IPD Commodity © Reports Prepared for the members of ASA’s Industrial Piping Division
© 2017, 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.
1Q17
CARBON STEEL Domestic Pipe
About this Report Published by the American Supply Association (ASA) and distributed in February and August exclusively to members of the association’s Industrial Piping Division (IPD), this report provides comprehensive insight and leading information compiled from primary sources by knowledgeable industry leaders. It contains the most current and qualified market data for more than a half-dozen commodities, including recent and anticipated changes in pricing or price-influencing action(s) as well as factors affecting supply and demand, etc. LEARN MORE (630) 467-0000 | info@asa.net | AdvanceYourAbility.com
After seeing increases in domestic steel pipe, we seem to have reached a period of flattening. As the demand for domestic tubing increases, expect deliveries for small diameter welded pipe to stretch out. Domestic seamless, 2.0” thru 6.0”, is also experiencing longer lead times due to strong demand and lack of inventories. We could see upward pressure on the domestic market in 2Q17, depending on the rulings for various trade cases on import OCTG and line pipe from Korea and other manufacturers. Rulings on these cases have been postponed until March. As with everything in the PVF industry, the energy sector will have a large effect on pricing. In January, the U.S. Energy Information Administration (EIA) released its outlook for 2017 and 2018, which included WTI and Brent crude pricing along with production forecasts. U.S. crude oil production averaged an estimated 8.9 million barrels per day in 2016. According to one forecast, U.S crude oil production is expected to average 9.0 million barrels per day in 2017 and 9.5 million barrels per day in 2018. The analysts stated the forecast increases largely reflect federal offshore production in the Gulf of Mexico along with rising tight oil production. Also, with the president signing executive orders to revive the Dakota and Keystone pipeline projects, it appears these projects are moving forward and will create additional demands on transmission line infrastructure. Import Pipe Similar to the domestic market, the sharp upward pricing on import steel pipe has slowed. It’s reasonable to expect a softening in pricing starting in 2Q17 due to HRC being hedged through 1Q17 and price decreases for coking coal and iron ore.
©
2017, 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. 2
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It’s also reasonable to expect shortages on 2.0” thru 8.0” pipe due to strong import tube demand, and most mills have switched from standard and line pipe. Weld Fittings & Flanges Market conditions have begun to improve. President Trump is pushing an agenda that is favorable to business and growth. The Dakota and Keystone pipeline projects have been given approval to move forward, and it’s expected work on these pipelines will lead to additional projects requiring carbon steel weld fittings and flanges. © 2017 American Supply Association. All Rights Reserved.
Recent price increases on carbon steel flanges have averaged 10.0 percent. Carbon butt weld fittings have increased 5.0 - 15.0 percent. Forecasts are mixed on future prices as the impact of the anti-dumping case brought by Weldbend and Boltex reaches the marketplace. The Baker Hughes Rotary Rig Count on February 10, 2017, reflects the year over year improvement in operating rigs. The rig count in North America is 1,093 oil and gas rigs compared to 763 at the same time in 2016. Oil rigs stand at 798 versus 557 a year ago, and gas rigs are 294 versus 206 in 2016. At the time of this writing, WTI crude is $53.20 per barrel and is forecast at one year out to be $61.00 per barrel. Natural gas, as priced at the Henry Hub, is $2.91 per Dekatherm versus $3.48 per Dekatherm in February, 2016. A mild winter in the U.S. has lowered demand and impacted current pricing. Forged Steel Fittings The outlook for 1Q2017 remains flat. Pricing has been stable for an extended period of time, and there is a sufficient supply of both import and domestic fittings in the market. Import lead times are favorable and consistent, lending to strong supply. There is more stability and activity in the oil field; however, not enough to affect pricing. Other key markets, like the industrial segment, are gaining momentum but have not hit historic levels. Both manufacturers and distributors are competing for a smaller piece of available market share creating very competitive conditions.
STAINLESS STEEL PIPE, FITTINGS & FLANGES The closing weeks of 2016 have proven to be the beginning of a steady trend regarding demand for stainless steel PVF. Following an often dismal and erratic year, December’s rebound offered signs of hope as the industry prepared to enter the fog of uncertainty surrounding 2017. Cautious optimism is moving closer towards confidence as inventory levels tighten to the point of limited shortages. Fueled by expectations of continued, gradual growth in 2017, mills, master distributors and manufacturers are responding to increased demand. The final quarter of 2016 witnessed pricing stability while also marking the beginning of gradual price increases. Significant increases associated with the cost of raw materials will continue to drive market pricing in a positive direction. Since it’s low in October, 2016, chromium has demanded a greater than 70.0 percent increase. Molybdenum began to see increases in April, 2016, and following a year of continuous pricing adjustments, it ultimately stabilized around 30.0 percent in the positive entering 2017. Stainless steel’s most significant pricing variable, nickel, continues to fluctuate as international environmental and political concerns inject 3
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uncertainty into both short- and long-term forecasts. The Indonesian decision to reverse the ore ban stalled nickel’s rally. The announcement on January 12th drove over-supply concerns resulting in a four-month low. February surcharges were lower than January’s in spite of a gradual recovery following the decision. March surcharges will be the key indicator for determining near-term forecasts. Filipino mine closures are expected to continue throughout 2017. The Philippines currently supplies 8.0 percent of the world’s nickel. Experts predict that the reduction in supply attributed to mine closures will outweigh any potential increase realized from Indonesian exports. Long-term indicators include Chinese demand experiencing low port inventory and tightening first quarter supply levels. Some economists predict Chinese demand could increase by as much as 20.0 percent in 2017. Additional macro indicators effecting price advancements for nickel continue to be the strength of the dollar, interest rate hikes and oil price stability. Outlook for Some Key Stainless Steel Products Pipe Surcharges have fallen recently due to lower nickel prices despite higher prices in other base metals. First quarter domestic prices are affected in relation to the decline in surcharge. Bristol Metals has entered into an agreement to purchase the stainless pipe and tube assets of Marcegaglia USA. This could result in more firm domestic prices in the future. The transaction is expected to close March 1, 2017. Import prices have stabilized higher in the wake of antidumping duties leveled on Taiwan, India and Korea. Supply is consistent with no anticipated shortages. 150LB. Fittings Fitting prices are stable. Slight increases may be on the horizon as scrap prices continue to strengthen. Lead times should continue to be stock to two weeks. No shortages are indicated. ANSI Flanges Stainless import ANSI flanges are stable and continued to see adequate supplies to the market. The expectation is for pricing to remain stable for the current timeframe. Butt-Weld Fittings Butt-weld products are expected to continue to see flat to moderate demand in the current period. Market pricing has been stable, but higher replacement costs may be indicated with the direction of pipe pricing Overseas suppliers have provided adequate, steady production and continue to provide consistent and predictable lead times. © 2017 American Supply Association. All Rights Reserved.
3000LB. Fittings Increased oil prices and maintenance on downstream petrochemical production may indicate higher prices in the first half of 2017. Presently, supplies continue to be readily available with stable pricing.
COPPER TUBE & FITTINGS Copper’s volatility with an upwards trend has continued into 2017, gaining momentum after gradual increases in 4Q16. A resurgence in energy as well as labor unrest at Chile’s Escondida copper mine helped support a surge in early February. Traders are tending to support current values, although the copper futures market is not convinced of the strength of behind the resurgence. Copper looks to follow other commodity markets in an unsettled world economy. China remains the world’s largest red metal consumer, and this, too, supports continued price increases in the months and years ahead.
PLASTICS, RESINS & HDPE PVC As we approach spring, 2017, increases in PVC pricing this year appear more likely. In January, CPVC pipe had a modest increase around 5.0 percent and seems to be holding. This is the first increase to CPVC since 2014. A variety of sources are anticipating increases to PVC base resin prices of around 5.0 percent in February and another 5.0 percent in March. Attempts to increase pipe prices on schedule 40, earlier this year struggled to take hold. As demand appears to be increasing this spring, the likelihood of an increase holding now seems more likely. The increases in resin prices along with the potential for increased demand have caused most PVC manufacturers to announce an increase in March. There is always a possibility that increases in oil and natural gas prices could drive resin prices higher as well. HDPE The HDPE resin market has been rising steadily since January, 4
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and the trend is anticipated to continue for the foreseeable future. HDPE pipe has risen eleven cents per pound in the past six weeks with another nickel increase expected the first of March. Overall, activity has picked up and production lines are full with new orders running four weeks out – twelve weeks out for larger sizes. In attempts to get ahead of the next price increase, manufacturers are receiving sizeable stock orders to go along with large projects, which means deliveries are being pushed out further.
VALVES According to R. W. Baird’s Industrial Review both quotation and order activity improved in 4Q16. This was buoyed by a consistently better business sentiment as election uncertainty faded, and Trump optimism soared. With 94.0 percent of the quarterly Baird survey respondents predicting positive growth for 2017, the level of optimism is at historic levels and mirrors a newfound investor confidence, which is expecting a resurgence of growth under Trump’s pro-business presidency. Along with the positive mindset of the survey respondents, it would be remissive not to note that the cost of raw materials, such as copper, nickel and iron, have all increased over 20.0 percent since the fall, 2016. Steel is settling in showing over 10.0 percent increases in the same time period. Manufacturers will be looking to recover these material cost as a percent of sales. Price increases have already hit the market and are beginning to take hold. The quick rise in raw materials necessitated an immediate, strong reaction to offset the additional production costs. It would seem the prognosticators are taking a “wait and see” approach to the global marketplace as markets remain challenged both economically and politically. Oil and Gas Although, this market appears to be recovering, it is haunted by the volatility of the price of oil. The quarterly Baird survey cited this market as the most likely to “improve and erode.” Chemical As the next round of projects appears likely to proceed this year, the chemical market remains stable and positive for 2017. General Industrial These markets are by no means booming, but they are holding steady. Respondents to the most recent quarterly Baird survey indicate the outlook is improving. Commercial Construction Strong pockets remain across the country with work in all sectors. Health care, education and hospitality are leading © 2017 American Supply Association. All Rights Reserved.
the march as all push forward following a very strong 2016. Additional planning is expected based on the Trump Administration’s plans to review tax codes and create more incentives. Power There is still a fair amount of activity in the combined cycle area of this market, but increased demand and additional gas pipeline construction is required before returning to a really robust power market. Municipal Water Infrastructure With Trump’s commitment to infrastructure repair and improvement, there is already an uptick in activity in this area, which is critically needed and thought to continue for the duration of Republican control inside the beltway.
GROOVED PRODUCT The education market is showing growth due to both population movement and growth. The commercial market is seeing some large projects in design with a few of those projects entering construction in 2Q17. The industrial market is trending upwards in the food and beverage, power, manufacturing and large government segments. The oil and gas market continues to be flat, but rig counts are on the rise in certain plays across the U.S. This is due to refined drilling procedures and a lower cost to produce oil, which has certain participants in this sector optimistic. Although with oil inventories continuing to be elevated, the uptick in drilling may potentially dampen. Keen eyes are monitoring rising raw material prices, which may lead to an eventual price increase. Also worth noting, as contractors continue to face an aging work force without appropriate backfill from the younger generation, they continue to trend more receptively to grooved systems.
MALLEABLE IRON FITTINGS Domestic Demand and capacity remain steady, but some observers already see a steady shift in more end users requesting domestic product. The fall price increase has settled firmly in place with rising healthcare and labor costs being the primary drivers. Continue to monitor rising prices for scrap. Import Rising raw material prices have prompted an industry-wide 10.0 percent price increase slated for March. 5
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© 2017 American Supply Association. All Rights Reserved.