Forecasts and market analysis based on price assessments from Fastmarkets MB and Fastmarkets AMM

Change font size:   

November 2013 | Seamless Steel Tube & Pipe

Competitive Chinese exports prevent price increases in the Middle East API OCTG market: Europe, Middle East and Africa Market Analysis

  • Competitive priced OCTG from China entering the MENA market
  • MENA OCTG demand healthy and expected to strengthen into 2014 in Saudi
  • European economic recovery stimulating demand for industrial seamless into 2014
Your comment has been submitted and will appear once approved by the editor.

Thank you.
Your email has been sent. Thank you.

Go to the homepage.
Email article

All fields are compulsory

  • Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Email the editor

All fields are compulsory

Add Your Comment

All comments are subject to editorial review

Comments There are currently no comments to display for this article.

Market Outlook

Underlying demand in MENA for seamless OCTG remains strong, but competitively priced Chinese imports are placing pricing pressure on the standard API grades in the market. Competitive price offers of premium connections, also from China, into the region and the rising acceptance of them by local NOC’s could create pressure in the MENA premium market moving into 2014. Demand though is expected to strengthen into 2014 as countries like Saudi Arabia look to increase their drilling activity. The European market appears to be showing signs across the board of economic recovery leading to a more positive outlook for mechanical and precision seamless producers here into 2014.
Aggressive pricing from the Chinese market continues to prevent price increases for seamless OCTG in the MENA markets this month. Standard casing sizes in the region such as 7” and 9 5/8” OD in the J or K55 grade are arriving into Jebel Ali, UAE at around $900/tonne cfr. For higher grades such as L80 in the same diameter, prices are around $980/tonne cfr. Larger OD’s such as 18 5/8” OD casing is arriving in the region at $1,200-1,300/tonne cfr. Looking to the OCTG tubing market at a 4 ½” OD for API grades from China in the J/K, to P110 grades, are in the price range of $900-1,200/tonne cfr Jebel Ali.

...and start to create pressure in the premium connection market
The Chinese mills are also understood to be starting to cause price pressure in the premium connection market in MENA. This market has always historically been the domain of leading international producers such as Vallourec, Tenaris and Sumitomo. However, leading Chinese mills are now offering API grades of OCTG such as N80 or L80, quench and tempered with a premium connection that offers 60% compression, metal to metal seal connection at $1,400-1,500/tonne cfr into markets such as Kuwait. To place this into context, Japanese OCTG of the same grade also with Japanese manufactured premium connections are currently understood to be offered into the Middle East market at $1,950 – 2,200/tonne cfr. The Japanese premium connections are though widely accepted by nearly all of the major National Oil Companies (NOC) end-users in the Middle East market.

Seamless line pipe in the MENA region this month for grades such as API 5L b/X42 are around $1,045/tonne cfr with API 5L X65 currently around $1,200/tonne cfr.

Imports of seamless OCTG into MENA from selected countries (kt)

Western European seamless mechanical and boiler prices (€/tonne)

Saudi demand for OCTG strong and expected to grow into 2014...
Demand for OCTG remains stable across the region, Saudi Arabia, the key GCC market is showing healthy demand for OCTG currently, and this is expected to increase into 2014. The country’s NOC, Saudi Aramco is expected to increase its rig count to over 200 rigs in 2014 from a current figure of around 160. The increased rig number is intended to be used to look for unconventional gas, while increasing oil drilling to help keep its spare production capacity at comfortable levels. This increased rig count activity should stimulate an increased demand for OCTG. This will benefit local producers moving into 2014. JESCO is the only local seamless pipe mill within the GCC region, however we understand that ArcelorMittal is also expected to join other local seamless pipe mill JESCO in supplying OCTG into the local market in 2014. Cold drawing of pipes has been undertaken at the new site but hot-end producing is yet to commence.

...with Qatar also offering potential if offshore moratorium lifted
A number of market participants are also keeping their eyes on Qatar moving into 2014. Qatar is home to the North Field, the world’s largest non-associated natural gas field that sits in both Qatar’s and Iran’s maritime territories and this field almost singlehandedly give’s Qatar the third largest gas reserves in the world behind Russia and Iran. In 2005, Qatari government officials placed a moratorium on additional natural gas development projects at the North Field to allow time to study field development optimisation. The moratorium did not affect exploration and production projects already approved or underway. This moratorium was scheduled to be lifted in 2014 although some confusion exists with regards to the Energy Ministry’s actual plans in the country. If the moratorium was lifted, however, it is feasible that a pick-up could occur in offshore drilling for gas in the country, driving up the requirement for proprietary grades and premium connections of OCTG.

MENA a hot-spot for Vallourec’s Q3 results...
Europe’s leading seamless OCTG manufacturer, Vallourec, has identified the Middle East market, along with the Brazilian market as being one of the key reasons that its Q3 earnings have increased by 15% year-on-year. The oil and gas industry accounted for 67% of, Paris based, Vallourec’s EBITDA of €240 ($323 million) for Q3 sales.

...although the European market itself sees a decline in importance for the French producer
The European market itself accounted for just 19% of Vallourec’s revenues for the first nine mounts of 2013 down from 22% over the same period in 2012. This amounted to €758 million ($1.02 billion) down by 13.5% year-on-year from €876 million ($1.18 billion) over the corresponding previous year. Vallourec cited a poor performing industrial sector with little sign of recovery as the reason for the declining performance in this part of the world.

Economic recovery, however, underway in Europe could see demand increase into 2014
There are positive signs though that this trend could change. There is renewed optimism that the Eurozone may have pulled itself out of a deflationary spiral, with industrial production rising by a seasonally adjusted 1% month-on-month in August. This followed a 1% contraction during July. However, capital goods were at the forefront of this growth (up 1.4% m-o-m), with durable consumer goods weak (down 0.9%). Total output declined by 2.1% year-on-year.

Consumers are buying into the recovery narrative, with the European Commission’s Consumer Confidence Indicator for the Eurozone rising for the 11th consecutive month during September, bringing it close to its long-term average. Retail sales are also showing signs of stabilisation, while new car registrations – a key end-use market for seamless mechanical and precision tube - in Europe rose by 5.4% y-o-y, to 1.19 million vehicles, during September, with double-digit growth recorded in Greece, Portugal, Ireland and the UK.

Positively as well, Germany – the leading producer in Europe for seamless precision tube – saw its Ifo Business Climate Index for industry and trade increase for the fifth consecutive month during September (albeit marginally – from 107.6 in August to 107.7), with expectations at their highest level since February 2011.

Click here to view MBR's European seamless production and trade data ('000 tonnes)