IPD Commodity Reports 3Q2018

IPD Commodity © Reports Prepared for the members of ASA’s Industrial Piping Division

© 2018, American Supply Association. All rights reserved.

The IPD Commodity Reports© are published as a member service of the American Supply Association’s (ASA) Industrial Piping Division (IPD). Its contents are solely for informational purposes and any use thereof or reliance thereon is at the sole and independent discretion and responsibility of the reader. While the information contained in this report is believed to be accurate as of the date of publication, ASA, IPD, and the authors disclaim any and all warranties, express or implied, as to its accuracy and completeness.

3Q18

The American Supply Association (ASA) and its Industrial Piping Division (IPD) is the national organization serving wholesaler-distributors and their suppliers in the industrial and mechanical pipe-valve-fitting industry. As a powerful alliance of channel partners, we provide a forum for your upstream trading partners to exchange critical information and address key issues.

In particular, ASA’s IPD members constantly check the pulse of the materials and commodities they proudly supply to you. ASA’s IPD members are knowledgeable industry leaders, and those who volunteer their service on the IPD Executive Council compile and prepare the IPD Commodity Reports. The Reports contain some of the most current and qualified market data and information available from the industry’s leading manufacturers and distributors about emerging trends and other price-influencing actions and events.

This information is an example of how ASA’s IPD manufacturer and distributor members are constantly looking ahead to ensure you have information and resources you need to be successful. Learn more at www.asa.net.

CARBON STEEL The carbon steel pipe market appears to have fully adjusted to the impact of Section 232 tariffs. The quota placed on Korean imports should keep them from being competitive once their pricing is released by the end of August. We expect pricing to remain elevated and business to remain brisk to strong.

CARBON STEEL FITTINGS & FLANGES Fittings and Flanges 3rd Quarter 2018 Inventory levels and availability for A105 BW Fittings and Flanges remain good. Activity has remained steady even amid issues that include tariffs, dumping suits and uncertainty for future projects. Many people are reporting that projects have remained on a track to move forward even with the additional costs of products over the last 2 quarters. The most recent risk of doubling of tariffs on steel from Turkey has caused new concerns. The market for A105 BW Fittings and Flanges has been impacted by the lawsuits for dumping and countervailing that were filed last year by several U.S. producers. There are no reports of imminent price increases above current levels. If more projects move forward there could be some additional demand on supplies.

Most of the upstream activity has been driven by increased activity in the Permian Basin. According to the Baker Hughes Rig Count for 08/10/18, North American Rig Counts are up 97 compared to August 2017. 95% of these are oil rigs with the Permian Basin accounting for nearly all of the increase. The two areas specifically are Texas, up 14% to 522 rigs and New Mexico up 75% to 107.

WTI Crude Oil prices as of 08/15/18 posted on oilproces.com are at $65.33 per barrel compared to $46.78 one year ago.

Natural Gas prices on the Henry Hub Listing are at $2.96 per Dekatherm for 08/15/18 compared to $2.89 a year ago.

STAINLESS STEEL PIPE, FITTINGS & FLANGES

Copyright, 2018, American Supply Association. All rights reserved.

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The IPD Commodity Reports are published as a member service of the American Supply Association’s Industrial Piping Division. Its contents are solely for informational purposes and any use thereof or reliance thereon is at the sole and independent discretion and responsibility of the reader. While the information contained in this report is believed to be accurate as of the date of publication, ASA, IPD, and the authors disclaim any and all warranties, express or implied, as to its accuracy and completeness.

Political Influences The PVF industry continues to seek smooth travel amidst the ever-present turbulence created by the political, economic, and environmental influences affecting stainless steel and its base materials.

Uncertainty continues to loom as a global tariff, counter tariff chess match shifts the pendulum of short and long-term expectations. All facets of stainless steel production are affected from stockpiles of ore to the supply finished goods as they await their final valuation ultimately determined by international trade negotiations. End-user confidence and speculation varies depending on “gut feeling” as individuals attempt to predict whether today’s pricing is inflated or the new bottom as prices continue to trend upward.

Environmental Threats on Supply Political instability aside, nickel continues to feel increasing pressure from the global community as its impact on the environment remains a focal point. President Rodrigo Duterte of the Philippines discussed the possibility of ceasing mining operations due to concerns over the potential irreversible environmental impact. A temporary ease of concerns to supply chain disruption followed a recent announcement that 23 of the 27 Philippian mines passed an environmental inspection. Nickel ore has also felt the pressure of environmental review as the Indonesian government temporarily revoked annual permits for four companies. Supply chain disruption lingers as Indonesia continues to become stricter in demanding progress in smelter development. The Chinese government is not ignoring the environmental impact mining and manufacturing has on the environment as demonstrated with a recent crackdown on pollution effectively reducing the usage of nickel pig iron.

Supply & Demand Approximately 2.2 million tons of nickel was sold in 2017. Nearly 2/3 of all nickel produced is absorbed for use by the stainless-steel industry. The global production increase of 9.5% is not the only strain on current supplies. The worldwide initiative to reduce our carbon footprint has increased demand for nickelbased batteries used in electric vehicles. As technology improves and public demand for electric vehicles increases the drain on nickel stockpiles will stress the available supply. LME warehouses have realized a stockpile depletion by approximately 30% in available tonnage year over year. If demand continues at the rate of the current 7-month average, all LME warehouses would exhaust stockpiles by December of 2019.

Pricing Trends & Expectations June marked the beginning of a pricing stall for nickel. As the annual summer slowdown seemed to impact demand, nickel prices began a backward slide through July. While pricing dipped nearly 7% over the course of the summer, core base metals noticed similar results during the same period. Despite the recent slide in nickel pricing the long-term performance has continued to trend upward. The month average continues to hover around $6.13/lb. and the 3-month average is stands at $5.83/lb. When compared to the annual averages dating back to 2015 you can see the reason speculators continue to remain bullish on long-term expectations. Nickel pricing averaged $4.73/lb in 2017, $4.36 in 2016, and $5.37 in 2015. The decline of recent nickel performance has yet to impact stainless steel pricing as surcharges have continued to inch higher supporting a strong upward trend. Analyst suggest buyers should take advantage of the pricing dips while expecting long-term increases in an overall bullish market.

COPPER TUBE & FITTINGS

Currently, copper is sitting at recent lows. The market is mired in fears of the financial crisis in Turkey and worsening trade tension with China. There is a concern that these complications could lead to

Copyright, 2018, American Supply Association. All rights reserved.

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The IPD Commodity Reports are published as a member service of the American Supply Association’s Industrial Piping Division. Its contents are solely for informational purposes and any use thereof or reliance thereon is at the sole and independent discretion and responsibility of the reader. While the information contained in this report is believed to be accurate as of the date of publication, ASA, IPD, and the authors disclaim any and all warranties, express or implied, as to its accuracy and completeness.

weaker global expansion, threatening demand and pricing. The red metal may remain stuck at these levels as uncertainty persists.

PLASTICS, RESINS & HDPE PVC resin prices have been climbing after dropping in the previous months. Demand is strong slightly outpacing production. Pricing appears to be on the rise in the near future with multiple pipe increase letters and a fitting increase announcements. Domestic resin prices are up slightly for the year with transportation costs driving much of the recent increases. Currently sales are outpacing production due to seasonally strong domestic demand. Threats of Tariffs are dampening export and import activity. Any major disruptions in the price of oil and natural gas could continue to be a factor going forward.

VALVES By far the most concerning issue involves the third round of proposed tariffs affecting $200B worth of Chinese products. If implemented, an additional 10% customs duty (possibly being increased to 25%) would be applied to a wide range of common (plumbing, HVAC and Industrial) valve types and components. Dozens of HTS codes are involved. Hearings are scheduled for August 20- 23 and a decision is expected in September 2018. If enacted, these new tariffs could be applied to goods arriving at U.S. ports as early as October 2018.

Commercial Valves A second round of increases in the 5 – 6% range hit the market in the early summer. Those are being implemented currently. Further general increases and not predicted at this point. However, concerns and reactions to the tariff increases and beginning to hit the market. Currently the increases are on check valves only and increases have been announced. There are many more valve types and products associated with our industry included in the tariff codes currently under review by the Office of the United States Trade Representative (USTR). Increases in those tariffs will lead to another round of increases.

GROOVED PRODUCT Demand remains strong particularly in the major Metropolitan markets. Hospitals, schools, and other publicly funded projects fuel a significant part of the growth. An industry wide increase recently occurred in the neighborhood of 6%, which is on top of an earlier 2018 increase. Rising scrap prices were the main driver behind the increases.

Import grooved products may be facing additional tariff action so pricing will remain volatile for the foreseeable future. Plenty of domestic capacity exists to pick any additional demand as a result of tariff action.

MALLEABLE IRON FITTINGS

Copyright, 2018, American Supply Association. All rights reserved.

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The IPD Commodity Reports are published as a member service of the American Supply Association’s Industrial Piping Division. Its contents are solely for informational purposes and any use thereof or reliance thereon is at the sole and independent discretion and responsibility of the reader. While the information contained in this report is believed to be accurate as of the date of publication, ASA, IPD, and the authors disclaim any and all warranties, express or implied, as to its accuracy and completeness.

Import malleable has seen significant increases over the past year and further movement may be on the horizon due to a 301 case review on China, the largest importer of record.

Domestic malleable demand remains steady and the 6% beginning of the year increase has taken hold.

Preference for made in America products continues to be strong as evidenced by increased requests for supporting documentation. Plenty of stateside capacity exist to pick up shifts towards domestic product.

Copyright, 2018, American Supply Association. All rights reserved.

Page 4 of 4

The IPD Commodity Reports are published as a member service of the American Supply Association’s Industrial Piping Division. Its contents are solely for informational purposes and any use thereof or reliance thereon is at the sole and independent discretion and responsibility of the reader. While the information contained in this report is believed to be accurate as of the date of publication, ASA, IPD, and the authors disclaim any and all warranties, express or implied, as to its accuracy and completeness.