Oversupply to persist in North America as demand slumps
Prices for welded oil country tubular goods (OCTG) and linepipe weakened further in April nearing historical lows, and there may be room for further pipe price retreat through the second quarter. Supply of ERW OCTG and line pipe is expected to continue to outpace demand for the rest of the year and well into 2021 in the United States despite mill closures as demand is on a downward slide. Rigs counts could fall to the lowest level in decades in the coming month as energy prices remain far below break-even.
Moreover, the delay and cancellation of pipeline projects will have a profound effect on large-diameter linepipe; Fastmarkets research identified pipeline projects which are potentially at risk of delay or cancellation. These projects account for more than 11,000 km and an estimated 2.5 million tonnes of pipe supply.
EU mills reluctant to discount
Some LSAW mills are holding their prices high in the European Union because they have limited availability and some baseline orders that keep them running. Mills will try to hold prices at elevated levels until buying interest resumes, but we expect transaction prices will be well below pre-crisis levels.
Capex in high-cost North Sea fields will be slashed unless absolutely necessary, while other EU energy producers will also pull back investment. Linepipe demand will reflect maintenance and already-confirmed projects rather than new ones.
Asian prices remain under pressure
Chinese domestic tenders picked up in April but pricing may continue to struggle in the country in the second half of the year even as demand should pick up driven by the government’s stimulus program. Export orders dropped for energy tubular products in the global market and excess capacity will continue to chase business.
Japanese and Indian mills are also likely to drop tubular prices to production cost levels in the second half of the year to secure the few remaining large international orders.
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