MRC Global InSight

Line Pipe

There are several dynamics affecting carbon steel line pipe in the U.S. and causing a departure of traditional metrics. To get a clear picture of the trends in this product group, it is helpful to separate into four distinct categories - seamless, welded less than 16”, welded 16” to 24” and welded greater than 24”.

After a period of increasing pricing during the first half of 2018 due to Section 232 tariffs, prices for seamless pipe have softened. There is currently an excess of inventory on the market, due to the large number of drilled and uncompleted wells (DUC). This is especially true in the Permian Basin in West Texas where the number of DUC wells has risen to above 4,000. This has caused a decrease in capacity utilization at the seamless pipe mills and the softening of prices. We anticipate that pricing will stay flat for the first half of 2019 with a slight increase in the second half due to the increase in takeaway pipeline capacity that is under construction now.

Small diameter welded pipe is experiencing a similar dynamic for many of the same reasons. The decrease in the price of hot rolled coil (HRC), which is the core material used to produce high frequency welded (HFW) pipe, has impacted supply. HRC saw increases over 50% early last year due to the Section 232 tariffs, only to fall back to more traditional levels in Q4 2018. These two dynamics have put pressure on manufacturers, and we have seen a shortening of lead times and a general decrease in prices as a result.

This is where the market starts to diverge. Due to the large number of pipelines being constructed in the Permian Basin and the relative lack of capacity for 16” to 24” pipe, this segment has stayed strong, and prices have remained flat, despite the decreases in HRC pricing. We anticipate this will continue through the balance of 2019 and into 2020. The anti-dumping/countervailing duty investigation into six countries producing large diameter pipe, discussed in detail in our last edition of InSight, has added to the pressure.

Finally, the sector that is most robust – greater than 24” spiral (SAWH) and straight seam (SAWL) pipe. This segment is very robust, and demand is the highest it has been in a decade. Some mills are currently quoting lead times of 52 weeks, and there appears no threat of a slow down on the horizon. U.S. capacity is being fully utilized. This has allowed prices to stay strong even with the decrease in HRC input costs (SAWH). Adding to the strength in prices is the multi-year high cost of plate, the largest input cost for SAWL. The proposed build out of major transmission lines will make sure demand remains strong through 2019 and 2020.

MRC Global continues to invest in inventory, and we remain bullish in general. We have balanced our on-hand tonnage over last half of 2018 and are well-positioned to meet the needs of our customers during this volatile time.