As oil price stumbles, outlook for welded markets weakens
In February, oil prices, already hit by the economic slowdown in Asia, turned lower on the failure of OPEC+ to reach an agreement on production cuts. This was enough to shake oil markets, but the collapse of global demand due to the pandemic has driven Brent below $30/bbl and WTI to test the lower bounds of $20/bbl. Projections for the year are continually revised lower. ERW linepipe and OCTG demand took an immediate hit in the US. Large-diameter linepipe demand, normally buffered by the volatility of the energy markets by projects with longer-time horizons, is also feeling the effects across the regional markets. In the short term, linepipe construction projects are being delayed. Some have only stopped work and will be resumed while others’ return is more indefinite. Nevertheless, pipe deliveries are on hold as well. New projects will be postponed, or potentially cancelled. That will leave linepipe – as well as API plate and coil – demand at very low levels in the second half of 2020 as existing projects are completed.
Meanwhile, China returns to work
After seeing the peak of the virus pass in China, most Chinese pipe mills restarted operations in March and according to government data, utilisation rates at these plants are now back over 80%. Inventories remain elevated and producers are trying to push through higher prices on the increase in coil prices. They are having little success, however, given the available stocks and competition in the export market from other Asian suppliers.
How far will prices recede?
The bulk of the weakness in prices has yet to be felt as a result of limited sales activity and sustained substrate prices in March. Strong competition in the international markets will bring about steep discounts sooner rather than later. The outlook for prices depends to some extent on how aggressively output is cut. Any build in inventory will lengthen the downturn and depress any price recovery.
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