will probably decline more.”

Tex-Tube recently upgraded its standard pipe and API pipe producing capacity, adding a new line saw, bevellers, hydrostatic testers and other improvements that give it the ability to produce triple random length material required in some markets. “We have invested in our mills during the last few years, but we aren’t getting the return on the investment that we expected,” Davila says.

Import competition has caused domestic producers to shift their product mix away from standard pipe, executives report, which is one reason standard pipe production has declined. According to ITC documentation, domestic standard pipe production declined 8.2 percent from 2004 to 2006, while the industry’s production capacity declined 10 percent. This included the permanent closure of Wheatland Tube’s Sharon, Pa., facility in 2006, as well as Northwest Pipe’s shuttering of two mills in Portland, Ore., and Bossier City, La. Wheatland also announced plans to permanently close its Little Rock, Ark., mill this month. Other producers have reduced production rates by cutting shifts or making other types of pipe.

“If someone is just in standard pipe, they are in big trouble,” says Dubreuil. California Steel, which now produces about 2,000 tons of standard pipe per quarter, down from over 5,000 tons per quarter a year and a half ago, was able to switch that production to API line pipe.

IPSCO is also fortunate because of its product diversity, Barnes says. “But while we also make OCTG and line pipe, standard pipe remains important to our product portfolio.”

The challenging market conditions have spurred merger and consolidation activity in the North American standard pipe market—notably by the Carlyle Group. In October 2006, John Maneely Co., which owned Wheatland Tube and tubular fittings supplier Seminole Tubular Products Co., was acquired by the private investment firm Carlyle Group. In December 2006, Carlyle also acquired Atlas Tube Inc., Harrow, Ontario. Still under Carlyle ownership, John Maneely acquired Sharon Tube in January 2007.

While consolidation is generally viewed as a positive step, leading to a more efficient industry, “I’m not sure what will happen going forward,” Wolfe says. “We are entering a period of uncertainty.”

All eyes right now are on the trade case, which is not the first that the domestic standard pipe industry has filed. According to Schagrin, the first was in 1983, which resulted in an order against Taiwan. That was followed by cases against India, Turkey and Thailand in the mid-1980s and against Brazil, Mexico, Korea and once again Taiwan in 1992.

In addition, the industry filed a Section 421 anti-surge petition against China in 2005. Despite being recommended by the ITC by a 4-2 vote, the action was denied by President Bush, who maintained it would do more harm than good to the U.S. economy. “The ITC recommended quota relief at the 2003 import level of 185,000 tons a year, which would have prevented imports from increasing to over 400,000 tons in the first half of this year,” Schagrin maintains.

Looking forward, Barnes says it is possible some companies could exit the standard pipe market, especially if the trade action is unsuccessful. “Even if we win, the effect will depend on the level of relief that is granted. If the tariff is significant enough, it will help.”

Since no decision will be made until November at the earliest—and possibly as late as first-quarter 2008—2007 will go down as a challenging year for the domestic standard pipe industry. “But I think 2008 will be a lot better, if we get relief,” says Schagrin.