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Industry outlook: Challenges for the steel tubes and flanges industry
Large-diametre pipe production is exposed to fierce international competition
Challenges for the steel tube and flange industry
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Frank Harms, managing director of the German steel tubes federation Wirtschaftsvereinigung Stahlrohre and flanges federation Fachvereinigung Stahlflanschen, comments ...
AUTHOR: Frank Harms, WV Stahlrohre
CONTACT: Tel: +49 211 / 4564 - 130, Email: frank.harms@wv-stahlrohre.de
The year 2019 as a whole developed weaker than expected. Raw material price trends did not prove to be a strong base throughout the year. Iron ore prices rose quite significantly until the middle of the year but fell sharply again by the end of the year. Prices for coking coal and steel scrap were even weaker, with the world markets mainly going downhill over the course of the year. The valuations of the main alloying elements for stainless steels on the London Metal Exchange were particularly volatile and went through a rollercoaster ride. Nickel prices on the LME, for example, were below €10 per kg in January, rose to €16 per kg by Frank Harms
September and fluctuated around €12 per kg at the end of the year. Such developments cannot be planned. Price formation on the global market happens and is influenced by economic and trade policy factors.
... on the investment climate in oil & gas
Over the year, crude oil prices hovered around the $55/barrel mark, with relatively minor fluctuations compared to previous years. Extremely low oil prices, such as at the beginning of 2016, lead to a reluctance to invest on the part of the energy industry. Back then, this resulted in lower exploration and drilling activities, particularly in the fracking industry in North America, with correspondingly weak demand for steel tubes and flanges. However, the efficiency of the fracking industry in North America has inSources: WV Stahlrohre
creased significantly since then, so that the current price level has resulted in a relatively stable demand from the oil and gas industry.
... on energy costs in Germany In Germany, the energy price development has hardly been able to relieve the industry. According to surveys by the Federal Statistical Office, the electricity price moved downwards in 2019, with the VIK base index falling to 170 points, but this must be seen against the background that this index was still well below 120 points at the beginning of 2016 and peaked at 190 points in 2018. Compared to the rest of Europe, German industry has to cope with disproportionately high energy prices, which have only been partially offset by compensation payments such as the electricity price compensation.
... on the pricing of tubes There have been some advantages for manufacturers on the cost side, but the markets are now so transparent that such developments are often promptly implemented on the sales side as well, at least in day-to-day business. With market dynamics slowing, the worldwide overcapacities were also clearly noticeable in the pricing in 2019. As usual, this development was dampened by medium and long-term contracts. The presentation of market prices published by the Federal Statistical Office clearly shows that the price trend for seamless steel tubes, in particular, was downward last year, especially given the development of input materials, energy and personnel costs in recent years. The extent to which the market is challenging manufacturers in this respect was made clear by press reports of short-time work and even plant shutdowns.
In addition to the rather burdensome factors on the purchasing side, trade policy uncertainties and an economic slowdown meant that demand, which was quite dynamic at the beginning of the year, weakened over the year. Also, major projects were cancelled or delayed, resulting in significant cuts in the pipeline business, for example, especially compared to the strong previous year.
....on shifts in global tubes production Worldwide, not much has changed in terms of market supply. In 2019, the production of steel tubes was almost unchanged at 173 million tonnes, and the share of seamless steel tubes also remained almost unchanged at 25%. The expansion of infrastructures and the growing industrial demand in emerging markets generated a further increase in demand, but from the perspective of our industry, this was particularly true for products that can hardly be manufactured at internationally competitive costs, especially in Germany. The steel tube industry was generally characterised by fierce international competition. This was felt by the manufacturers of seamless steel tubes and welded line pipes as well as the large-diameter pipe industry. Manufacturers of precision steel tubes were still able to keep their production volumes comparatively stable, but also recorded sales losses, particularly due to a restrained development in demand from the automotive industry.
German manufacturers in both sectors are concentrating their production more and more on high-quality products with such high added value that the costs incurred here for energy, environmental regulations and personnel can be covered. Overall, both industries felt that former target markets in third
countries were increasingly self-sufficient, and they are now competitors on the world market. The trade war between the USA and China has further dampened demand.
The development of the steel tube and flange industry will continue to be influenced by global economic trends and, in particular, by developments on the raw material markets, especially in the oil and gas sector. Should there be a slowdown in the global economic development, e.g. due to a significant deterioration of the situation in China in connection with the coronavirus, our industry will also feel the effects of this, at least in the short term. However, we do not anticipate any longer-term distortions. Despite trade policy uncertainties, the global economy should remain on a moderate growth course, from which Germany, as an exporting country, will continue to benefit. The Chinese economy will also continue to grow moderately.
The overcapacities existing worldwide, especially in the steel tube industry, continue to lead to structural changes. Capacity reductions have already been implemented in the EU, and more are foreseeable. In China, overcapacities are expected to persist. Market mechanisms cannot have a regulatory effect there due to the still-dominant influence of the state.
In the current year, the guidelines to compensate for the higher energy costs for energy-intensive companies in Europe due to CO 2 emissions trading will be revised. If the current compensation regulations are curtailed, there is a risk of a loss of competitiveness, particularly in Germany, due to the high energy prices. Politicians have, however, recognised this and are endeavouring to ensure that fair competition is maintained.
About the German Steel Tube Association The German Steel Tube Association (Wirtschaftsvereinigung Stahlrohre e.V.) represents the interests of the German steel tube industry. International interests are covered by the membership of the European Steel Tube Association (ESTA), the European umbrella organisation of the steel tube industry. Chairman of the Executive Board of The German Steel Tube Association is Dr Dirk Bissel, Vallourec Deutschland GmbH. Managing Director of the association is Frank Harms. German steel tube manufacturers are strong on the world markets with seamless hot-rolled steel tubes, „small“ welded steel tubes up to 16“ outside diameter, welded large-diameter tubes with outside diameters above 406.4 mm as well as seamless and welded precision steel tubes.
Bangkok Airport – 40,000 tonnes of structural steel hollow sections supplied by Vallourec give the roof and the supporting structure of the terminal building its futuristic style and the necessary strength and stability
Dirk Bissel is the CEO of the German operations of Vallourec, a French-based manufacturer of seamless Tubes with production sites in various parts of the world. He is also the chairman of the executive board of Germany’s steel tube association. MPT has received some insightful views from Mr Bissel, on the state of the larger industry, and especially on energy issues.
MPT International: What tubes products does your company specialize in, and what makes it outstanding in this field? Dirk Bissel: Vallourec provides benchmark tubular solutions for the energy sectors and for other applications, including some of the most demanding: from oil and gas wells in extreme conditions to next-generation power plants to daring architectural projects and extremely high-performing mechanical equipment. Adapted to the challenges of the 21st century, our comprehensive, innovative solutions are designed for three main markets: oil and gas, low-carbon energy, and industry.
MPT International: Which noteworthy shifts do you see for tubes demand, both in terms applications/markets. What is “in”?
Dirk Bissel: Intelligent digital services and of course tubular solutions which support the global energy transition. Our industry is running through a huge digital transformation. Our Vallourec. smart service offering is supported by advanced innovative digital solutions to optimize our customer’s operations and save time and money. Vallourec’s “Smartengo Best Fit” for example is a Source: nhungboon / Shutterstock.com
Groupe Vallourec
• In 2019, Vallourec achieved a full-year revenue of €4,173 million, up 6% year-on-year (+5% at constant exchange rates), driven by ist activities in oil & gas notably in Asia and the Middle East • Its EBITDA more than doubled at €347 million versus €150 million in 2018 • Its net debt broadly stable at € 2,031 million as of December 31 st 2019 versus €1,999 million as of January 1st 2019. • The group reports progress on its transformation plan: the initial target of €200 million gross costs savings over 2019-2020 is to be over-achieved, with gross savings of €141 million in 2019 • For its German operations, it decided to close the Reisholz Powergen plant in Düsseldorf in H2 2020.
new digital solution for traceability, fit-up and pipeline construction.
A perfect example for a green solution development is our Cleanwell technology – an intelligent solution that make our customer’s business cleaner and therewith “greener”. Cleanwell is a non-polluting coating applied in the mill to threaded connections replacing both storage and running compounds. Delivered “rig-ready”, means reduced handling operations, both in the yard and on the rig. It ensures rapid and safe running in challenging operations, provides excellent sealability and improved protection against galling and corrosion. The result: an environmentally friendly solution that leads to lower operating costs.
MPT International: The EU’s Green Deal to reduce CO 2 is a hot topic for steelmaking mills. Is it also for the pipemakers? Dirk Bissel: The drastic reduction of CO 2 emissions in steel production and further processing into steel tubes can
MPT International / March 2020 Dirk Bissel
The goal must be a process that avoids competition for green energy between different sectors.
be seen as an opportunity and at the same time as a massive risk. Opportunities arise from the innovative strength of the industry and the claim to international technological leadership in newly developed and industrialized processes. This would not only make a strong contribution to securing long-term competitiveness, but also create new jobs in a very promising environmental protection industry. The risks lie in an uncoordinated approach, driven by regulations that prevent strategic and targeted action. The goal must be to define and implement a long-term transformation process that avoids counterproductive competition for green energy between different sectors (automotive, chemicals, steel etc.) and emphasizes synergies.
MPT International: Would the Green Deal involve a change of costs /subsidies for electricity consumption at company like yours? Dirk Bissel: Both the production and further processing of steel is extremely energy-intensive for technological reasons. Access to electricity and gas at competitive conditions is consequently existential! Regulations that enable pipe manufacturers to be exempted from the increased costs of renewable energy maintain competition and safeguard their existence. Such regulations must be unambiguous and resilient in order to be able to calculate their effects transparently in cost accounting.
