Products ranging from oil country tubular goods (OCTG) and line pipe to structural and mechanical tubing would become much more expensive if President Donald Trump implements the quotas and tariffs recommended by Commerce Secretary Wilbur Ross, according to market participants.
In a press release, the American Petroleum Institute (API) said the US oil and gas industry "relies on these global steel imports for the majority of its operations" including production, pipelines, refineries and petrochemical plants.
"To recommend sweeping tariffs around all steel and aluminium imports, in the guise of national security concerns, doesn't make sense for the US economy," Jack Gerard, president and chief executive officer of API, said in the statement. "These tariffs would undoubtedly raise costs for US businesses that rely heavily on steel and aluminium."
The Association of Oil Pipe Lines (AOPL) bluntly stated that US mills "do not make enough pipeline-grade steel" and domestic pipe mills don't want to produce lower-margin goods such as line pipe. Domestic sources are insufficient to supply the necessary volumes of larger-diameter and thick pipe, the AOPL said in a press release. Dura-Bond Industries, Berg Pipe and other domestic producers have countered that argument by pledging to increase investment and utilization if imports are thwarted.
The pipeline group said existing trade restrictions already increased their line pipe costs by 25%. A hypothetical 280-mile pipeline, as a result, is $78 million more expensive. Implementing the Section 232 recommendation would further raise costs and reduce the number of new pipelines.
"We would hate to see American workers lose jobs from steel trade actions that delay or cancel pipeline construction projects," Andy Black, AOPL's president and CEO, said in the statement.
American Metal Market's pricing assessment for US domestic X65 line pipe stands at $1,145-1,220 per ton, fob mill.
In their company's fourth-quarter earnings conference call, Vallourec executives said the Ross recommendation would cause OCTG prices to jump in the United States, inflicting capital-expenditure pain on drillers.
"There would be an immediate shortage," CEO Philippe Crouzet said on Thursday February 22.
Nicolas de Coignac, Vallourec's senior vice president for North America, added that the shortage and higher prices may as a consequence "impair the demand level" as oil and gas companies would simply drill fewer wells.
Commerce's Section 232 report already has disrupted some activity in the structural tubing market, according to a West Coast distributor. Construction-related customers were temporarily unable to order material in some of their inquiries regarding imported hollow structural sections from South Korea.
"The local distributors are all held up because of the question about the Korean supply," that distributor said. "One of the distributors was even not quoting for about three days until they figured out what's going on."
The West Coast distributor believes that "Trump will wait until April" to announce his ultimate decision about the Section 232 action. The statutory deadline for the president to unveil a plan is April 11. That's potentially within the lead times for current orders of South Korean tubing crossing the Pacific Ocean.
"It you can't get it in before April, you're taking a big chance," the West Coast distributor said.
American Metal Market's pricing assessment for US domestic hollow structural sections stands at $960-990 per ton ($48-49.50 per hundredweight), fob mill Midwest.
A distributor who supplies mechanical tubing across North America said the severity of the Section 232 report introduced great uncertainty over the shape of business models for downstream consumers. He said buyers worry that their finished goods will become less competitive.
"My customers are extremely frustrated," that distributor said. "They are all trying to factor in higher steel prices, but they can't plan and they can't be sure about sourcing."