Hello Foreign Mills, Goodbye Pipe Imports

Foreign oil country tubular goods producers are setting up shop in the United States to get close to the world’s fastest growing energy market. The new capacity may present some new opportunities for distributors.

By Tim Triplett, Editor-in-Chief

Imports of steel pipe will soon dry up as pipe makers from all over the world set up shop in the U.S., Canada and Mexico to take advantage of the energy boom in North America, said Scott Jones, president of Nova Steel, who spoke at the National Association of Steel Pipe Distributors summer conference in Toronto last month. Canada-based Nova Steel Group is a processor and distributor of carbon steel, stainless steel and aluminum products, and also produces steel tubing used by a variety of industries.

North American pipe and tube producers have been pouring money into their companies in the last decade, greatly improving their technology and business practices. Use of automation has reduced the labor cost per ton of tubing to the point that any wage advantage held by foreign competitors is modest—and certainly not substantial enough to outweigh the cost of shipping material from far overseas.

“What region has the cheapest labor? It really doesn’t matter anymore,” Jones said. “The new reality is that the cost of labor per ton of steel is a shadow of its former self—maybe less than $20 per ton at the best-run mills. It looks like the best steel mills in North America will be the lowest-cost producers in the world. If the price of steel stays low, overseas transportation will become a bigger obstacle.”

Recognizing the shifting economics of the global pipe and tube trade and the enormous opportunity to supply the energy companies tapping into North America’s abundant oil and gas reserves, pipe producers from all over the world have announced plans to open manufacturing plants in the U.S. In the electric resistance weld market, Russia’s OMK, Mexico’s Prolamsa and Turkey’s Borusan are working on new facilities in Texas. American companies Boomerang Tube and Northwest Pipe, along with Welded Tube of Canada, are also adding ERW capacity in Texas, Louisiana and New York. In the seamless tubing sector, Vallourec of France, Benteler of Germany, TPCO of China and Tenaris of Argentina have new plants in the works in Texas, Louisiana and Ohio (see chart).
 

All total, when completed in the next year or two, the projects will add a potential 1.66 million tons of ERW capacity and 1.8 million tons of seamless capacity to the market. “The U.S. is going to be the United Nations of pipe making,” Jones commented.

Concerns about the new capacity creating an oversupply situation may be premature. It’s difficult to predict how much demand the energy boom will produce, and just because a mill has production capacity does not mean it will maximize it. The idea behind domestic production is to displace imports, not to add to them, Jones said. “Imported pipe should become ancient history once all the new mills get going. There is no way the market will support the cost of shipping pipe halfway around the world. So goodbye to steel pipe imports. We will be happy to see you go.

“The new foreign-owned mills will be subject to the same health and safety regulations, environmental regulations, corporate taxes, property taxes and insurance headaches that challenge us all today. They will get to know OSHA, the EPA, the IRS and maybe even the USW. But at least it will be a level playing field,” he added.

The future of the North American economy is bright. The long-term prospects for cheap natural gas will fuel a renaissance in domestic manufacturing, giving producers of steel, plastics, chemicals and fertilizers a tremendous cost advantage over those made in other parts of the world. More domestic production will take the risk out of long lead times and help make the supply chain more efficient. Keeping manufacturing in North America will help keep innovation in North America, Jones concluded. “We need to keep hammering home the message to our politicians and lawmakers that the future health of our economy is in making things here in home, not by purchasing unfairly traded products that are dumped in our market.”

[“Imported pipe should become ancient history once all the new mills get going. There is no way the market will support the cost of shipping pipe halfway around the world.” Scott Jones, Nova Steel]


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Saturday, December 3, 2016