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Pipe and Tube Report

Mechanical on the Mend

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MCN Editor Dan Markham

Energy headwinds have begun to soften, giving way to better conditions for the mechanical tubing market.

A first-half resurgence of the energy market has been a boon for the makers and suppliers of mechanical tube, and most expect a similar story for the balance of 2017. 

“Right now, we’ve had a way better than average first half of the year,” says Ted Fairley, vice president of operations and sales engineering for Michigan Seamless Tube & Pipe, South Lyon, Mich. “Our third quarter is booked up full, and the fourth is coming together strong. I’m expecting a very good year this year.”

The story is the same for distributors. “We’ve been swamped in mechanical tubing,” says Steve Baroff, president of Specialty Pipe & Tube, Mineral Ridge, Ohio. “As a master distributor of hot-finished, seamless, heavy-wall tubing, we’ve been very active.”

Overall, mechanical tubing shipments were up 18.3 percent year over year through the first half, says Paul Vivian, publisher of the Preston Pipe & Tube Report, Ballwin, Mo. The domestic and foreign producers shared the gains almost equally. Domestic shipments were up 17.9 percent through June, while imports increased 19.7 percent. 

The gains were particularly strong in the seamless side of the mechanical tubing market. Seamless shipments through the first half increased 30 percent from the rather low levels of 2016. “Seamless is a winner from a percentage standpoint,” says Vivian, though he notes that the seamless market is about one-quarter the size of domestic welded market. 

John Topetzes, president of Sanborn Tube Sales of Wisconsin Inc., Pewaukee, Wis., says there are a few factors that contributed to the uptrend. First, the resolution of the presidential election gave a little bit of clarity to the market, and rising steel prices spurred some activity. 

To Fairley at MST, the strong shipments to end users was the result of buying for two purposes. “One was to rebuild inventory, which had been depleted, and two was for consumption,” he says. He believes much of the inventory restocking has run its course, and most purchases from now on will simply be made to meet demand levels.

Energy has been a key driver in the increased activity level. “Consumption has been very good. Even when oil dipped down to $40 a barrel, we didn’t see a lot of panic and a stop on buying,” says Fairley. 

“Energy is a driver for much of the industrial sector, and for the last 21/2 years it was comatose,” says Baroff. “It’s been an incredible headwind, but we’re drafting behind energy a little now.”

TimkenSteel, a leading supplier of seamless product, reported sales increases of 52 percent to the energy market in the first half of 2017. Describing conditions during the company’s second-quarter conference call, President Tim Timken said, “The end market dynamics are good. You’ve seen oil inventories down 14 of the last 16 weeks. Baker-Hughes claimed six more rigs in the field last week, so all of that is positive.”

Not everyone is excited about the energy market’s prospects as 2017 winds down. “We just think the energy sector, which has been a bright spot, peaked in the second quarter. We are seeing a handful of ENP conference calls where there’s been negative re-evaluation of second-half spending and rig counts,” says Vivian. 

Among the other key markets for mechanical tubing are transportation and heavy equipment. Automotive has experienced a noted falloff in sales levels this year compared with the recent past, but it is maintaining at levels that most members of the supply chain are not overly concerned with the direction. 

“Our DOM tubing products that go into the automotive markets, along with our drive line business is great. Our business is strong,” says Larry Hentrup, vice president of carbon steel sales for PJ Tube/Webco Industries, Sand Springs, Okla. He says carbon mechanical tubing has held pretty firm in its ongoing battle with aluminum for automotive market share. “You’ve got drive shafts made into the Corvette that are aluminum tubes, but they’re not significant numbers.”

On the heavy equipment side, agriculture is still languishing at the bottom of a downcycle that has reached three years. “If you read the conference calls of John Deere and Caterpillar, they’re doing better. But they’re doing better because they’ve laid off people. Their order books have not recovered,” Vivian says. 

That’s been the view from the supply chain as well. “Ag has been flat at a pretty low number. I’m not seeing a lot of activity there and not seeing a lot going forward,” Fairley says. 

The story is a little better in the other major heavy equipment sectors. Mining has improved, large trucks are doing OK and construction is trending up, though still not where executives would like to see it. “There’s an opportunity for construction going forward in the market, particularly if our friends in Washington pass any kind of infrastructure package. And we have to do that, so I’m expecting construction to be good next year,” he says.

While energy market end-users have been rebuilding inventories, Fairley hasn’t seen the same behavior from his company’s service center customers. “I’m kind of confused with what they’re doing,” he says. “They continue to be in that buy to replace mode. I’d expect them to be build the inventories a little bit, with the expectation of the market picking up.”

Such increased buying would also be expected given the fact lead times have begun to lengthen. “Supply for the most part has been good, though lead times have jumped out a little bit,” says Topetzes, noting there’s considerable speculation about the direction pricing will go. 

The speculation revolves around the ongoing trade discussions in Washington, most notably involving the Section 232 inquiry. Executives in many steel industries had been anticipating a late-summer ruling that could have cleared up some questions, though it appears the Trump Administration has moved the issue to the backburner in recent weeks. 

That’s a major disappointment to players throughout the supply chain. Producers are hoping for a broad-based ruling that will crackdown on unfairly traded imports, and service centers would like to see some greater clarity in the marketplace. 

Tube imports surged in the middle of the year, with buying done ahead of the anticipated ruling. “The threat of the 232 issue created some confusion, with a surge and then an ebb in the volume of offers. That was predicted, but the overall increase in volume in the first half of the year was more than expected,” says Joseph Anderson, president of the Steel Tube Institute, a trade group which represents the interests of mechanical tubing, conduit and HSS producers. “Now that 232 has been pushed back behind some other ‘less important’ issues, our members are bracing for another surge of imports.”

“We’ve had threats from offshore competitors on Group 1 and 2 DOM tubes,” says Hentrup. “The trade cases going on have had a significant impact, with new inquiries and new opportunities.”

Baroff says the supply picture has changed considerably in the last decade. While the domestic mills are still a reliable source of quality material, the proliferation of foreign offerings has dramatically affected the marketplace. “The traditional suppliers, they’re as good as ever. They just don’t have the pricing power.”

While some segments of the steel pipe and tube business underwent considerable ownership upheaval in 2017, with major players such as Nucor and Zekelman Industries making acquisitions and investments, the domestic mechanical tubing production industry has remained a little more stable. MST recently completed a $45 million expansion, though most of it was targeted toward the company’s non-mechanical tubing markets.

TimkenSteel will commission a new quench and temper facility at its Canton, Ohio, operations in the fourth quarter, which “positions us to serve even more customers, especially those in the oil and gas and industrial markets, with increased capacity and advanced technical capability,” says Tom Moline, TimkenSteel’s executive vice president of commercial operations. 

TimkenSteel also completed a ramp-up in its tubemaking operations in the first half, in anticipation of better conditions.

“As I sit here today and talk to customers and look at new orders, it looks like 2017 should finish pretty strong and hopefully carry right into 2018. We’re pretty optimistic at this point,” Topetzes says.